UK reduces ‘overdraft’ borrowing ability

FCO-main

Cayman Islands government finance managers confirmed Tuesday that the United Kingdom had slightly reduced the total amount of available overdraft borrowing available in the territory’s 2012/13 budget.  

According to government Budget and Management Unit Director Ronnie Dunn, Cayman will have the ability to go into an overdraft position of up to $66 million between 1 July, 2012, and 31 January, 2013. That means government can borrow up to that amount to cover short-term expenses until the higher-earning revenue months of the year.  

“The proposed overdraft facility in the budget is simply a Treasury [Department] cash management tool,” Mr. Dunn stated in an e-mail explaining the situation. “It is necessary due to the seasonal nature of our revenues.”  

Cayman gets most of its revenues from the financial services industry and the tourism industry during the first four months of the calendar year, January through April. However, the territory’s public sector budget year begins on 1 July and ends on 30 June.  

“The temporary overdraft facility will afford the government the ability to finance its daily operations without interruptions during the lean months to December,” Mr. Dunn wrote. “With the cash inflows that will occur early next year, the operating bank account balances will then revert to positive balances and should stay that way for the remainder of the year.”  

The Cayman Islands government had also placed an additional overdraft facility – or short term borrowing measure – of $25 million in its budget with availability between 1 February, 2013, and 30 June, 2013.  

However, Cayman Islands Premier McKeeva Bush confirmed earlier in the week that the available amount of the second overdraft would be reduced to $15 million at the request of the UK’s Foreign and Commonwealth Office.  

Just because the government has some $81 million in available overdrafts for the 2012/13 year doesn’t mean it has to borrow the entire amount, Mr. Dunn said.  

“It is also important to note that with the plans agreed with the [foreign office], the government is not projected to require a facility to this extent in future years,” Mr. Dunn noted. “Plans call for a continuous increase in our opening operating bank balances each year, which will then allow us to finance the slow revenue periods until January without getting into an overdraft.” 

There is no long-term borrowing contained in the 2012/13 government budget, indeed the UK has forbidden that for Cayman until after the 2015/16 budget – four years from now.  

That means government intends to pay back the amount of the $66 million overdraft borrowed when cash receipts from the high-earning revenue months of January through April start coming in.  

Most of the short-term borrowing costs will be covered by the government’s anticipated operating surplus of $82 million, government ministers said last week. The central government’s borrowing balance at the end of the budget year is expected to be around $575 million that is still owed in previous financing costs. 

FCO

The Foreign & Commonweath office in London
ALAMY

2 COMMENTS

  1. This is all very interesting however who and how are the Departments that seem not capable of providing information to auditors previously going to all of a sudden acquire their problem. Government had better make plans now on how to handle this including changing peoples responsibilities. Few temporary systems in Government ever get cancelled where money is involved.

  2. If one thinks of the Cayman Islands as if it were a small business, the solutions become obvious.

    First, increase revenues by increasing business volume. That means focus on being a better tourist destination. Fix the airport. Fix the cruise ship berthing. Reduce the crime.

    Second, trim payroll and move those furloughed workers to private sector jobs. Every Caymanian who receives a government check is an expense to the country. Every Caymanian who has a private sector job adds to the real economy and increases government revenues. The money stays in Cayman. Selling work permits is an inefficient use of resourses and moves money out of the country.

    Third, focus on the real issues. Do not get sidetracked.

Comments are closed.