The Cayman Islands government’s budget plan through 2015/16 assumes that certain public-private sector partnership projects will have begun during the period.
Among those projects are the cruise ship berthing facility in George Town, the development of Cayman Enterprise City, the new private hospital for medical tourism – often referred to as the Shetty hospital, a number of tourism-related projects through the ForCayman Investment Alliance and the expansion of Owen Roberts International Airport in Grand Cayman.
“It is assumed that during the period of this strategic policy statement [between now and June 2016], these projects would have commenced and will be mostly in the initial construction phase; namely, ForCayman Investment Alliance and Health City Cayman Islands,” Cayman Islands Premier McKeeva Bush stated in a written copy of the policy address, which is required to be delivered each budget year by 1 December as an update on the government’s budget progress and a road map for future planning.
“The construction phase of these projects [is] expected to stimulate the demand for services in several sectors such as wholesale and retail, real estate, renting and business activities; hotels and restaurants, financing and insurance,” Mr. Bush wrote.
The premier did not deliver the full strategic policy address to the House on Monday as has been customary. Rather, he simply tabled the document – making it public – and then had a few short comments.
He said the strategic plan was in accordance with the Framework for Fiscal Responsibility and “has been agreed” upon by the United Kingdom’s Foreign and Commonwealth Office.
In addition to the reductions already made during the current 2012/13 financial year, the strategic policy statement set out some of the government’s budget cutting plans over the next three years.
The Cayman Islands Cabinet green-lighted nearly $24 million in cuts to the civil service over the next year, to take effect in the next fiscal year’s budget that begins 1 July, 2013.
The proposals result from three phases of efficiency reviews completed by the public service that will be implemented in “the short to medium term”, according to the policy statement.
The reductions proposed for the 2013/14 budget year include:
Discontinuation of the government’s housing assistance programme – savings $3.7 million
Reductions in the PRIDE programme and Nation Building Fund – savings $2.8 million
Attrition in the civil service [during the 2013/14 year only] – savings $5 million
Consolidation of statutory authorities – savings $4.9 million
Centralisation of procurement operations – savings $2.4 million
Improved risk management [through self-insurance] – savings $3 million
Reduction of interest costs [debt repayment] – savings $1.9 million
Additional reductions in the 2014/15 and 2015/16 budget years include further attrition-related reductions in the Cayman Islands civil service of $8 million, and reductions in the Nation Building Fund of $2 million.
The government also expects further reduction in interest costs over those two budget years. Another $31 million in potential cuts have been identified, but had not yet been accepted by Cabinet members.
By the numbers
According to the forecast operating statement within the policy document, the government’s net surplus for the current 2012/13 budget will be $82.25 million by 30 June, 2013; $124.3 million by 30 June, 2014; $138.3 million by 30 June, 2015 and $144.95 million by 30 June, 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.
The strategic policy statement 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 stated.
The government’s total expenditure for the current 2012/13 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 through budget cuts and other management initiatives, including consolidating the government’s lease estates through increased occupancy of the government administration building and introducing volunteer firemen to the fire service.
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. The Cayman Islands government is forbidden from long-term borrowing through 30 June, 2016.
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
It appears, according to the strategic policy statement, that the government will end the current budget year on 30 June, 2013 in a negative cash position.
The budget figures released Monday show that liquid cash reserves for the 2012/13 financial year will be in a negative position. 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 as of 30 June, 2014 the government will only have 6.2 days of cash reserves and 62.7 days of reserves by 30 June, 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, Cayman’s debt servicing will comply with the fiscal management principles by the 2015/2016 budget.
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.”