The bill won’t come due during the term of this Cayman Islands government, or the next.
However, a $261.3 million balloon payment on a 2009 government bond offering will have to be paid in November 2019 and government insiders find it likely officials will have to refinance that debt – i.e. borrow again – to pay it off.
One problem: The United Kingdom, at this stage, has forbidden its overseas territory from any further long-term borrowing.
“The point [raised in this article] is going to have to be one of the first policy positions a new administration will have to take up,” said Deputy Premier Rolston Anglin last week. “What will we do to meet that target?”
Mr. Anglin said during Thursday’s press briefing that when the former United Democratic Party administration took over government in 2009, there were a number of high-dollar projects to complete.
“The commitment to continue those projects meant that we had to put in place a borrowing package somewhere in the order of US$312 million. The decision that was taken at the time was that bond would be one that would have a balloon payment coming 10 years hence, now 2019.”
The UK advised establishing what’s known as a “sinking fund” to put aside certain amounts of cash to help pay off that looming debt and others the Cayman Islands will have to pay in the coming years. However, Mr. Anglin admitted neither the interim government nor the former UDP government had done so.
“Therefore, if you look at government’s capacity to raise funds in this economy, I think we just have to be honest with the public,” he said. “There isn’t any real possibility that we’re going to be able to have that money extracted from the economy.”
One way would be to simply take out more debt to repay the bond issue, but Mr. Anglin said he doesn’t support that and it’s not known if by the year 2019 whether that option will be available to the Cayman Islands government anyway.
Mr. Anglin said the divestment of certain government assets, proposed by former Premier McKeeva Bush, may need to be considered again.
“I think that we need to look at a number of assets, including [the government administration building], and what sort of sale/lease-back arrangement we could have through an open, transparent public tender system where the aim and objective would be to have this building perhaps placed in a rainy day fund … that Caymanians’ pensions, pension plan providers can actually invest in,” he said.
Another potential arrangement, for instance, could involve the outright sale of the administration building for which the government would receive cash up front and then lease the office space back for a certain amount per year. Mr. Anglin said that amount of debt could be “taken off the books” and then government make a yearly rental payment for the office space that could be taken out of operational expenditure. “So that we’re not paying $30M a year as we do at present [to retire debt],” he said.
That solution would only take the government’s debt “off the books”, if it was agreed the government building could be sold with no intention for it to return to government’s possession, according to Financial Secretary Ken Jefferson. Any plan to retain the government building after the lease period would probably result in some liability remaining on the public books, he said.
Mr. Anglin said there are other assets that could also be considered to make short-term cash to pay off the looming debt.
“As it relates to the Water Authority[-Cayman], I think it’s time for the government to get out of the utility business,” he said. “We could have a very successful procurement of those services.”