Cayman's borrowing limits: Britain won't budge

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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.” 

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Mr. Simmonds and Mr. McLaughlin met last month in London during a gathering of overseas territories leaders and British government officials. – PHOTO: FILE
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7 COMMENTS

  1. This certainly contradicts the impression created by Premier Alden that they would be able to borrow more money. I think the majority of his promises and plans were based on him getting the OK to increase Caymans already burdening debt. It will be interesting to see how they accomplish the things they’ve promised without being able to borrow a lot more money. He said the ‘Austerity does not work’ well it looks like he is going to have to find a way to make it work. It really should be no surprise that the UK is holding firm on this especially since they are dealing with the same people that pushed the Caymanian debt up so high in the first place and this is not just a shot at the PPM, the UDP had a hand in this as well. I think Alden expected to be treated differently because he thought these guys just had it in for Bush.

    Reading the Premiers statements, it sounds to me like he is already laying the ground work for blaming their failure to keep campaign promises on the UK or the previous administration, which in itself is a common practice in the Caymanian political arena.

    This will be a very interesting four years for Cayman.

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  2. Thank you Mr. Simmonds for forcing sound fiscal discipline on the Cayman Islands government. The sad part is that Cayman’s elected officials are resistant to the concept. They prefer to borrow and spend, placing the burden of paying for today’s largess on a future generation.

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  3. I have been saying this for years . We could have been given a stimulus from Banks. How much does Gov’t owe Cayman Banks? Is there anyway we can get a reduction in interest rates that they charge ? Most of the time its prime plus 6%. Would it not help everyone including customers of the bank to charge less? I’m not talking about home mort. But car loans and commercial loans.
    Why bankrupt the country, as you can see most of the stuff is just piling up at parking lots and in real estates offices. Cut the interest rates across the board.

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  4. Thanks go out to the UK Prime Minister and Mr. Simmonds for making a clear statement on the fiscal discipline for the new Cayman Islands PPM government. The sad part is that these same elected PPM officials started this whole mess 8 years. The PPM prefers to borrow and spend with NO business plan to pay it back, placing the burden on our future generations.
    This government needs to focus on a sustainable spending policy to bring the national debt back into line before they leave in 4 years. Stop pointing fingers and making excuses. Just, get it done and make it happen……

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  5. The UK has been trying to get rid of the Cayman Islands for some time but we just don’t seem to be able to get the message.

    Everything that you see the UK doing is not about what is in the best interest of the Cayman Islands, but rather a way of getting us to move towards independence.

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  6. To understand why the UK is strict about Cayman’s debt we have to look at the larger picture. The UK has 17 overseas territories remaining and most as small islands. If each one of these countries are like Cayman and have run up a billion dollars worth of debt then the UK tax payer is now liable for additional 17 billion, which has nothing to do with them. Many people in the UK earn less than people in Cayman plus already pay tax to pay for UK public services; so it is a bit unfair to expect them to have to bail the Cayman Island, who in their eyes pays no tax. It would like your neighbour running up a huge CUC bill by cooling the house with the windows up and expecting you to pay for it even though you don’t use you AC to save costs.

    A hard fact is Cayman has been living a dream it cannot afford any longer. The simple solution to public spending is two ways cut public services back and to introduce competitive tendering for all non core government services. This would open up the government services to the private sector and introduce market forces to the cost of providing the public sector thus driving down the cost.

    Basically the civil service would compete with the private sector for contracts to undertake the work. If the public sector is cheaper then they are given a fixed cost contract to undertake the work and if the private sector is cheaper then it does the work and that government office is closed. The new private sector office would likely take on some or all the civil servants, that clause could be written in to the tender or the dept en mass becomes a private sector company.

    Alternative allow public sector to privatize itself with management buyouts or float the sector on the Cayman Stock Exchange with preference for shares to the Caymanian public before institutions. This allows the citizens of this country to directly benefit for profits instead of savings been wasted on general expenditure. The proceeds from these sales would go directly to pay of the capital of the country’s loans thus reducing debt servicing costs and allowing the removal or lowering of fees to country’s tax payers.

    When this seems like a radical approach it has already been down in the UK and other countries for many years. Interestingly may public sector workers actually see their wages increase with the increase in efficiency in productivity unlike what is seen in the public sector.

    The first departments to go down this route would be public works, NRA and parks department as there are already established private sector firms locally that could complete for those services. Additionally if privatized the government could sell off the public works compound to developers raising additional revenue to pay loans or fund projects.

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