An Address on Caymanís Financial Situation
The Hon. Leader of Government Business, Mr. McKeeva Bush, delivered this speech to a town hall meeting on 29 September 2009.
Good evening ladies and gentlemen.
Many of you know that I am a man of faith and that faith has and will be the cornerstone of my strength as a leader.
But some one reminded me of the Chinese proverb:
“May you live in interesting times”
And I believe it is appropriate to say that the people of the Cayman Islands have lived in interesting times for quite a number of years.
In fact, it has been our resilience in meeting the challenges posed by interesting times over the past 40 years that has contributed to the economic success and entrepreneurial spirit that is ever-present in the Cayman Islands.
And it is this spirit which has resulted in helping to create the truly extraordinary, God-fearing and prosperous country the Cayman Islands is today.
I would further like to venture that I would rather face the challenges of living in interesting times – which ultimately can help create many life-enhancing experiences – than be living in uninteresting times which are peaceful and tranquil, but do not yield progress because they focus on the status quo.
I would like to be clear about this. I am not suggesting the current upheaval caused by the Cayman Islands Government’s challenging financial position is a welcome development, but what I am saying is that our capacity to meet the challenges such as those facing us right now is a direct measure of our continued success as a progressive, relevant and prosperous society.In other words, we have to be ready and willing to embrace change!
And in that context, I am here this evening to tell you that you have my assurance – as well as the assurances of my colleagues in Cabinet, backbench supporters and leaders in the private sector – that we will persevere – as the rest of the industrialised world is persevering – to see better days and improved financial health in the future!We will see this through and be stronger as a result!
We are ever-conscious of this government’s accountability to you, the people of these Islands, and it is first and foremost in our mind and reason we wanted to organise this gathering this evening.
What I intend to do at this meeting is to update you on how the Government has resolved the current financial challenges and our discussions with the UK, – including a preview of measures under the soon-to-be-tabled 2009-10 budget – and most importantly, tell you what we see as the way forward in terms of changes that will now need to be implemented to improve our economic situation in a sustainable manner, and to take advantage of what lies ahead, so we can secure a solid position of the Cayman Islands for generations to come.
Ladies and gentlemen, you have heard the rhetoric in some of our domestic media as well as overseas news organisations making much noise about the Cayman Islands imminent financial demise.
Well folks, nothing could be further from the truth.Those who have predicted our financial collapse ignore the facts pointing to our strength and resiliency, including the fact that:
- We have not experienced a single banking failure in the midst of the worst global economic crisis the world has seen since the Great Depression;
- Moody’s, just weeks ago, emphatically affirmed Cayman’s Aa3 rating and stated it fully expects, “significant improvement in fiscal outturns once the capital program is completed;” and;
- Our tourism and financial services sectors face challenges, but continue to hold their own in two of the most significantly impacted industries of the global economic downturn.
In other words, we may be down, but we are certainly not out!
And in terms of the Government-specific financial picture, we are far from insolvent. But I must concede that we do have some challenges facing us in that regard, just as many other governments of industrialised nations are facing and some in much worse circumstances.
As many of you are no doubt aware, for the first time ever, the Cayman Islands has had to seek the Foreign Commonwealth’s Office consent to engage in borrowing up to $376.0 million required for the current 2009/10 financial year.
This is the case because of the dire financial position that the new government found the country in, when taking office, meant that we were failing to comply with the various ratios which are agreed between the Cayman Islands and the UK.
Our initial request for approval to borrow up to CI$376 million has been significantly reduced because of deliberative actions the Government has taken since our sit-down meeting with the FCO on the 17th September.
I would like to stress to all of you, as I have said to other domestic and international audiences, that the Cayman Islands does not need a bail out from the UK, nor does the Cayman Islands need the UK to repay any of its debt or expect the UK to assume any of our liabilities as a Government.
The only reason that we were in these discussion with the UK is because we needed their permission to borrow.
Two weeks ago, you are aware, that a delegation comprised of myself, the Financial Secretary Kenneth Jefferson, and others presented our strategy to the UK to address the current situation.
Over the past few days we have been in ongoing discussions with the FCO on these matters. These discussions have been at time tense but for the most part they have been handled professionally on both sides.
Throughout the discussions, this government has continued to maintain the position that we while we agree that we need to examine solutions to ensure that we are financial sustainable, we will not be pressured to do anything which would destroy the success that we have worked hard to achieve and which would cause a negative impact on the standard of living of Caymanians.
We must protect our way of life. And that is something we have always maintained throughout these discussions. That is why we stood up against rushing to impose any form of direct taxation.
We have held steadfast to that position and today I can reveal that we have found solutions to these challenges without having to resort to direct taxation. However to get to the point of where we could present a Budget, we have had to cooperate with the UK FCO.
I will now outline briefly to you how we have addressed our challenges:
- We have made further cuts in public sector expenditure. This has not been easy, but we recognize that there are sacrifices that must be made to get through these times. Everyone in the private sector and many of you are making sacrifices in your own lives. Because I know that you have had to do that. I know what it is like to struggle and not be able to pay the bills. I know that many of you are sacrificing to ensure you meet your basic needs. And you know what? We in government MUST do the same and we must do so now, not tomorrow.
Concerted efforts by Government are and will continue in managing operational expenditures. Major cost cutting measures have been implemented across the Government and include restrictions on the number of new staff to be hired during this year; reducing furniture and equipment purchases; restricting overtime; identifying ways to reduce accommodation rent cost; eliminating all but essential official travel; and restricting the usage of government vehicles for private purposes.
- The Government will responsibly explore the avenue open to us of divestment of public assets. The objective of this consideration is to increase the cash resources that the Government has available to it during the year. Moreover, every effort will be made to retain a portion of public assets being owned by Government or other public bodies. Even if an outright sale occurs, every effort will be made to regain total or partial ownership when public finances improve
One example of this is the case of our Sewage System. The Government currently owns a limited sewerage system. Sale of the sewerage system would enable the country the benefit of having access to a national sewerage system as a result of direct investment completely funded by private investors. Divestment would also allow the Government to secure additional cash during the current fiscal year, and a system that safeguards our health and our environment.
We are currently going through the process of inviting interested parties.
We are specifically seeking to find a partner to assist with the expansion of the current sewerage treatment network; the current sewerage treatment network only covers a very limited portion of the Seven Mile Beach area. The septic systems that are used throughout the majority of the island, is extremely problematic and is creating a major environmental issues, which could have a devastating impact on the economy due to negative impacts that would occur to our tourism. It is unsustainable to continue with the current septic system and as such the government is hoping to find a private investment company to expand the sewerage treatment system to encompass all areas within Grand Cayman.
If the government is able to secure a private partner, this will lead to a additional money been paid to the government for the existing sewerage treatment asset, additionally are more importantly it will also provide much needed additional capital investment, which will stimulate economic growth, which lead to everyone of us here tonight, listening on radio and watching on TV to be able enjoy a much better way of life. These are unprecedented times and therefore we must seek to find innovative strategies to allow us to bring back prosperity and hope back to our lovely islands
The private investor in the current sewerage system will be asked to install throughout the entire Island a new sewerage system that will collect all of the wastewater and discharge it to treatment plants, which will eliminate groundwater pollution from untreated sewage disposed to boreholes.
It is estimated that the total Capital investment for the entire project will over US$150M. This investment ladies and gentlemen will lead to greater economic growth through the multiplier effect, leading to approximately US$500M of additional money into the economy. It will also create much needed employment for our people over the life span of the project. This project will employ plumbers, engineers, laborers, heavy equipment operators, masons and much more. A project of this size will employ over 1000 persons both directly and indirectly.
- The Government is currently the sole shareholder of a number of companies and statutory bodies. These bodies were capitalised by the Government and are supported from time to time.
- The government has also raised sufficient additional revenues and cut costs so that we now expect a small surplus for the 2009/10 fiscal year, which ends on 30 June 2010. So we will turn the deficit of CI$81 million that we inherited when taking office: which is split into a deficit of $70 million by Central Government and a $11 million net deficit by Statutory Authorities and Government Companies, into a surplus by June next year!
The result of all of these changes is that we will now comply with all of the various ratios under the law. In other words, in meeting all the legal requirements, we would no longer require the UK’s permission to borrow.
Getting to this stage has not been an easy task. The size of the issues that we found since taking office has been tremendous and at times felt insurmountable. But we persevered and we have found a result that ensures that our cash reserves are back up to 90 days, we expect to have a surplus in our operations, our debt servicing levels are within control again, and our level of borrowing is back within manageable levels.
Over time we have supported these authorities with subsidies to assist them in their operations. We have provided cash injections when they need it. And finally we continue to provide guarantees for their loans when required.
We recognise that in the current state of financial challenges, the Government must look not only at its revenues and expenses, but it must also assess the state of all of its current assets and resources in attempting to secure sustainable solutions.
Several of these bodies have accumulated cash reserves over the years and these are not required as a priority for the current, and in some cases even the next, fiscal year.
We have therefore taken the decision as sole shareholder of these entities to ask for a dividend from selected Statutory Authorities.
Policies to ensure our economy remains sustainable in the short to medium term.
While we have achieved what is necessary to put a robust budget to the LA later this week, and this is targeted for Thursday, we also recognise that there is still much to do ensure that our plans work.
This plan will not work if we do not do what is necessary to improve our economy in both the short term and the longer term.
Let me say this: We will need to make some tough decisions in this area as well.
If we do not do what is necessary to encourage inward investment. If we do not do what is required to attract new types of businesses to our country.
If we do not do what is necessary to drive our economy forward.
This plan will fail. And not only will it fail, but we will give the UK another excuse to get involved in our domestic affairs.
I am a firm believer, that we MUST control our economic destiny. And this requires that we make the decisions today, not tomorrow, to secure economic success and high quality employment and business opportunities for all Caymanians.
We must recognise that new businesses will not always be able to setup with 100% Caymanian only employees. This is unrealistic. We must also be realistic in recognizing that not every Caymanian currently without a job will be able to fit a new position in every firm. But we must find employment for our people.
Already we have recognized the need to fast track applications critical to the needs of the financial sector and other industries. Under this budget a fee structure has been put in place for work permits where employers of work permit holders in all sectors are now paying their way in the community. They will be making a tremendous contribution to the country’s revenue and as a result whilst protecting Caymanian jobs will be at the forefront of any immigration policy, we must ensure that all necessary permits are granted expeditiously and efficiently in as little as 24 hours in some cases
Most of the projects that we support, if the go ahead is given, will take six months to put a shovel in the ground, which means getting people employed. As you all are aware, people are unemployed and the number is growing. People on this island who believe they should get the project will try to delay us, and they will go to the media, and all kinds of things will be said, fingers pointed and accusations made. But the sole objective of this Government is to move quick enough to stem a problem, there is no other motive. What are the problems? We have found a wicked situation, there is no money and there are lots of bills. So while people continue to talk, we must lead and rectify this problem that the PPM has left. We will not allow this Country to go belly up.
People are unemployed and there is no work, and there are lots of immigration situations where thousands of poor people are given Work Permits for $4 – 5 per hour. We have given instructions that any person who has people on Work Permit and has no work for them, the Work Permit should be cancelled. This will take effect in two weeks to give those persons who have no work, time to get ready to go back home. Of course when the economy is back up, and running at a much better level, they can be rehired, if the employer needs them. Those employers who have people on Work Permits, with no work should see that it is cancelled. If not they will be prosecuted according to the full extent of the law and any future prospects of securing a Work Permit will be jeopardized.
We must find a way to encourage new investment which enables firms to find the workers they need while affording the maximum opportunities for Caymanians.
But we will NOT be able to do this without accommodating investors.
We cannot expect to attract significant new investment by treating investors in the current way we are in terms of our policy environment. We must give something to get something.
New investment creates job opportunities for every Caymanian. They also create new opportunities for Caymanians to own businesses.
Over protection, particularly in these dire economic times, will only stifle our economic recovery.
We must therefore prepare ourselves to be more accepting to non Caymanians. We must go back to the non divisive, harmonious environment we have had for decades while our nation became one of the most successful economic models in the world.
We cannot simply throw that model out the door when we are facing some hard times.
I believe that the difference in the approach we took years ago and what we must take now lies in our efforts to prepare Caymanians to participate in the economic success. What we must do now is support Caymanians to become owners of businesses by giving them the support of a well crafted small business strategy.
And we must complement that with better vocational training and educational opportunities.
Over protectionism cannot be the sole strategy, because it simply will not work. It will NOT generate the needed investment. It will NOT create the opportunities for the Caymanians to become owners or gain more senior positions.
Without economic activity in the first place, none of those objectives will be secured. And the additional and much needed boost to our economy cannot occur without our acceptance of foreign investors.
As I said before, we cannot do this alone. So let’s work together as a community for the betterment of the Cayman Islands.
There are numerous other areas that we will now have to progress in order to address the economic situation.
There are many ideas that we have considered and many of these have come directly from the wider community. The problem we have faced is that there are always special interest groups that oppose change.
To give you just a few examples. When the possibility of constructing a marina for mega yachts was raised for the North Sound area there was opposition to this. But this could generate additional government revenues and jobs, and if done correctly, would be a great continuation of this country’s proud maritime history.
All countries and all societies need to utilize their resources carefully, to maximize the benefits while minimizing the impact, to think of today with an eye on tomorrow. Cayman is blessed with some of the most rare and beautiful water on earth and over the years our people have made their lively hood from these waters and we have impacted them as well. Whether it is the fish we take, the daily boat traffic, the people on the sand bar or the run off from our shores, we are impacted by and are impacting our waters every day. We might wish that this were not the case but it is, rather than ignore it we need to face it, and make choices that will provide the best possible outcome for our people and our environment. In these challenging times we are forced to work harder to make ends meet, that also means we have to work and be smarter as well, not throw away our future to satisfy today. There has been a lot of emotion around the creation of a deep water channel in the North Sound but the reality is that the Sound is being impacted every day and the status quo is not an answer. Every day there is damage being done to the Sound by boats that drag a brown streak as they carve up the bottom, every day this stirring up is killing of the plants and coral and every day the Sound is closing down, slowly dying, while not providing the benefits to our people that it can.
We are the largest luxury yacht registry in the world but few if any of the ships registered here ever come, aside from the registry fees we gain nothing from letting them fly our flag. Many of them would come if they could; many of them would like to spend some of their time and money here in Cayman if we would let them.
For decades we allowed partial dredging in the Sound but gained no real benefit, channels have been cut and already exist in many parts but have never been connected. We are told and we believe, that a properly built channel will bring many visitors to our islands, this will expand our revenue base, this will bring new investment, this will bring new opportunities to the people of Cayman to benefit from the sea while caring for it.
Studies have been done that show that a properly constructed channel can improve the health of the North Sound, both by improving circulation, which improves the health of the water and plants in the Sound and by creating a path for vessels to move about the Sound without dragging the bottom and stirring up the sand and sediment.
A channel will bring many millions of dollars in benefits and at the same time allow for a long term and sustainable environmental future for the Sound. The channel will allow for a diversification of our tourist product and entice the type of high end tourist we need to support our future.The time has come to move beyond emotion and to do the right thing for our people and our environment but do it wisely and with care so that the benefits are real and the sanctity of the environment is ensured.
Studies will be updated and carefully scrutinized, we will focus on the facts and make the right recommendations, we are not cavalier in our approach but neither are we afraid to act when action is necessary for our future and the future of the environment that we have inherited from our grandparents and must pass on to our grandchildren.
Mega Yacht Marina – Economic Activities
- Berth or slip revenue
- Internet Access
- Fuel/Duty Free Fuel (very popular!)
- Transportation/Limo's/cabs/car rentals
- Air travel services
- Concierge services - booking hotels, restaurants, golf
- Food and Beverage
- Body Guards
- Courier services
- Repairs and Maintenance (this is huge but requires investment in the facilities with heavy lifts, wet and dry docks/etc. R&M also requires skilled craftsmen be employed, like carpenters, welders, painters, machinists, etc.)
When we speak of attracting international investors to bring 5 star quality developments to this country, opposition is also raised. But again this would bring badly needed revenues and jobs and opportunities for Caymanian small businesses that provide services to these world class developments.
When we talk about ensuring that our financial industry which now brings nearly 50% of all government revenues and employs thousands of Caymanians, is protected and can gain access to the employees that they need, we also face opposition to that as well.
We cannot have our cake and eat it too. Opposition to change at this time is overwhelming within certain quarters.
But ladies and gentlemen change is exactly what we need at this time!
When the people of this country elected a new Government just 4 months ago, they asked for change.
We will establish the Cayman Islands Pride Cleanup, and we have set aside 1.1 million dollars for a clean-up campaign in each district. We will hire people in each district and constituency, to do painting of public buildings, roadside cleanup etc in order to beautify the Islands. This is a work programme for the unemployed that will begin on November 1st and exist until December 15th.
We will further address the remaining damages from Hurricane Paloma.
We have set aside some funding for much needed road works in the sister Islands and some road-works in Grand Cayman. Plus there are also funds set aside to handle the flooding in Cumber Avenue and Randyke Gardens.
We will support the very good after school programmes that so many Churches have, and offer them funding where needed and requested, for these programmes.
We have set aside funding for the Sunrise Centre to get a new a permanent Home.
We have included an additional 1.1 million for local and overseas scholarships, or 317 new scholarships.
A National Employment Programme has been introduced and the details are being introduced around the Island.
We have also increased Tourism Scholarships by 10.
We have decided that many Caymanians were seriously hurt by the Matrix contract Fiasco, and so we have budgeted $400,000 to pay local contractors who have been left to flounder in loss to their business because of the way the PPM allowed Matrix to conduct business in Cayman.
We have made arrangements for Cayman Airways to start flying out of Miami direct to Cayman Brac.
We will also reinforce the Neighbourhood Policing Programme, and Develop and implement a Border Control & Security Programme.
Cabinet Members and Chief Officers, Personal Assistants, Heads of Departments and some Police, under a new directive will be the only persons using government cell phones. A policy is in place restricting the use of Government Vehicles.
And if we do nothing, we will fail in our duty to represent the people.
There are a number of factors which have informed the Government’s decision to relocate the cargo port to the Eastern end of the Islands. The first reason is to improve National Infrastructure Planning. The current location of our cargo port in George Town is problematic on a number of fronts. Relocating the Cargo Port from George Town would allow for necessary, uninhibited growth in cargo operations to coincide with the growth of the economy over the next 10-20 years. It would also relieve traffic congestion, create the possibility to expand the current site for other more valuable and consistent land uses, such as improved guest experience areas for the cruise visitors, potential for retail and commercial purposes and improve George Town Harbour aesthetics. As part of National infrastructure planning, a new site in the Eastern districts would also allow for redundancy or relocation of cargo and bulk oil activities from Jackson Point, an activity which is currently situated in a fairly dense residential area and with close proximity to schools.
Planned infrastructure in the new location allows for 25-30 year timeline of unconstrained growth
Relocating the main commercial cargo port from George Town would also allow for Economic Growth from existing activities and create opportunities for the Cayman Islands to explore new economic activities that currently we don’t have the infrastructure to consider – these include a mega yacht marina, potential containerized transhipment, potential cruise home porting – where ships would be stationed here and passengers would fly in to join the ship from Cayman. These are fundamentally new economic activities – ones we don’t even allow ourselves to consider because we don’t usually see beyond what is directly in front of us. Our country needs to think about diversifying our economy, about creating linkages between economic activities and creating sustainable activities. Some of the economic benefits of home porting might be (and these are all very rough at this stage, but they are provided for illustrative purposes)
Increased Demand for Airlift – requires an additional 3,000-6,000 inbound and outbound seats per day of departure (assumes 2 ships home-porting on each of Saturday and Sunday)
Increased Demand for Hotel facilities, with a conservative estimate of additional 800-1,000 occupied room nights per week
Increased Demand for Transportation – fleet expansion of existing companies, new companies, need for dispatchers, drivers etc.
Increased Trade and Commerce in Provisioning- food, consumables, supplies, tools etc.
Increased Demand for Security & Safety Services
Hundreds of new jobs
Millions of dollars of economic impact across all sectors of the economy
These are the types of the economic changes that create jobs and real opportunities for Caymanians, new revenue measures and sustainable economic growth. We need to look forward and plan for the future.
More importantly, this type of major capital project will create an economic stimulus immediately – creating jobs, work for existing transportation and heave equipment operators and other businesses. One possible location for this project is fully funded using privately owned land and the owner is committed to providing the land to the CIG with full and complete control by the Port Authority.
Doing nothing to stimulate your economy, when facing a recession, is NOT an option. And I will not sit back, and watch the lives of hard working Caymanians get worse and worse, as each day goes by.
You will see all of our policies outlined in detail when the budget is presented by the Government in the Legislative Assembly and we are targeting to do this on Thursday.
We have much to offer and cannot and will not be complacent in this regard!
I mentioned increasing sources of revenue for the Cayman Islands Government as part of our plan.
Not surprisingly, during our discussions with the UK, the FCO were insistent in wanting to see new additional revenue streams as a condition of its granting approval for additional borrowings.
In fact, during our discussions they had suggested property and income taxes and although it was not an option that the Government even wanted to consider, looking at the very constrained financial state of the Government, we were left with little choice but to look at achieving a more sustainable revenue base.
To that end, we quickly undertook a consultation with the industry stakeholders across the board and have determined a series of revenue sources – both existing and new – that will be brought forward in the budget.
To give you a sense of what we are looking at, the great bulk of revenues for the 2009-10 fiscal year – are intended to come from increases in already existing fees and charges imposed on transactions.
It is anticipated that these revenue measures will potentially yield an additional $100+ million per year.
Whilst I have not provided specific details of the proposed Revenue Measures for this fiscal year, I can honestly say that our Government has consulted for and wide on the proposed measures and we have made every effort to propose Revenue Measures that are:
- Non-detrimental to our economy; and
- Supported by leading members of the private sector – particularly those in the financial services sector. Specific details of the Revenue Measures will emerge from the budget-consideration process.
I would like to assure the public that even though new and increased revenue measures will be imposed; the additional revenue that the Government will generate will be put to good use and will not be squandered.
I sincerely wish to thank the Revenue Enhancement Group:
Mr. Canover Watson of Admiral
Mr. Jones Bergstrom of Ogiers
Mrs. Cindy Scotland of CIMA
Mr. Len Goldberg of Green Light
Mr. Norm McGregor of Deloitte
Mr. Paul Byles – Economic Consultant
Mr. David Bree – DMS
We are very thankful for the time spent to freely help the Government.
Ladies and gentlemen since our meeting with the FCO in London on 17th September, the Government has worked long and hard to restore our finances to a state where there is compliance with the ratios that are specified in the Public Management and Finance Law – compliance with which negate the need for specific approval to incur borrowings. This is a position that we need to maintain in all future years
We may have made some decisions that some may not be happy with. But let me tell you it has not been an easy road. And it has taken many hours of deliberation and consultation to reach the decisions that we’ve made.
Indeed, ladies and gentlemen, these “interesting times” will pass and we will all learn and remember a great deal.
We have the foresight, the plan, the collective resources and most importantly, the will to make the tough decisions, take action and get back to the business of rebounding and bringing the Government and the citizens of these Islands back to prosperity.
Remember the world was not discovered by ships staying tied to the shores – we must explore new possibilities for the improvement of our economy and the lives of those that live here and we will do so in a careful and methodical manner.
Thank you and good evening.
Honourable McKeeva Bush, Leader of Government Business/Premier Designate & Minister of Tourism, Financial Services and Development.