Top stories of 2012: Government budget woes worsen

The Cayman Islands government approved its latest-ever spending plan for a non-election year during 2012, but the budget problems faced by the public sector did not end there.  

The Cayman Islands government is faced with a significant cash shortage, according to several government sources. The cash crunch did not, as was first feared, prevent civil servants from being paid in December. However, it was clear from a number of sources that government revenues had not come in as expected during the first few months of the 2012/13 fiscal year.  

Concerns about revenues were downplayed in late November by then-Cayman Islands Premier McKeeva Bush. “Revenues, while marginally below projections after the first four months are not the cause [of the cash flow issues],” the premier said. “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.  

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 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.  

Since the passage of the government 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.  

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.  

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.  

There was also considerable concern at year’s end that the passage of the UK-drafted Framework for Fiscal Responsibility into law would handcuff the British Overseas Territory in terms of certain public sector projects it wished to complete.  

The framework agreement – signed by then-Premier Bush in November 2011 and passed into law by legislators this November – sets guidelines on certain areas like government spending and borrowing, bidding for public projects and rules for financial reporting.  

The document prevents the Cayman Islands from entering into any further long-term borrowing to support public projects through June 30, 2016. The only exception to that rule is in the case of natural disasters affecting the territory.  

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 as well as a number of tourism-related projects through the ForCayman Investment Alliance and the expansion of Owen Roberts International Airport.  

British-appointed Governor Duncan Taylor said in recent weeks that he did not believe the requirements of the fiscal framework would interfere with the ForCayman Alliance agreement. The negotiations in that proposal include a proposal to relocate a section of West Bay Road along Seven Mile Beach and build a waste management facility in Bodden Town.  

However, Mr. Taylor noted that the UK’s economic adviser may wish to have a word with both parties involved in the agreement. 

mac-henry

Then-Cayman Islands Premier McKeeva Bush, left, and former British Overseas Territories Minister Henry Bellingham sign the Framework for Fiscal Responsibility. – Photo: File
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