$552.8 million in core government spending proposed
The Cayman Islands may emerge from the end of its 2015/16 budget without the United Kingdom needing to approve future government spending plans, Finance Minister Marco Archer confirmed Friday.
However, in order to achieve that step toward territorial financial freedom, the government’s revenue projections for the year must be solid, with no unexpected expenses arising.
“We are not going to increase the tax burden,” Mr. Archer said.
The key issue for the 2015/16 financial year is how to pay off government debts.
The budget proposes spending $27.6 million on “financing costs” – interest payments on its debt – and another $20 million to pay down principal debt amounts, Mr. Archer said. Those payments, along with other smaller amounts due, put government spending to retire debt at 9.9 percent of its expected core revenue.
The maximum allowable expense to maintain legally mandated financing ratios is 10 percent of core revenue.
Contingency plans are in place in case government does not earn as much money from taxes as it expects. Mr. Archer said a “sinking fund” of $18 million has been established to pay off government debt in 2015/16 should the need for extra cash arise.
If Cayman’s government doesn’t meet all six legally mandated principles of responsible financial management set out in the territory’s Public Management and Finance Law, the U.K. will again be in charge of pre-approving Cayman’s next budget in 2016/17 – a situation government is keen to avoid.
Even if the government budget situation receives the U.K.’s blessing, the finance minister cautioned that the government still would not be able to start borrowing huge sums ahead of the 2016/17 budget year.
“We will only spend to the extent that we can afford to,” Mr. Archer said. “We do not plan to enter into any financial arrangements to pay for recurring expenditure.”
The central government spending plan for the 2015/16 year, which starts July 1, expects operating revenue of $661.2 million and expenses of $552.8 million, including the financing expense of $27.6 million.
That leaves government with a core “operating surplus” of $108.4 million.
However, the performance of government’s statutory authorities and government-owned companies during the year is expected to result in a net gain for government finances of $12.9 million, though not all government authorities are making money. Some, including the Turtle Farm and Cayman Airways, still require millions of dollars in assistance. However, the net performance of all 26 entities will result in an overall gain. The total operating surplus for the year, then, is due to be $121.3 million.
The government’s net cash flows for the year are expected to total $139.6 million, of which $50.3 million in capital (construction) projects will be paid, as well as $20 million for principal debt repayments.
Where the money is going
The government’s core operating expenses are increasing by about $16 million in the next budget, compared to the current fiscal year.
Most of that money will go toward a 4 percent pay increase for civil servants ($7.5 million increase), additional funding for the Cayman Islands Monetary Authority ($3.8 million), additional expenses for retiree healthcare to the Cayman Islands National Insurance Company ($1.8 million), more money for seamen’s and veterans’ benefits due to more people who are eligible ($900,000), funding for e-government initiatives ($700,000) and about $500,000 for salary “regrades” – essentially additional pay raises for government employees.
The government’s capital projects budget of $50.3 million is divided among:
- The Ministry of Planning, $10.5 million: Most of which will go to pay for work on George Town revitalization ($5.3 million) and to cover gazetted road claims from landowners ($3 million)
- The Ministry of Tourism and District Administration, $8 million: About $4.2 million will go toward the cruise berthing project, and $3.5 million will go to construction projects in Cayman Brac
- The Ministry of Education was allocated about $5 million for the “phased construction” of John Gray High School
- The Ministry of Health received about $2.2 million for projects including the George Town Landfill remediation
- About $2 million was allocated to the Ministry of Home Affairs for unidentified “national security” projects
- The Ministry of Community Affairs received $1.5 million for improvements to the Haig Bodden playing field and the Bodden Town Primary School.
In addition, $19 million was allocated to statutory authorities and government companies, including $9 million for the Cayman Turtle Farm to pay off expected operating losses and historical debts; $5.1 million to Cayman Airways for debt repayments; $2.4 million to the National Housing Development Trust for debt repayment requirements; and $1.5 million went to the Cayman Islands Development Bank for “recapitalization.”