Public Accounts Committee told there could be a budget surplus after all

Financial Secretary Kenneth Jefferson told MPs there is unlikely to be a $60 million deficit at the end of the year as previously predicted and that there could be a small surplus instead.

Jefferson, who is also chief officer for the Ministry of Finance and Economic Development, was addressing members of the Public Accounts Committee, who met on 4 Sept. to scrutinise the auditor general’s performance report, ‘Improving Financial Accountability and Transparency: Long-term Financial Sustainability‘.

Financial commitments

The report, which was published in February, warned that the Cayman Islands was at risk of not being able to meet its financial commitments unless it got to grips with its spending strategy.

Estimates as to the size of the expected surplus or deficit have varied considerably over the past few months. It was originally expected that government would have an operating surplus of $54.7 million, but an updated forecast released by the Ministry of Finance and Economic Development in April showed that there could be an operating deficit of $26.2 million by the end of 2025 – a difference of $80.9 million.

Following the general election, government carried out its own assessment, revealing there was likely to be a $60 million deficit.

Jefferson said that the $60 million deficit figure arose from government discussions about the Pre-Election Economic and Financial Update (PREFU), which had said that an end-of-year deficit could be avoided by increasing revenues and tackling spending.

Jefferson said that after the election the deputy governor asked the 21 different government departments to have another look at the figures and that’s when the $60 million figure emerged.

“Obviously, the government took note of the need to take action and hence the 16th July memo from the honourable premier who was the acting finance minister at the time, asking for reductions,” he said.

This led to various cost-cutting measures including a civil service hiring freeze, which Deputy Governor Franz Manderson said has already resulted in $11 million in savings.

Small surplus expected

Jefferson told MPs at the 4 Sept. meeting, “From what I see now, unless something goes completely haywire in the last five months of the year, I do not believe that we will have a $60 million deficit,” adding, “I see a break-even position. I see a small surplus position.”

Committee member Roy Tatum said he was “heartened” to hear that government was unlikely to have a deficit, and asked Jefferson, “Given the number of times, since the PREFU and along the way, that the expectations of the possibility of a deficit has changed”, would the financial secretary comment “on whether or not as a country we have a challenge with accurately forecasting even over a relatively short period of time like a year?”

Jefferson said that there was “no doubt” that this was the case and put it down to “human nature” saying, “There is an almost inherent desire by heads of department to understate their revenues.”

He added, “The revenue projections and expenditure projections can improve and they should improve,” and said he didn’t have any objection in principle to the establishment of an independent fiscal body such as the UK’s Office for Budget Responsibility, which looks at the financial implications of government policies.

Deputy Leader of the Opposition Kenneth Bryan said the current system of reporting, where there were different financial pictures painted by different reports, needed to be improved upon, given their importance in helping people decide who to vote for.

“I think that what we have to recognise is our system is flawed,” he said.

Asked in committee by Bryan what needs to be done so there could be better projections of revenue and better budgeting of expenses, Jefferson suggested government departments report any differences in figures to the deputy governor as the leader of the civil service, to try and get to an agreed position.