The government released its strategic policy statement Monday outlining its fiscal plans and objectives up to 30 June, 2016.
Premier McKeeva Bush tabled the policy statement in the Legislative Assembly on Monday, 26 November, saying it had been delivered before the 1 December deadline stipulated under the Public Management and Finance Law.
According to the forecast operating statement within the policy document, the government’s net surplus for the current budget is $82.25 million; $124.3 million in 2013/2014; $138.3 million in 2014/2015 and $144.95 million in 2015/2016.
The revenue projections in the operating statement show numbers increasing from $649.5 million in the 2012/2013 budget to $669.4 million by the end of the next financial year; $683.4 million in 2014/2015 and $697.4 million in 2015/2016.
However, the document points out that these revenue projections incorporate a “central risk” scenario, whereby “the calculated amounts expected from existing revenue streams were discounted by 25 per cent in order to allow for unforeseen circumstances”. The revenue projections were further conservative because they assumed no substantial increase in volumes over the medium term and no additional revenue measures being introduced.
The government’s total expenditure for the current budget year is $567.2 million, dropping to $552.4 million by the end of the 2015/2016 fiscal year. The expenditure numbers include a provisional sum of $21.7 million to mitigate potential future increases in healthcare costs.
According to the strategic policy statement, savings would be made by a phased reduction in the civil service; merging some smaller statutory authorities and government owned companies; consolidating the government’s lease estates through increased occupancy of the Government Administration Building; introducing volunteer firemen; self-insurance against loss of government assets which would reduce annual insurance costs by $3 million; centralising procurement; and changing benefit schemes for new civil servants.
The overall economic growth of the Cayman Islands in the next three fiscal years will rely increasingly on private investments in domestic sectors “in light of heightened financial and fiscal uncertainty in the major external markets and the government’s commitments in the Framework for Fiscal Responsibility”, according to the policy statement. Construction of major infrastructure projects, such as the cruise ship port expansion, Cayman Enterprise City, the Shetty hospital, projects related to the ForCayman Investment Alliance and the extension of the Owen Roberts International Airport would also lead to recovery, the document stated.
Although the government issues a strategic policy statement annually, the document issued Monday is a departure from the versions released in previous years, in that, in accordance with the Framework for Fiscal Framework, it contains additional details of the government’s past fiscal performance, the entire public sector debt profile and debt management strategy, accounts receivable aging summary, liability management plan, operating performance by agency, as well as discussions on any material revenue or expenditure measures planned.
Cash reserves low
According to the strategic policy statement, the government only has enough liquid cash reserves for this financial year, which ends 30 June, 2013, to last 19.7 days. According to the principles of responsible financial management, the government should have at least 90 days of cash reserves, which are liquid funds at the government’s disposal that are not pledged against any budgeted expenses or liabilities. The policy statement also shows that for the 2013/2014 fiscal year, the government will only have 6.2 days of cash reserves and 62.7 days of reserves in 2014/2015.
The government also falls into non-compliance with the principles of responsible financial management when it comes to borrowing, under which debt servicing cost for the year should be no more than 10 per cent of core government revenue. The debt servicing cost for 2012/2013 is 12.6 per cent; 11.9 per cent in 2013/2014; and 11.9 per cent in 2014/2015, according to the policy statement which also contains a forecast that Cayman’s debt servicing will comply with the fiscal management principles by 2015/2016.
Another area of non-compliance is net debt, which the responsible financial management principles stipulate should be no more than 80 per cent of core government revenue. The net debt for 2012/2013, according to the strategic policy statement is 92 per cent. The net debt is estimated to fall within compliance levels by the next financial year.
Despite these areas of non-compliance, the strategic policy statement outlines that the government’s medium term fiscal plans will comply in all ratios by the target date of June 2016.
In a message contained within the strategic policy statement, Premier Bush said: “The government is dedicated to these strategies and initiatives, however, in pursuit thereof, we must continue to be mindful of decisions, those we make and those made for the country, which could result in economic shocks or create barriers in the private sector that will stifle growth.
“Achieving balance in this regard is a delicate matter which must be handled with skill, sensitivity and a measured level of patience in an uncertain world economy.”
According to the strategic policy statement, the average inflation for the calendar 2012 is forecast to be 1.7 per cent and the inflation forecast for the 2012/2013 fiscal year is 1.9 per cent.* Cayman’s inflation rate is expected be 2.1 per cent in the year 2013/2014, and “barring sharp price increases in US goods and domestic housing rentals”, inflation is expected to inch up with construction demand at 2.3 per cent in 2014/2015 and to 2.6 per cent by the end of 2015/2016.
The unemployment rate for 2012/2013 is forecast to be 6.2 per cent, a slight improvement over the 6.3 per cent recorded for 2011/2012. That is forecast to be 6.1 per cent in 2013/2014, 5.8 per cent by 2014/2015 and 5.5 per cent by 2015/2016.
Earlier this month, legislators voted into law the framework for fiscal responsibility, which is an agreement signed between the Cayman Islands and UK governments that sets out spending restrictions and management and audit requirements, as well as bidding processes for the government to follow. The conditions within the framework were embedded within amendments to the Public Management and Finance Law.