‘Financial independence’ targeted by mid-2016

Plan calls for short-term spending cuts, loan payments

The Cayman Islands government will cut $22.5 million in expenses during the next two budget years and will not enact any “new” revenue measures, according to Finance Minister Marco Archer, who presented the government’s strategic policy statement for the 2014/15 fiscal year to the Legislative Assembly Thursday.
However, Mr. Archer said the Progressives-led government would move forward during this budget year with plans to charge registration fees to hedge fund directors. He also said it was likely government would increase some other fees between 2014 and 2017 to keep up with the cost of delivering those services.

He did not say which fees might increase.

In addition, government debt payments will be front-loaded in the next two years, while public spending on capital projects will be limited and paid only out of government operating surpluses, Mr. Archer said. There is no plan to use long-term borrowing through the 2016/17 budget year and Mr. Archer said his ministry would minimize use of short-term borrowing through overdraft facilities during those years.

If all this is achieved, “government will attain financial independence within a few years,” Mr. Archer told the Legislative Assembly.

He said the government would particularly focus on paying off debt this budget year and next year, retiring at least US$10 million in outstanding government bonds before the 2015/16 budget year.

The government’s four-year financial plan also set goals of CI$340.6 million in cash balances by June 30, 2016, the date set by the United Kingdom for Cayman’s compliance with the principles of responsible financial management set out in the territory’s Public Management and Finance Law.

Premier Alden McLaughlin said such goals would not be met easily, and that his Progressives-led government would not be able to provide handouts to everyone who wanted or needed them.

“Government cannot do everything,” Mr. McLaughlin said, adding that sacrifices would have to be made to achieve government’s goals.

Other changes introduced by Mr. Archer would mean the government’s budget year begins in January, rather than in July, as is the case now. He also said government would move to multi-year budgeting.

Such a change requires legal amendments before taking effect. However, Mr. Archer said the plan is for the next budget, which begins on July 1, 2014, to run 18 months to Dec. 31, 2015. The next budget would then run from Jan. 1, 2016, to Dec. 31, 2017.

Mr. McLaughlin said the new schedule would prevent government from suffering “budget fatigue” – having just completed the 2013/14 budget and, weeks later, plunging into the process for the 2014/15 fiscal year.

In addition, Mr. Archer said the January-December budget schedule would allow government to receive the majority of its funds at the beginning of the year, January-March, when tourism revenues are at their highest and most revenues from the financial services industry are received.

“Government can more easily change its expenditure plans if there is a fall-off in financial services revenues,” Mr. Archer said.

The numbers

Core government revenues are budgeted to steadily increase between 2014 and 2017, according to Mr. Archer’s presentation.

Revenue of $655.3 million is anticipated in the 2014/15 budget year, increasing to $669 million in 2015/16 and to $676.9 million in 2016/17, Mr. Archer said.

Core government operating expenses were set at $532 million in the 2014/15 year, There are divergent figures for government operating expenses in later years, and the Caymanian Compass could not obtain a clarification by press time.

The government anticipated an operating surplus in each fiscal year of between $120 million and $150 million, Mr. Archer said.

Opposition Leader McKeeva Bush said during his budget debate that such robust revenue figures projected by the government would not have been possible if he had not “taken his licks” and raised revenues during his United Democratic Party administration’s previous term.

“We hope that the country can make that kind of money,” Mr. Bush said.

If all revenues come in as expected, the government’s core debt would be reduced to $468.6 million by the 2016/17 fiscal year, Mr. McLaughlin said.

Capital investments for the government are planned to be restricted each year to $47 million in 2014/15 and 2015/16, Mr. Archer said. Capital expenditure would be limited to $57 million in the 2016/17 fiscal year, Mr. Archer said.

“Election year,” East End MLA Arden McLean said, as Mr. Archer noted the increased capital project spending limit for 2016/17. Cayman’s next general election is expected to occur in May 2017.

Mr. Archer also made vague reference to refinancing certain amounts of debt owed over the next few years. He did not make specific reference to any particular debts, but it was understood Mr. Archer was referring to balloon payments due for various years between 2015 and 2019. A sinking fund had been established within the government’s budget to assist in paying down some of those amounts, Mr. Archer said.


  1. Cut expenses and have a surplus in the next few years with a surplus. Another example of ‘if I think it, themn it will happen. What’s the temperature in h…ll right now.

  2. Good steps indeed, most welcomed, and is productive to begin to get our financial house in order.

    To be fair, and so as not to think that all is wonderfully well and flush, using the operating surplus figure is helpful but really is a midlevel line item. There are many more items that are expensed thereafter.

    What is more helpful, one that paints the most accurate picture, is where are we so far as the bottom line is concerned.

    To put this in perspective using the 2013-14 Budgetary amounts, after the projected 100m operating surplus our obligated debt repayments are 26m, we assist money losing statutory authorities (that do not already get direct shortfall funding) of 25m, and we are going to spend 27m on current capital projects.

    Our 100m surplus now decreases to 22m (assuming all remains within expenditure and revenue expectations).

    22m, although tight, is still good right? Ah but wait, we still have 200m of pension obligations that we are behind on (and that should have been paid already), and we have reversed NOTHING for the upcoming 665m in civil service health care liabilities. On the latter, we can certainly leave that obligation to our kids or we can do the right thing and match that commitment to monies we should be setting aside now. Assuming one retires at 55 and lives to 85, those 30 years of coverage on a straightline or very simplistic basis will cost 22m.

    On a net position basis there is no surplus.

    And to give a flavour of what is coming, according to the 2013-14 Budget, our civil service pension and health care cost have risen from 55m (2011-12) to 75m annually. More than double the Police budget.

    Moving over to the revenue side, financial and legal services have taken quite a lick over the past two years from projected revenues of 176m (2011-12) increasing 83m to 260m (47 percent increase). Revenue from Tourism has had a 52 percent increase from 20m to 31m over the past two years.

    In other words, in order to get to our ‘net barely break even’ position, we have priced our two revenue mainstays, financial services and tourism, very high in the marketplace.

    Are we really that confident that we are that good and our customers and clients will pay whatever we demand?

    I would suggest that cutting only 22m in expenditures over 24 months (4 percent of total expenses) while continually increasing fees on a very fragile economy in an increasingly competitive marketplace will not get us to financial independence. Certainly not if viewed on a net basis.

    We need to do more, much more, if we hope to make that claim. If we have the will, and we are proactive with delivering (additional) meaningful solutions, we will indeed get there.

    Let’s do that.