Government passes UK cash test, one more hurdle remains

The Cayman Islands has more than enough operating cash in the bank, according to U.K. officials who are evaluating whether the government will return to local budget autonomy ahead of the next fiscal year which begins in July.

U.K. Overseas Territories Minister James Duddridge
U.K. Overseas Territories Minister James Duddridge

However, even if that autonomy is achieved, the government will still have to seek U.K. approval for certain public-private sector partnership projects going forward.

For now, one more test remains, that of whether the territory is paying too much each year to satisfy debt repayments, but the result will not be known until the current budget year ends on June 30, Finance Minister Marco Archer said.

Nonetheless, the acknowledgement that government had 116 days of cash reserves, which could be used to cover operating costs if needed, on Dec. 31, 2015 – typically the point during the year when the public sector maintains its lowest amount of cash – is a major accomplishment, Mr. Archer said.

“This is clear, independent evidence of the steady and consistent progress the government has made,” Mr. Archer said.

U.K. Overseas Territories Minister James Duddridge confirmed last month that the government cash reserves figure had been achieved, well above the 90-day surplus required in local law. Mr. Duddridge said the government was “comfortably on course” to maintain those cash reserves through the end of the year.

Typically, Cayman’s government earns its greatest portion of tax revenue between January and April, when most fees from the financial services industry are received and also when tourism’s high season is under way.

Minister Archer confirmed Tuesday that whether Cayman’s government can meet debt repayment requirements by June 30 is largely a function of how strong the local economy remains. He was relatively confident that the final hurdle would be cleared.

“Upon achieving full compliance with [financial] ratios, that will allow government to not have to seek approval from the U.K., prior to bringing its budgets to the Legislative Assembly,” he said. “However, even though we will not have to seek pre-approval … the budgets must maintain compliance with the [financial ratios].”

Also, requirements established by the U.K. as part of the Framework for Fiscal Responsibility agreement with Cayman in 2011 will remain in the local law. This will have an effect on certain public projects, particularly costly, multiyear endeavors that involve so-called “off the book” loans with the private sector to support financing.

Marco Archer
Marco Archer

One such current project is the proposed cruise berthing facility in George Town harbor. The government will require approval from the U.K. for a financing proposal which, at this stage, involves some up front funding from the cruise ship industry. If U.K. approval for that financing deal is not granted, the project will not go forward, whether or not the government maintains fiscal autonomy.

This arrangement chafes with some local lawmakers, including Bodden Town’s Alva Suckoo, who pointed out last year that the stringent financial requirements of the U.K.-imposed fiscal framework have “handcuffed” government in regard to some of the public projects it wishes to implement.

“We could have accelerated the country’s climb out of the recession had we not been so severely limited,” Mr. Suckoo said. “We are left in a position where we have to move forward … devoid of the ability to stimulate the economy directly ourselves [referring to government].”

Mr. Archer, while saying he could appreciate that view, noted that the Progressives-led government did not intend to borrow money during the upcoming 2016/17 financial year at any rate. He has also said the fiscal framework represents generally good guidelines for government’s financial operations.

“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,” he said. “And it does add significant costs to the implementation of the project, but it is meant to avoid some of the fiascoes that the country [has] experienced.”