Falling revenues from worldwide economic decline combined with increased need for government services at home have left the Cayman Islands with an immediate need to cut back on public sector spending, Cayman Islands Premier McKeeva Bush said Friday.
Premier Bush said in a broadcast address to the territory Friday evening that government would propose a two or three-month interim budget to the Legislative Assembly next week. The interim budget, Mr. Bush said, would provide lawmakers additional time to make further cuts in government spending which – at one point – was a combined $151 million over what government ministers initially proposed.
“Since the world financial difficulties started and reduced our economy, the government has had to render much more social assistance to individuals and families in such areas as rent, financial assistance and scholarships,” Mr. Bush said. “The cost to fight crime also escalated. The cumulative effect was much more financial pressure on the government. “We cannot allow our expenditures to rise as they have in the past. We must cut the expenditure, because the last government put us in this intolerant situation,” he said. “We must reduce expenditure if we are ever going to control our finances again.”
Mr. Bush said he initially set budget targets in January of $498 million for government operating expenditure and $59 million in capital [construction] projects.
The initially proposed operational expenses, which were overshot by $130 million, were cut to $549 million total – still about $50 million above what was first proposed. The capital expenditure budget was also overshot by some $21 million, he said.
The government’s proposed 2012/13 budget, which was sent to the United Kingdom government earlier this month, included $59 million in borrowings and an increased “overdraft facility” – which would allow the government to borrow to cover expenses if it came up short at the end of the year again.
The UK’s Foreign and Commonwealth Office rejected that spending plan, stating the proposed expenditure was “unsustainable”.
“They require further reductions to operating costs,” Mr. Bush said. “This will take us time to achieve.”
The interim budget, which Mr. Bush said would be brought to the Legislative Assembly on Wednesday following Cayman Islands Governor Duncan Taylor’s Throne Speech, will secure financing only through the end of September at the latest. By that time, and preferably before, Mr. Bush said the additional spending cuts had to be agreed upon.
“Such decisions must be made in a careful and measured way,” he said.
A communication sent to Cayman Islands lawmakers late Friday afternoon confirmed that the government’s State Opening and Budget Address would occur on Wednesday, 27 June.
The date leaves lawmakers just four days before the end of the fiscal year, so the interim spending plan would have to be approved in that time or Cayman would, in effect, run out of authority to spend money. Cayman’s 2012/13 budget year begins on Sunday, 1 July.
Mr. Bush told the Caymanian Compass earlier last week that he hoped to have a budget ready to present to the assembly by Friday, 22 June, but he acknowledged that his was not the last word on the matter.
The UK’s Foreign and Commonwealth Office must approve government’s spending plan for the 2012/13 year before the Legislative Assembly does. In simple terms, the UK approval is required because Cayman’s cash reserves and the territory’s debt-to-revenue ratios do not meet requirements in the British Overseas Territory’s Public Management and Finance Law.
Mr. Bush acknowledged Tuesday that Overseas Territories Minister Henry Bellingham “didn’t like the borrowing” the premier had proposed in the 2012/13 spending plan. He said about $40 million had been earmarked for various projects including completion of the government high schools in Grand Cayman, the building of a juvenile prisoner remand centre and the provision of solar panels for low-income households.
Furious behind the scenes preparations within the civil service were going on last week and into the weekend with meetings continuing late into the night to reduce government spending to acceptable levels, the Caymanian Compass has learned.
On Tuesday, Financial Secretary Ken Jefferson sent an e-mail to chief officers indicating the government required further cuts including the reduction of equipment and supply budgets by more than 10 per cent and the elimination of most vacant positions existing within the service ahead of the 2012/13 year.
Opposition Leader Alden McLaughlin said Thursday that he was aware further requests for budget reductions from certain departments had been made, but he was not able to specify what those included. The Cayman Islands government budget has been presented late the past two years.
In 2010, government presented its spending plan to the Legislative Assembly on 15 June. A year later, Premier Bush gave his budget address to the legislature on 13 June, but the actual documents weren’t tabled in the LA until the following week.
Premier Bush has frequently blamed the former government for the financial situation facing the Cayman Islands. Mr. Bush said the previous government ended its term in office with an $81 million budget deficit.
“[The UK] now control our budget for the first time in 181 years,” Mr. Bush has said. “It’s a horrible mess, a horrible feeling for anybody who is a stout-hearted Democrat. I am not blaming the UK, I am blaming [Opposition Leader] Alden McLaughlin.”
Mr. McLaughlin responded: “There can be no justification for it being late this year. It’s incompetence.”