Even if the Cayman Islands gets its public sector finances back within acceptable limits under local law, a U.K.-drafted fiscal governance arrangement signed in November 2011 will not be removed from the legislation.
“The limits [in the Framework for Fiscal Responsibility] are there because of the liabilities the U.K. faces if it all goes wrong,” said Peter Hayes, U.K. Foreign and Commonwealth Office Overseas Territories director.
Mr. Hayes, who was on a visit to Cayman this week, spoke about the state of public finances with the Caymanian Compass.
“A guideline is in the law now. Basically, as long as the Cayman Islands government stays within those limits, the U.K. doesn’t need to step in. It’s like in our own personal finances … if we’re comfortable, we don’t expect the bank management to bother us about how we’re spending our money.”
The Framework for Fiscal Responsibility agreement, signed by then-premier McKeeva Bush in November 2011 and passed into law by legislators a year later, sets guidelines on certain areas such as government spending and borrowing, bidding for public projects and rules for financial reporting.
The document prevents the Cayman Islands from entering into any further long-term borrowing to support public projects through June 30, 2016. The only exception to that rule is in the case of natural disasters affecting the Islands.
The principles could also include new rules for things like public project procurement at some stage.
Finance Minister Marco Archer has said he expects the Cayman Islands to reach that point by June 30, 2016, when government’s current budget plan expects annual debt repayments will be less than 10 percent of core government revenues, and government will have more than 90 days of cash reserves in the bank as required by the Public Management and Finance Law.
Through Jan. 31, 2014 – seven months into the government’s current budget year – Mr. Archer said public finances are operating with a roughly $80 million surplus, meaning government earned about $80 million more than it spent.
The end of Cayman’s budget year is June 30, and Mr. Archer said government expects to have a $100 million operating surplus.
“I think we’re pleased with the direction of travel,” Mr. Hayes said. “We have a lot of confidence in the way the Cayman Islands government is moving.”
However, the U.K. still has significant concerns about the amount of debt the Cayman Islands government is carrying, which Mr. Archer has said will be reduced only to around $460 million.
The Cayman Islands, much like the U.K., has gone through an uncomfortable process of change, Mr. Hayes said. It can no longer overly rely on debt to live beyond its means.
Minister Archer said last month that 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, the end of the government’s current four-year fiscal agreement with the U.K.
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.
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