Fiscal framework to remain in place indefinitely
The Cayman Islands is “on course” to have its budget freedom restored within 18 months time, according to Finance Minister Marco Archer.
“By the grace of God, provided there are no natural disasters … no global or U.S. recessions, we are on track to hit [legally mandated] budget targets,” Mr. Archer said during an interview last week with the Cayman Compass.
However, even if it meets financial management goals set out in local law by the U.K.’s deadline of June 30, 2016, other imposed constraints on government spending and borrowing will remain in the form of an agreement known as the Framework for Fiscal Responsibility.
The framework document, first signed by then-Premier McKeeva Bush in late 2011, was added to the territory’s Public Management and Finance Law in November 2012. It governs a wide range of issues, including public procurement processes, approval of public-private partnerships for infrastructure projects and in some cases, even how much money government can spend on a project without first seeking approval from the U.K.
Mr. Archer, who inherited the task of ensuring that government meets the U.K. timeline, said the framework should not affect local approval of budgets or the Cayman Islands’ ability generally to borrow long-term.
“I wouldn’t quite refer to [the framework] as U.K. controls,” Mr. Archer said. “The control only relates to the preparation and approval of the budget prior to its presentation in the Legislative Assembly.”
For the last several budgets, Cayman officials have been required to present their budget to the U.K.’s Foreign and Commonwealth Office for approval. If the U.K. office doesn’t approve the spending plan, it doesn’t go to LA members. In past years, the U.K. approval process has delayed government budgets, even past the July 1 start of the fiscal year.
The Framework for Fiscal Responsibility should not impede any future budget approvals, Mr. Archer said.
“They’re good guidelines to operate under,” he said. “The only complaint that I would say is that because of the requirements for the various reports and outline business cases [for public projects] … it does add a significant length of time to when you can bring a project online. And it does add significant costs to the implementation of the project, but it is meant to avoid some of the fiascos that the country experienced.
“You can’t put a price on good governance.”
U.K. Overseas Territories Director Peter Hayes spoke about Britain’s arrangements with Cayman in regard to local finances during a visit here in late 2012.
Currently, Cayman is prevented from entering into any further long-term borrowing to support public projects through June 30, 2016. The only exception is in the case of natural disasters affecting the islands. To date, the Progressives-led administration has not announced any plans to borrow money through 2017. Mr. Hayes said some adjustments could also be made to the fiscal framework document as Cayman’s financial situation improves.
“One would hope, as the financial management situation develops and as the guidelines come back within the debt limits … then obviously we want to make sure the Framework for Fiscal Responsibility is keeping pace with circumstances,” Mr. Hayes said.
The fiscal framework now requires government to improve the quality and independence of statistical economic, business and social data that is gathered, set up a reporting framework for its expenditures and develop econometric models to assist with forecasting coercive revenues. Government also has to discuss all proposals and decisions affecting expenditure, revenues and borrowing in its annual strategic policy statement.
Other major requirements of the agreement include that Cayman “suitably appraise” all public projects before the procurement process begins, and all projects must have a sound business case, demonstrating the economic need for the project, and include a risk-assessment completed prior to bidding to enable an informed decision on whether to proceed to the procurement stage.
The framework stipulates that for projects with a lifetime value above $5 million and for those in which the use of public private partnerships or any other form of alternative financing is being considered, the Cayman Islands government will retain independent accounting, legal, financial, economic, environmental and other technical advice as appropriate to ensure robust investment appraisals are produced. In addition, the agreement demands that public-private partnerships will not be considered for projects of less than $15 million.
The framework also demands that government, as part of its risk management, makes contingent and actual liabilities, such as pension and healthcare, subject to actuarial assessment every three years, and set out strategies for managing these liabilities in the strategic policy statement.