If all goes according to plan, the Cayman Islands government will be almost out of the red by the end of the 2016/17 financial year.
In a statement issued last week, Finance Minister Marco Archer said the ruling Progressives government was “working to achieve” a position where central government debt would be less than $50 million ahead of government cash and cash equivalents by June 30, 2017.
Mr. Archer, in a prepared statement, said the “difference between central government debt ($468.6 million) and the amount of money it has in the bank ($420.7 million) will be less than $48 million in just three short years.”
As of now – nearing the end of government’s 2013/14 fiscal year – that’s just a projection and it depends in large part on the achievement of substantial operating surpluses within the Cayman Islands government’s annual spending plan.
The operating surpluses, meaning where government takes in more money than it spends, are forecast to be $100.3 million by the end of this budget year; $123.5 million by the end of the 2014/15 year; $139 million by the end of the 2015/16 year – when the Cayman Islands hopes to regain total local control of its own finances from the United Kingdom – and $148.7 million in the 2016/17 budget year.
The achievement of the forecast operating surpluses at the end of each financial year is crucial to the government’s success in achieving the $420.7 million cash and cash equivalent position stated by Mr. Archer.
In short, the government will need those overages to pay off two things: principal repayments on its annual debt servicing requirements and the costs of capital [construction] projects for each year, in addition to putting money into its cash accounts. The overseas territory has been forbidden from borrowing to pay off either of those amounts at least through the 2016/17 financial year.
According to budget records, the Cayman Islands government will pay off about $106.6 million in principal debt amounts owed over the next four budget years. That doesn’t include an additional $117.8 million it owes in repayment of interest from the various loans.
In addition to paying off debt, the operating surplus will also have to pay for forecast capital project investments. Those expenses range from $47 million to $57 million in the next four years.
If government were to subtract the principal debt repayments and capital costs from its annual operating surplus on the balance sheet, the surplus amounts forecast each year would dip to $22 million in 2013/14, $51 million in 2014/15, $72 million in 2015/16 and $57 million in 2016/17.
For instance, in the current 2013/14 budget year, Cayman forecasts a $100.3 million operating surplus. However, its principal debt repayment paid from that amount is $26.4 million and its anticipated capital spending subtracted from that amount is $52 million, leaving approximately $22 million left over.
Financial Secretary Ken Jefferson has objected to this sort of accounting for government expenditures in the past when questions were put to him about it by the Caymanian Compass.
“It would not be correct to suggest that the operating surplus figure was not $100.3 million,” Mr. Jefferson told the newspaper last year. 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, he said.
“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 $26.36 million in repayment of principal debt, $27.27 million in purchases of property and equipment and $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.”