Any lingering hopes the new Cayman Islands government had harboured that the UK would relax its stringent borrowing limits appear to have been snuffed out at the first meeting with officials in London.
Mark Simmonds, the UK’s overseas territories minister, told the Caymanian Compass the borrowing limits “must be achieved” to ensure the territory’s finances were “credible and sustainable”.
Mr. Simmonds said he had discussed public finances with Cayman Islands Premier Alden McLaughlin during a series of meetings in London last month. He insisted the two governments had already forged a good working relationship, but offered little hope of compromise over the UK’s tight controls of the public purse.
Mr. McLaughlin spoke in the immediate aftermath of his victory in May of a desire to seek greater fiscal flexibility. But he accepted last week that this could not involve asking the British government to relent on its requirement that Cayman Islands not enact any long-term borrowing through 30 June, 2016.
“We accept that any major works are going to be public-private partnerships,” he told the Compass.
In his first interview as premier on 23 May, Mr. McLaughlin warned “austerity has not worked”, referring to the cycle of recession that has blighted European countries in spite of severe government spending cuts.
Mr. Simmonds indicated last week that there could be no leeway for Cayman’s leaders on finances – even to fund stimulus projects that could grow the economy.
He said, “Prudent fiscal management and effective fiscal planning is fundamental to economic success of all overseas territories.
“The Cayman Islands Framework for Fiscal Responsibly sets borrowing limits that must be achieved to ensure that the Cayman Islands government public finances can be credible and sustainable over the medium term.”
The UK has set targets for Cayman’s finances, which must be complied with by June 2016. This includes a demand to bring the territory’s total debt down to below 80 per cent of annual government revenues. The Cayman Islands government must also maintain enough cash reserves to fund at least 90 days worth of executive expenditure at the end of each budget year.
It is on those two points that Mr. McLaughlin is seeking some latitude.
“That’s a major factor,” he said of the cash reserves, noting it would be difficult to meet the June 2016 deadline for compliance.
Even without any substantial government outlay on capital projects, the premier is concerned that the three-year time frame may not be long enough to bring the government’s net debt ratio into line.
Though he accepts the limits are not about to change, he spoke last week of his concern that, in such conditions, necessary, major public projects that could help provide jobs and boost the economy, would be difficult to get started.
He is also worried about the territory’s reputation in the face of a growing climate of hostility toward offshore jurisdictions.
“Constant talk about not being compliant is impacting us as a community,” he said.
Both men expressed a desire to work together for the betterment of the Cayman Islands.
“I think the new Cayman government and the UK have already forged a good relationship,” Mr. Simmonds said. “I spoke to Premier McLaughlin shortly after the elections to express my congratulations on his successful election. I am pleased he was able to come to the UK and meet the UK prime minister with other territory leaders to discuss the trade, tax and transparency agenda in advance of the G-8 summit.
“The Cayman Islands government has responded positively to the prime minister’s G-8 agenda and has made a clear commitment to play an active part in the G-5; to prepare an action plan for beneficial ownership and to commit to join the Multilateral Convention on Mutual Administrative Assistance on Tax Matters.”