FS Outlines State of Finances
Financial Secretary, the Hon. Kenneth Jefferson, JP, spelled out in the House yesterday (2 July) that Cayman cannot borrow any more funds without the UK Foreign and Commonwealth Office's (FCO's) explicit approval.
"The state of public finances was severely challenged at 30 June 2009, and will continue to be going forward in the new financial year that starts on 1 July," Mr. Jefferson said.
In a detailed 16-page response to matters raised by the Leader of the Opposition, the Hon. Kurt Tibbetts, Mr. Jefferson explained that Cayman has to comply with the principles of responsible financial management, as outlined in the Public Management and Finance Law (PMFL), before being able to borrow without the FCO's okay.
As these principles were not all satisfied at 30 June 2009, any future borrowings will, for the first time in the history of the Cayman Islands, require explicit approval from the UK's FCO.
The public sector -- comprising central government, statutory authorities and government-owned companies -- is forecast to face a $74 million deficit, in respect of the year to 30 June 2009, Mr. Jefferson said. The deficit represents the difference between revenues and expenditures.
Central government alone is expected to carry $55 million of that deficit, whilst the net overall financial performance of all statutory authorities and government-owned companies, when added together, are expected to result in a deficit of $19 million. Thus the entire public sector is expected to have a deficit of $74 million for the year ended 30 June 2009.
The net debt ratio is another one of the principles of responsible financial management.
In layman's terms, this ratio means that if government were to use all its available cash balances to repay its debt at the end of a financial year and, if there were still some remaining debt, that debt should not be more than 80% of government's revenue. The net debt ratio is expected to be 85.9% at 30 June 2009, which is over the 80% limit allowed by PMFL.
Government cash balances in its chequing account are forecast to be $16.8 million at 30 June 2009. Cash balances in respect of the "restricted-use" bank accounts -- such as those for the General Reserves Fund and Environmental Protection Fund -- are forecast to total $74.4 million at 30 June 2009.
Total cash reserves of $91.2 million, are expected to meet only 64.7 days of central government's expenses, whereas PMFL requires a minimum of 90 days coverage.
Additionally, central government's debt-service ratio is expected to be at 8.1% at 30 June 2009, which is nearing the limit of 10% as prescribed in the PMFL, Mr. Jefferson said. Debt-service ratio represents the country's ability to repay its annual debt obligations, as a portion of its revenue. The lower the ratio, the healthier the country's finances.
The overall public-sector debt stands at $590 million, he said. Of this, central government's debt balance at 30 June 2009 is now forecast to be $416.5 million, compared with $286 million at 30 June 2008, he told the House.
The overall public-sector debt represents loans that central government, statutory authorities and government-owned companies (examples of which are Cayman Turtle Farm and Cayman Airways) have incurred to fund capital expenditures and other major expenses.
For further information contact: Bina Mani