Seven years after his former government was blamed for running up an $81 million operating deficit, ultimately placing Cayman’s budgeting process under United Kingdom control, Premier Alden McLaughlin is expected to announce Friday that the island’s government will soon be back in charge of its own fiscal destiny.
Mr. McLaughlin said Thursday that the government’s 2015/16 spending plan meets all financial requirements set out in the Public Management and Finance Law and by the U.K.-agreed Framework for Fiscal Responsibility, which was added in regulations to that law in November 2012.
The premier said that means government financial planners will not have to seek the U.K. Foreign and Commonwealth Office’s approval prior to presenting the 2016/17 spending plan to the Legislative Assembly, a process that in past years resulted in significant delays in approving the budget.
Approval for the 2015/16 budget, which is to be made public Friday, May 15, was granted by the U.K. in March on the first presentation, government sources confirmed.
Over the past several years, Cayman has made significant progress in reducing national debt and improving operating surplus cash, but two major issues continued to hamper efforts for financial “freedom.” One was that government cash reserves, calculated during what is typically the lowest cash point of the budget year – Dec. 31 – did not cover 90 days of government executive expenses. The other issue was that government’s debt repayment amounts were more than 10 percent of its annual revenues.
Both of those issues have been overcome in the 2015/16 spending plan, Mr. McLaughlin said.
“We only required [U.K.] approval because the budget did not comply with the law,” the premier said. “Once we are compliant, they have no basis – legal, constitutional or otherwise – to intervene.”
Finance Minister Marco Archer said last December that “God willing,” Cayman would meet U.K. budget mandates, but he stressed that Cayman would have to maintain its current financial position through the end of the current budget year to do so.
“Provided there are no natural disasters … no global or U.S. recessions, we are on track to hit budget targets,” Mr. Archer said.
The 2015/16 spending plan is expected to propose an operating surplus of more than $120 million.
In addition, the premier has promised “no new revenue measures” – taxes – will be introduced during the 2015/16 year, and that government will again incur no long-term borrowing during the year as per earlier agreements with the U.K.
For the current budget year, which ends on June 30, the government has projected revenues of $657.8 million and expenses of $529.7 million, giving central government a projected operating surplus of $128.1 million. The “surplus” does not factor in what Cayman will have to pay to retire debt principal or what it spends for capital (construction) projects. After those costs are added, the remaining amount is around $55 million.
The projected surplus for the 2015/16 year was last set at $124.5 million, which factors in a 4 percent pay increase for civil servants that takes effect on July 1. Additional budget surpluses are projected in the 2016/17 and 2017/18 years.
Opposition Leader McKeeva Bush, while taking credit for the revenue measures enacted by the former United Democratic Party that have left Cayman with a healthy budget surplus, has wondered if the hundreds of millions in savings might be too much of a good thing.
“It’s always good that we have a surplus, but you can’t save up a surplus and leave your people without electricity and without work,” Mr. Bush said during a Legislative Assembly debate last year.