The real deficit

Letter to the Editor

The country may be on the cusp of solving the immediate fiscal crisis. But it is a far cry from putting in place a sustainable plan to avoid the very same challenges in the near future. 

The current situation is just another reiteration of what we have witnessed over several political terms: a lack of unity between three main public sector groups, being the elected members, Governor’s office and senior civil servants. This has resulted in a complete failure to implement the necessary solutions. 

The actual crisis can be summarised as follows: 

Core government debt now stands at approximately CI$600 million, increasing almost tenfold since the CI$67 million figure in 1996. Total debt now represents CI$19,367 for every Caymanian and roughly CI$6,500 per Caymanian family. This debt also costs taxpayers CI$26 million per year to service and exposes the government’s fiscal balances to global interest rate risk. 

Recurrent expenditure of the government has increased from approximately CI$150 million per year in 1996 to over CI$550 million today. In other words, expenditure has increased by almost 400 per cent in less than four political terms. Previous studies indicate that this is largely due to an increase in civil service recruitment but to date there has been no serious analysis to explain how much of this recruitment was due to a legitimate increase in demand for public services or otherwise. 

Unemployment remains high at 9.8 per cent among Caymanians, according to the latest labour force survey. The lack of jobs is a primary source of increasing social tension and is one of the reasons for the current challenges facing small businesses. 

 

Why is there no progress? 

The global economic downturn, which was a factor in the fiscal performance of the previous Government, has also been a factor in the inability of the current government to bring about a material recovery. But to leave the answer there would be a severe injustice to the harsh truth: that there was in fact no cohesive commitment by three key public sector parties (the elected arm of government, the governor and senior civil servants) to doing what was necessary to address the challenges. Who or what is to blame for this lack of cohesion is besides the point. But it is as clear as day that this is the reason for lack of progress.  

There is no shortage of suggested solutions available to the government. The Miller-Shaw Report, several civil service reviews, repetitive feedback from the private sector and a three-year plan approved by the Foreign and Commonwealth Office, all provide a very reasonable set of solutions and strategies, which would have made a significant positive impact on the current fiscal and economic challenges over a three to five year period. The key ones worth mentioning here are: 

Reduction of size of civil service through rationalisation (the reviews carried out by the civil service and private sector groups). A Public Sector Reform initiative should have been established with an accountable head and with targets over say a three to five year period. But no such structure was created and the lack of implementation has been clear, aside from a few very recent changes. 

Privatisation and divestment of certain public services (recommended by the Miller Report and included in the three-year plan). Again there was no clear, structured approach to getting this done. The few efforts made were led by the elected members of government, but these were disjointed and unsuccessful because there was no cohesiveness nor joint commitment by the three key parties. 

Further rationalisation of the existing system of indirect taxes (implicit from the Miller report and explicitly committed to as one of the strategies contained in the three-year plan). This purpose of this last exercise would have been to find ways to rebalance the burden of existing indirect taxes in such a manner that they were more friendly to small businesses, while at the same time, spreading some of the burden to other sectors/individuals and making the indirect tax base more sustainable. 

Encourage further investment and support of major projects with the potential to create significant economic impact (Shetty Hospital, ForCayman Alliance, port redevelopment, etc). This last point is key to economic success because it is this very strategy that would have alleviated the need to raise further taxes on the community. This strategy is about increasing the size of the economy, which would have naturally resulted in the creation of jobs and revenues to the government. This the least costly way out of the recession and deserved the full cohesive commitment by the three parties mentioned above. 

 

The challenge 

The current challenge is not for want of input and ideas on economics and finance, and the private sector has demonstrated that it is willing to assist. This challenge is about leadership in the public sector. Yes, the country needs a vision and a medium to long term economic plan. But far more important that the plan itself, is that there must absolutely be a joint commitment by the elected arm of government, the Governor’s Office and the senior civil servants to implement it.  

For that to happen someone somewhere has to stand up and take charge of bringing the three groups together.  

The country’s financial deficit pales in comparison to the deficit in public sector cohesion and implementation. That is the real deficit that we must now address. Because continuing to manage the economy in this ad hoc and unsophisticated manner will give us only one result: The eventual regression of the Cayman Islands economy and continued worsening of the standard of living of its citizens and residents alike. 

 

Paul Byles 

4 COMMENTS

  1. Paul,

    I’m a regular contributor to Caycompass’s online forum, under my pseudonym but sometimes one cannot hide behind a fictitious name when the issues are important enough that one’s voice and views need to be heard.

    A recent comment of mine referred to a symposium with the best financial minds in the world that are available in Cayman, some of them being Caymanian.

    It was to yourself and Don Seymour, in particular, to whom I was referreing as Caymanians, without mentioning names, until now that is.

    Your points and views are well made and impossible to argue with, coming from someone of your stature, reputation and achievements but…

    I have one question to ask you…have your views, opinions and suggestions ever been sought out or canvassed by any of the political leadership outside of when you headed up CIMA, a role under which you would have been obligated to follow government policy ?

    I can safely bet that the answer is a resounding NO.

    The other side of your very balanced economic reasoning is a change in the political culture of Cayman, which has proven, until now, an impossible task to address, much less fix.

    Let me elaborate a bit.

    Cayman’s political culture is one based totally on divisiveness and discrimmination…and until this changes, all your brilliant economic ideas and reasoning will be for nought…why ?

    Because political influence is based on emotional, gut-feelings and smart politicians tap into this area of the human psyche where, even temporarily, intellectual reasoning, even in the most intelligent of people, is suspended.

    And there is where your problems in Cayman resides; the political heirarchy refuses to try to move Cayman forward away from this destructive mindset because they believe that they will lose their control over the minds of the populace upon which their power is based.

    That there will always be some element of this in any country is a given…after all, you can’t simply give away the house to all and sundry…

    But in a population of some 52,000 people, regardless of the make-up of the nationalities, this economic crisis for such a small country must involve some element of inclusiveness to all economically active people in Cayman.

    Is it not glaringly obvious that in a population that small, every single individual’s economic effort and contribution counts equally ?

    Or, in other words, that the people who populate Cayman all need each other equally, to survive and prosper ?

    As long as the politicians in Cayman preach and enforce otherwise, your problems will not only continue…but get worse, as social disharmony adds its destabilising effect to an economically unstable environment.

    The major democracies to which Cayman is tied have taken this route to change the political culture of their countries…the United Kingdom, the USA and Canada all have laws that promote cultural integration within the immigration laws and systems that govern who lives legally (and in some cases, even illegally) in these countries.

    If coutries much larger in size and population see this as the only real way to guarantee survival of all who call those countries home…

    What genius minds in Cayman continue to promote divisiveness as the way to go, with every single economic factor that you have so expertly raised is screaming from the roof-tops of Cayman…

    FAILURE ? !

  2. Firery,

    I think you lost that bet you made with yourself. A February 2011 FOI request shows that the Premier paid Focus Corporate Services 325,303.97 for consultancy on finance related matters. That’s a little more than twice the 160,000.00 paid to the Miller Commission for the Miller Shaw Report.

    We have to presume that the Premier is a fan of Oscar Wilde who said: The only thing to do with good advice is pass it on, it’s never of any use to oneself.

  3. good commentary. this guy was around a couple years ago and I bet what he had to say then was probably largely ignored..so I agree with that oscar wilde comment too! shame because there are some good people locally that can add value but our current system of politicians just doesnt allow that. same old story.

  4. This is a very good letter. the word accountability is gone from the debate on these things. more solutions and less politicking needed. i have no reasons to feel optimistic about the upcoming election. i want a change but struggling to find more than a couple of alternative persons and that number is not enough for a government. either way we need a huge change from what we have now.

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