Political advocacy group delves into finances
The Cayman Islands has $1.7 billion in “total liabilities” and $859 million in unfunded benefits promised to current and former civil servants by way of healthcare and pension payments, according to the political advocacy group Coalition for Cayman, which reported the figures in a recent issue of the Caymanian Compass.
Group member James Bergstrom said the numbers were put out in an effort to get the general public to “understand the budget” and depths of the financial problems Cayman faces.
“[The total liability figure] is too large for the size of the Cayman population,” Mr. Bergstrom wrote. “A large part of this is the $859 million unfunded civil service benefits and this must be tackled before it sinks the country.”
Cayman Islands government debt figures have been reported numerous times in this newspaper and other sources, as well as in previous Cayman Islands public bond offerings and in 2010’s comprehensive Miller-Shaw consultancy report. Finance Minister Marco Archer, citing this, noted his view that the Coalition for Cayman’s two-page print-out in the Compass on Feb. 7 was not “particularly useful.”
“It is disappointing to see efforts being expended on rhetorical exercises to sensationalize selection numbers in our national budget for the purpose of casting doubt on the economic recovery and future sustainability of the Cayman Islands,” Mr. Archer said in a response on Feb. 13. “This is akin to a person coming into your home and adding up your mortgage, your car loan, the future cost of educating your children, the estimated future costs of looking after your grandmother, and what it will cost to take care of yourself when you retire, then taking that total number, dividing it between the number of people in your household, and saying ‘well, each of you owe $100,000 today.’”
“A better exercise is not to sensationalize future obligations … but rather, to ask the question: does the government have a plan?” he added.
The four-year financing agreement between the United Kingdom and the Cayman Islands, made prior to legislative approval of this year’s budget, forecasts a $100 million “operating surplus” at the end of the year, which is on June 30, 2014 for budgeting purposes.
In addition, Minister Archer noted that three years from now, the government has proposed lowering the central government debt to $468.6 million and increasing cash and cash-equivalent reserves to $420.7 million, leaving the difference between debt and money available in the country’s bank account to $48 million.
“This will be a notable position when it is achieved,” Mr. Archer said.
Pension liabilities are listed in the 2013/14 budget at just more than $178 million. That figure is essentially the shortfall between retirement fund assets and liabilities, what financial advisors expect the government will have to pay over a rolling 20-year period to meeting the additional unfunded costs. The entire bill will not have to be paid in the 2013/14 financial year.
“The government should be lauded for placing the past service liability figure squarely on the face of its balance sheet,” Mr. Archer said. “Many advanced and developing countries do not place their pension liability obligations in their financial statements.”
Coalition officials point out that government’s projected $100 million operating surplus in the current budget, if it is achieved, doesn’t include costs for paying off debt principal amounts or for certain capital [construction] costs in the spending plan. Once those are factored in, the “surplus” drops to around $22 million.
The central government debt figure is entirely different from pension and healthcare obligations and is basically made up of a number of different loans that Cayman will have to pay off at various times in the coming years. Of particular note are balloon or bullet payment debts totaling more than $200 million that will either have to be paid off within the next five years or refinanced. Mr. Archer has previously said the government will pursue refinancing options.
Projected future healthcare costs for civil servants the coalition uses in its overview of the government’s budget come from figures compiled in 2004, which put unfunded healthcare liabilities at US$798 million. Those numbers are now 10 years old and the government is now undertaking an updated analysis of future healthcare costs as of Jan. 1, 2014.
The Coalition for Cayman points out several areas of the government budget where expenses had risen or where costs had not been cut quite a much as the organization had hoped.
A number of areas were identified, comparing the 2011/12 budget of the former United Democratic Party government and the 2013/14 budget put forward by the Progressives government, of which Mr. Archer is a part.
Those included: a modest cut in civil service salaries of $500,000, a $20 million annual increase in pension and healthcare costs, an increase in $13 million for community medical care, modest increases in the police service and fire service budgets, and an increase in education-related expenses of $14 million. Funding for tourism support in the islands had dropped by some $5 million between the two budget years.
Mr. Archer said the current government could not be blamed for increasing costs of healthcare, which is a global phenomenon. He said the government was looking at civil service healthcare plans with an eye toward reducing future costs, but would not endanger the health of civil servants, their families or retirees by doing so.
As far as education and public safety expenses increasing, Mr. Archer said the government was “unapologetic” for its investments in these areas.
The drop in tourism funding was due to “government finding smarter ways to promote the islands and reducing costs in the areas of travel” to overseas conferences and the like.