Financial reform pushed by UK

The Cayman Islands Government is being pushed by the United Kingdom to sign a Framework for Fiscal Responsibility that would significantly change the way the Cayman can conduct its financial affairs.

Premier McKeeva Bush travelled to the United Kingdom to meet with Minister for Overseas Territories Henry Bellingham to discuss the framework agreement and other matters.

“The matter has the potential to impact not only government’s financial policy-making, but our broader economic status and government’s overall performance in terms of good governance,” Mr. Bush said in a statement. “This policy document, which we are negotiating with the UK, therefore has the ability to affect the quality of life and the standard of living in these Islands.”

The Framework for Fiscal Responsibility presents what Mr. Bush called “unquestionably laudable and sensible principles”. However, he said his government has reservations about some of methods it puts forward as a means to achieve its principles.

One aspect of the document that drew concern from the government was section 28, which deals with debt.

“Unless in exceptional circumstances different arrangements are agreed in writing by the Cayman Islands Government and the Secretary of State, the Cayman Islands Government will borrow only to fund capital expenditures which will yield sufficient revenues to fund debt service costs,” the document states.

Mr. Bush said the government found the requirement too restrictive.

“The government and I interpret that paragraph 28 of the [Framework for Fiscal Responsibility] means, as an example, that separate juvenile remand facilities which are required in order to comply with the Islands’ Bill of Rights – scheduled to come into effect in 2013 – could not be constructed using borrowed funds, because such a facility will not generate a revenue stream to fund debt service costs,” Mr. Bush said.

“Further, under the Bill of Rights, the government must build and maintain schools to provide primary and secondary education, free of charge. If in the future Government needed to borrow funds to finance additional educational facilities, it would appear that the FFR would disallow such borrowing – simply because such facilities would be unlikely to yield sufficient revenues to meet its associated debt service costs. Understandably, government has concerns with respect to this provision of the FFR, and are robustly questioning its application.”

Mr. Bush said the previous People’s Progressive Movement administration’s mishandling of government finances prompted the action by the UK government.

“As everyone well knows, this government took over from a previous government that had borrowed and its overspending had placed this country in a dangerous financial position,” he said. “Because of this the United Kingdom Government has asked us to sign an agreement with them. Based on the historical evidence of what can happen when a financially irresponsible government that spends without any thought process or a carefully thought out plan, I am in favour of signing such a mutually agreed Framework for Fiscal Responsibility.”

Mr. Bush said senior civil servants of the Cayman government had reviewed the Framework document and had provided suggested changes, which will be discussed with the FCO.

Although the document has not yet been signed by the Cayman Islands Government, Mr. Bush indicated in a telephone interview on Sunday that it would have to sign something.

The Framework for Fiscal Responsibility will be published on the government website on Tuesday.

“I urge everyone in the Cayman Islands to make themselves familiar with it so that they will better understand any debate on this which may follow,” he said.