The Cayman Islands government is facing a small operating deficit as its current budget year draws to a close in June, according to projected figures presented as part of the country’s Strategic Policy Statement.
The $4.5 million anticipated shortfall is largely due to a $21 million increase in government spending and projections that a modest increase in public sector revenues over the same period just won’t be able to match the expenditures.
According to revised government figures, Cayman’s central government revenues for the current 2011/12 fiscal year will rise to $548 million, while expenses will increase to $511 million. When an additional $41.8 million to pay off public sector debt and cover the losses of statutory authorities and government-owned companies is factored in, the operating deficit of $4.5 million is reached.
The Cayman Islands government ended the previous fiscal year with a $25 million operating surplus. This year, the government had hoped to end with a modest $3.8 million surplus, but revised figures send that figure more than $8 million in the other direction.
The policy statement sets out expectations that Cayman will meet all legally required principles of responsible financial management by the 2014/15 budget year, one year before the deadline set recently by the United Kingdom in its Framework for Fiscal Responsibility.
The document indicates the country’s total public sector debt balance will be reduced to $522 million by that year, allowing Cayman to meet its debt ratios and end all subsequent years with at least a $23 million cash surplus. To do that, the country will have to pay off a total of $126 million worth of debt during the next four years.
Another key assumption in government’s figures, is that there will be no public sector borrowing on the books through the next three and a half years. That essentially means government will have to find other ways to pay for key construction projects. “The government is planning to raise $59 million from the divestment of certain assets in 2011/12 [current year] and the receipt of funds received from Dart re: ForCayman Alliance initiative; these funds will be used to finance capital investment activities,” according to the Strategic Policy Statement.
Government was expecting to receive $18.5 million cash as part of a massive land swap deal with the Dart group of companies in an agreement to relocate a section of West Bay Road and move the Cayman Islands landfill out of George Town, among other initiatives. The other funds were expected to come at least partly from the divestiture of certain aspects of the Water Authority, although no specifics about this were included in the documents. Premier McKeeva Bush said Thursday during his policy address to the Legislative Assembly that government does not intend to borrow until June 2016, even beyond the terms of the policy statement.
He said all public sector agencies will have to curtail spending increases to a “bare minimum” during the next three years. “We can no longer afford to do business as usual,” Mr. Bush told lawmakers.
The premier said the expenditure restraints placed on the public sector would “likely mean that there will be changes to services delivered by government agencies”. He did not specify what those changes might entail.
Mr. Bush said he reluctantly signed the UK’s proposed Framework for Fiscal Responsibility, requiring Cayman to curb excessive expenditure and return within legal debt limits.
“I have had to sign this, and it was a bitter pill to swallow, because the past government, like other countries, engaged in over-expenditure and over-reliance on debt financing,” the premier said. Premier Bush said the UK was correct to be concerned “about the twin evils of over-expenditure and over-borrowing, not just in its own case, but that concern extends to its overseas territories”. Mr. Bush said all government departments, statutory authorities and government-owned companies would be required to comply with those limits and all public entities would have to consult with central government before making any borrowings.
He said the government did not intend to implement “any major new revenue measures over the next three financial years”, but reserved the right to revisit this policy if the economy did not improve in line with current projections.
Following this year’s $548 million in public sector revenues, the Strategic Policy Statement forecast the government will earn about $560.8 million in the 2012/13 budget year, $572.6 million in 2013/14 and $587.4 million in 2014/15 – marking an annual growth of 2.3 per cent. Mr. Bush said these figures were based on projected economic growth as well as the implementation of developments including the cruise port project, Cayman Enterprise City, the Shetty Hospital and the ForCayman Investment Alliance.
He said operating expenses were forecast to be $497.9 million in 2012/13, $502.9 million in 2013/14 and $508 million in 2014/15 – an annual 1 per cent growth.
However, there would be a sharp drop between projected expenses for the current 2011/12 year – $511 million – and 2012/13’s $497.9 million.
He said it would be a challenge to keep public expenditure in this range due to “three areas of urgent need: improvements to education infrastructure; the need for improved policing and border security; and the implementation of the human rights provisions of the 2009 Constitutional Order”.