Full figures for pension, health care liabilities left out
The Cayman Islands government
budget woes have been well-documented over the past year as revenues fell in a
tough world economic climate and public spending continued to rise.
One bright spot in government’s
financial statements has been that the net worth for Cayman remained positive –
totalling some $512 million in the 2010/11 budget.
But some information contained in a
2009 bond offering made by the government, which set out the country’s
estimated liabilities for health-care services and civil servant retirement
benefits was not included in the budget plan, the Caymanian Compass has
If included in the spending plan,
those figures would have a major impact on the Cayman Islands government net
worth, dropping it into negative territory of between minus $150 million and
minus $230 million, depending on which calculations were used.
However, senior civil servants
contacted by the Compass for this story have stated that government is not
legally required to factor in calculations for health-care liabilities, or for
the most current pension plan liabilities.
“The country is not, nor is the
government, bankrupt because of these figures,” one senior civil servant said,
speaking on condition of anonymity. “The Cayman Islands should be commended for
their disclosure of these matters.
“Other countries have the same
issues of deficiencies in pensions and health- care benefits, but they choose
not to disclose them in their national government’s financial statements.
However, they do exist.”
The government’s 2010/11 budget
does recognise that Cayman has a serious pension liability – which means the
amount of assets it has in the system are less than what government is expected
to have to pay over a rolling 20-year period to make good on monthly pensions
for retired government workers.
The figure for that unfunded
liability is just under $179 million in the budget. However, the estimates used
to get to that figure were taken from a 2005 evaluation of the Public Service
An evaluation done in 2008, which
put the unfunded liability figure at US$248.4 million (CI$204 million, using an
0.82 conversion rate, US dollars to KYD), has not been presented to Cabinet
members and therefore cannot legitimately be included in the 2010/11 budget.
The presentation to Cabinet is
expected to be done shortly, according to the senior civil servant who spoke to
There was another estimate on
pension liabilities, presented as part of the 2009 bond offering, that put the
unfunded liability in Cayman’s three Public Service Pension funds at US$324.8
million (CI$266 million).
If the CI$266 million figure was
used, instead of the $179 million in the budget, Cayman’s net worth would sink
by $87 million. It would still be well into positive territory, without any
totals for estimated health-care liabilities being used.
Moreover, the senior civil servant
pointed out that the unfunded pension liability was not an amount due all at
once in one year, or even five or 10 years.
“This is not an immediate issue or
crisis, but it is a matter that needs to be addressed for the future,” the
civil servant stated.
The 2009 bond offering memorandum
made an estimate of US$798 million (CI$654 million) in unfunded liabilities for
health-care coverage due to Cayman Islands civil servants. The figure was based
on an actuarial estimate done in 2004.
The projections are essentially
accountants’ best guesses at what the government will owe for the total benefit
package at civil servants’ expected retirement dates – which can be up to 40
years in the future.
There is not a legal requirement
for that figure to be calculated and included in the Cayman Islands government
The senior civil servant said that
government “felt obliged” to make the estimate because there was an expectation
that it would be done as part of the 2009 bond offering.
If the CI$654 million liability for
health-care services was added to the 2010/11 budget, the government’s overall
net worth would plunge into negative territory.
Again, civil servants cautioned
that this was not a payment that was due immediately and that government was
not legally required to include it in the budget.
“There is no legal requirement to
produce such a deficiency calculation. The estimate was done to comply with an
expectation that it is normal to have such a figure included in a bond issue’s