The Cayman Islands government’s public sector debt is declining at a rate of 5 per cent each year, according to figures provided by Premier McKeeva Bush’s administration Monday.
So what if it borrows nothing further, and it continues financing capital [construction] projects from cash reserves? “The country could be debt free in a little over 20 years,” according to statements made in government’s strategic policy address.
In fact, the government could pay a significant amount of debt from its 2009 borrowings within the next seven years if current budget projections for revenues and expenses hold. However, at this point finance officials expect to renegotiate the terms of that bond when it matures in 2019.
Paying the remainder of that debt off in the next seven years would “leave the country’s cash reserves at a significantly depleted level”, according to the strategic policy statement. Since most of that debt will be used to finance projects with a useful life of up to 50 years, the government said it believes the repayment should be spaced out more.
“The government … does not believe that the current generation of taxpayers should be overly levied in order to completely extinguish the debt in the next seven years,” the policy statement indicated. “The burden of servicing the 2009 bond should be shared among the future beneficiaries of the assets acquired in order for there to be equity.”
While government believes it will be paying more than 10 per cent of its overall revenues toward servicing debt over the next three budget years, its net debt position should go back within acceptable levels within the next year. Sharp reductions in net debt ratios – which basically compare revenues to the total amount of public sector debt held – are mainly due to large increases in government revenue forecasts over the next four years.
The government has other serious debt and liability issues over the next generations, apart from what it owes in borrowings. According to the strategic policy statement, a 1 January, 2011 evaluation of the Public Service Pensions system showed an unfunded liability of $178 million.
That unfunded liability figure is not a debt that is due immediately. Rather it is an estimate, based on a 20-year period, of what government thinks it will owe to meet payments due to retirees on the defined benefit pension system. For the first time in several years, government has planned to put $15 million toward past service liability payments in the Public Service Pensions fund during the current 2012/13 budget.
An annual contribution to the fund is expected to be $15 million in each of the next three years, according to the policy statement.
What is less clear is the situation as it relates to past service healthcare liabilities, in other words what government will have to pay for the health insurance of retired civil servants in the future.
The Public Service Management Law requires that a civil service employee must have 10 years of qualifying service to receive free post-retirement healthcare.
“It should be noted that this plan is now closed to other public servants,” the strategic policy statement reads. Government has hired an actuary to review its healthcare system liabilities and expected to complete the review next year. The last review of healthcare liabilities for government was done in 2004.