Budget surpluses projected for the Cayman Islands

Monday,  December 5, 2005

GEORGE TOWN, Cayman Islands: Amid a forecast programme of major spending on capital projects, the Cayman Islands Government is projecting a $24.5 million operating surplus for the next financial year that begins July 2006 and ends June 2007. 

This money that Government expects to have retained after expenses is to be followed by a dip to a $17.8 million surplus in the next year that ends on June 2008, and a resurgence to $29.6 million in the following budgetary year closing in June 2009. 

The achievement of projected surpluses over the next three budgetary years represents a positive performance over the expected results of the current financial year that ends June 2006, in which the money held after regular expenses is forecast to be $3.3 million.

This amount is however wiped away when extraordinary expenditure of $13.4 million relating to Hurricane Ivan recovery is taken into account, leaving a deficit of $10.1 million.

Spending on Ivan recovery is regarded as a one-off activity and such action is not included in budgets for the next three years.

Budgetary surplus projections for the next fiscal year and the two periods that follow are contained in the Strategic Policy Statement tabled by Leader of Government Business Kurt Tibbetts in the Legislative Assembly and passed by the House on Wednesday, 30 November.

The function of the SPS is to outline government’s budgetary objectives for the following financial year and the reasons behind them. The law requires that this document is presented in the House before 1 December, and six months later the budget is to be laid before parliament for debate.

According to the SPS, “In developing the 2005/6 Strategic Policy Statement, the Government applied significant effort to establish medium-term aggregate targets for the three-year period 2005/6, 2006/7, 2007/8 that were robust, achievable, sustainable and reflective of the Government’s medium-term policy agenda.”

This is a ‘roll forward’ approach to budget planning in which pivotal parts of the previous year’s programme are taken over.

Consistently Government planners carried forward for the next budgeting period underlying elements of the current year’s strategy: fiscal responsibility; addressing the country’s social and economic infrastructural needs; and economic management considerations.

As it re-affirmed Government’s commitment to the Principles of Financial Management within the Public Management and Finance Law, the SPS referred to Cayman’s infrastructural needs in the sectors of education, transportation and government administration: “These needs have both capital and operating requirements and their magnitude is considerable … In line with the 2005/6 SPS, substantial net investing cash flows [borrowing] are targeted through the forecast period. This reflects the Government’s announced capital expenditure programme for the next three years, including new schools and an expanded roads network. Allowance has also now been made in these forecasts for the Government Office Accommodation Project.”

The money Government receives annually cannot meet the financing needs for these capital ventures. For this reason there is a planned programme of borrowing, and the raising of additional revenue to support the new services.

“Many of the necessary infrastructure investments (such as new schools, new Government accommodation buildings and new roads) will have long-term benefits for several generations. In these circumstances it is appropriate for the Government to borrow to finance these projects as, not only does this spread the financing cost, it also helps to match the costs and benefits over time.”

Within the SPS are rules controlling how external financing should be taken. “The Government established these rules to ensure that the total of borrowing is maintained within serviceable limits and does not become an impossible burden on future generations of Caymanians.”

Among the limits set out within the Principles of Responsible Financial Management is that Government borrowing must not exceed 10 per cent of its debt obligations inclusive of interest payments. The rule is fully observed in budget year 2006/7 when borrowing is at 8.3 per cent, and year 2007/8 where it stands at 9.6 per cent. That maximum figure is however slightly overstepped the following year, taking loans acquisition to 10.2 per cent.

“The targeted borrowing ratio of 10.2 per cent in 2008/9 is a temporary departure from one of the Principles of Responsible Financial Management in order to allow for the construction of new Government office accommodation. The Government intends to manage its borrowing programme after 2008/9 so that the borrowing ratio returns to 10 per cent or below within two years.” 

The SPS indicates that while borrowing is necessary to finance the capital development, funds also have to be raised to support the new and additional services that will emerge. Towards this end Government will introduce new revenue measures in the 2006/7 year to increase its income by $25 million, and $3 million in the following budgetary period.

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