In terms of priorities, I hope that most voters share my view that the most important role of Government is to manage the country’s finances in a responsible manner while maximizing the benefits to the community it serves.
While we may debate the ways in which Government best maximizes benefits to the community, I think we agree that there is urgent work that needs to be done to repair Government’s finances. The UK Government has quite rightly insisted that Cayman establish a sinking fund (money set aside each year to repay debt when it comes due) to help reduce the risks of rolling over its debt, a large part of which comes due in seven to nine years (see page 32 of the Miller-Shaw report).
The Government needs to come up with a credible plan for how they plan to generate the surpluses necessary to build up cash within a sinking fund. The Opposition needs to come up with a credible alternative plan ahead of the next election for how they propose to tackle this issue. Let’s see an improvement in the quality of debate while sticking to the critical issues.
Lest you think that the problem will go away, let me explain why the problem is likely to get worse before it gets better. The first reason is that bond investors and banks are becoming increasingly cognizant of the risks of sovereign debt. I urge all members of the LA to read “This Time is Different” by Ken Rogoff and Carmen Reinhart. A lesson of that important book is that one of the key determinants of whether a country is likely to default is the proportion of its debt that is held by foreigners. One needs to look no further than the present day PIGS (an acronym for Portugal, Ireland, Greece and Spain) to see the case in point. Greece and Ireland have already had to get bailouts from the ECB. Portugal looks likely to be next in line. The common thread amongst these three countries is that about 80% of each country’s debt is held by foreigners. If we count the money lent to Cayman by Canadian – and UK-controlled banks as foreign lending, what percentage of Cayman’s debt is held by foreigners?
The second reason to be concerned is that Cayman’s “headline” debt of around $600 million is only the tip of the proverbial iceberg. As was correctly pointed out on pages 38-42 of the Miller-Shaw report, Cayman has another roughly $800 million in unfunded healthcare liabilities to the Government sector and around $300 million in defined benefit pension obligations to certain parts of Government. Furthermore, these estimated liabilities are out of date and are currently probably much larger than stated – in the case of Government’s healthcare liabilities, the latest estimate was made six and a half years ago. These numbers will only grow over time unless the rules are changed or the size of the Civil Service is reduced as a proportion of economic output. I have worked in finance for over 25 years and I do not see how it is possible for Government to fulfil its pension and healthcare promises given the status quo. It is only fair to the civil service (and to themselves) that the Government and the Opposition explain how they are going to fulfil these promises, other than “hoping for the best”.