The government’s projected CI$100.3 million operating surplus starts looking quite a bit smaller than initially reported when some other public sector financial obligations are factored in.
“The operating surplus of $100.3 million will fund the debt-principal repayment and capital expenditures and investment,” according to Financial Secretary Ken Jefferson.
Those are not insignificant costs in the overall scheme of the 2013/14 spending plan. Principal debt repayment, which is the amount aside from accumulated interest that the government is paying off on its loans, will cost CI$26.3 in this year’s budget plan. Capital costs, including a CI$24.6 million payout to statutory authorities and government-owned companies, total CI$51.9 million for the year.
If both of those amounts are paid out of the operating surplus at those budgeted levels, the surplus will eventually be reduced to about CI$22 million by the time the budget year ends on June 30, 2014.
However, according to Mr. Jefferson: “It would not be correct to suggest that the operating surplus figure was not $100.3 million.”
According to budget numbers presented by Finance Minister Marco Archer on Monday, government’s operating revenues will top CI$644 million, while expenditures will fall just below CI$518 million for the year.
When subtracting CI$31.4 million, the government will have to pay to meet interest costs on its debts and adding a projected CI$5 million surplus earned from the operation of government-owned companies and statutory authorities, the government projects an operating surplus of CI$100.3 million, Mr. Archer said.
The reason repayment of debt-principal amounts and capital costs are not included in the operating surplus figure is because they are not considered operational expenditure.
“The government operates on an accrual-based accounting system which requires the separation of operating expenditure, debt-principal repayments and capital expenditures,” Mr. Jefferson said. “It is not acceptable to show these different transactions in a single statement.”
The repayment of debt and capital costs are included in government’s cash flow statements in the 2013/14 budget. Broken down a bit further, they include CI$26.36 million in repayment of principal debt, CI$27.27 million in purchases of property and equipment and CI$24.6 million in “equity injections” for the public authorities.
The debt principal repayment and the capital expenses are included on the government’s balance sheet as part of the “net worth” of government’s public entities.
“It is not that the transactions of debt-principal repayment and capital expenditures are ‘lost’ or ‘unaccounted for’,” Mr. Jefferson said. “[These transactions] are required to be recorded in different [financial] statements.”
Core government debts were expected to fall just below CI$549 million by June 30, 2014, including a CI$26.3 million principle debt payment made over the course of the budget. Total public sector debt, including those amounts owed by government-owned companies and statutory authorities totals just more than CI$678 million.
It is partly because the Cayman Islands government is spending so much money during the 2013/14 to pay off its debts that Cayman finds itself, once again, out with the principles of responsible financial management under the Public Management and Finance Law. Combing both interest and principal on various government debts, government will pay 12.2 percent of its projected core revenues for the year – or more than CI$78 million in a single year.
The debt service to core government revenue ratio is supposed to be no more than 10 percent each year.
The other problem area in the 2013/14 spending plan for the local government is in its cash reserves which, according to the budget figures presented to the Legislative Assembly on Monday, will only maintain 6.5 days’ worth of executive expenses. However, Mr. Archer explained that, since the implementation of the Framework for Fiscal Responsibility with the United Kingdom government into local law in 2012, that cash reserve has been measured from the end of the calendar year, Dec. 31, which is typically one of the lowest revenue points for the government in each financial year.