The Cayman Islands government is faced with a significant cash shortage as it approaches the mid-point of its fiscal year on 31 December, according to several government sources who have spoken to the Caymanian Compass.
None of the sources wished to use their names; one confirmed that government revenues had not come in as expected during the first few months of the budget year.
Concerns about revenues were downplayed by Cayman Islands Premier McKeeva Bush in a statement sent to the Caymanian Compass on Tuesday night.
“Revenues, while marginally below projections after the first four months are not the cause [of the cash flow issues],” the premier’s statement noted. “The government recognises at this point that there may be some differences in the overall revenue streams projected in the budget.”
The overriding problem – by all accounts – was the fact that Cayman was near the limit of a $66 million “overdraft facility” approved by the United Kingdom government for this year’s budget. The overdraft facility operates as a transitional loan that allows government to cover expenses during the lean months. It is then paid back as the government is able.
Typically, the Cayman Islands government earns most of its operating cash between the months of January and April each year when tourism revenues hit their peak and also when most of the of fees charged to the financial services sector are due. To some extent, there is always a cash shortage toward the end of the calendar year.
The difference this year, according to government sources, is that Cayman is unable to borrow any further to meet the demands of its operating costs. Restrictions placed on local government spending by the UK through mid-2016 require that the territory does not borrow any further.
“[That borrowing] has helped us through the lean months,” one government source told the Compass. “There are cash flow difficulties. We’re not saying it’s a revenue problem, the same exact problem could have existed in past years.”
Because of the lack of borrowing ability in such a situation, cash reserves get lower and government can’t “top them up”, sources said.
Mr. Bush indicated that Cayman would simply have to “live within its means” and adhere to the $66 million limit on the overdraft facility.
“When the government entertained annual borrowings, loan funds would typically be drawn at this time of the year, which would assist with cash flows,” Mr. Bush said. “The government’s current fiscal trajectory will remove the need for temporary overdraft facilities within two fiscal years; however, until sufficient level of cash reserves are restored, the government will need to temporarily utilise overdraft facilities as a treasury cash management tool.”
Premier Bush denied that many of the cash flow problems were due to government departments overspending, which has been a problem within the civil service in recent years.
At the end of October, Mr. Bush said government’s salary expenditures were $3.6 million less than budgeted. The supplies and consumables budget was also showing $1.4 million less than budgeted through October. Mr. Bush said that government should not have any problems paying employees through 31 December.
“As minister of finance, I will ensure that all staff receive their normal salaries on their normal payday,” Mr. Bush said. The premier said he wrote a memo to all government agencies on 5 November advising them of “strict expenditure limits” established for each and setting out the cash that is available.
Since the passage of the actual budget in late August, the Cayman Islands government has only totalled two complete months worth of revenues and Mr. Bush noted there have been no comprehensive revenue revisions since.
“One of the government’s major sources of revenue is financial services,” Mr. Bush said. “It is not anticipated that this revenue source will under achieve; however, indications on this year’s performance for those streams will not be known until March of next year.”
The premier’s office sent out a statement Friday concerning “draft revenue measures”.
The statement referred to an e-mail sent to financial services industry representatives Monday, 19 November, where the Ministry of Finance outlined government revenue measures as they stand to date. The e-mail was not released to the Compass.
“These draft revenue measures will continue to be refined, with the expectation that they will be finalised by the end of this week,” Mr. Bush said.
“With the passage into law of the Framework for Fiscal Responsibility, and with the balancing of expenditure reductions and the draft revenue measures, the Cayman Islands is in a stable budgetary position in comparison with other major economies. Government will continue to engage with industry and other key stakeholders as it works within a continually improving budget development process.”