Resisting calls from the Opposition to finance government operations with more borrowing proved the correct course for Premier McKeeva Bush's Government to take in its talks with the United Kingdom earlier this month. By the government taking a firm position of minimal borrowing, controlling expenditure and maintaining the borrowing ratio, the Foreign and Commonwealth Office (FCO) saw the Cayman Islands Government (CIG) as genuinely seeking to put the country's finances on the road to recovery.
Members of the Cayman delegation to the recent FCO talks believe the conservative fiscal policy made the UK more receptive to the needs of the Cayman Islands. The conservative stance also protects Cayman's high sovereign credit rating. The Premier told a televised news conference that his government would not manage the country's finances by throwing the fiscal rules out the door in a panic. He said Cayman's medium term strategies were well received by the FCO.
During talks with the FCO in London, the CIG delegation emphasized Cayman's policy of keeping borrowing to absolutely minimal levels to protect the country's reputation and maintain Cayman's very high sovereign credit ratings. The UK agreed that this was the prudent approach to maintaining manageable debt levels. A sovereign credit rating indicates the risk level of the investing environment of a country and takes political risk into account. It is used by investors looking to invest abroad.
Even so, the UK made it clear they were not averse to additional borrowings once Cayman produced a three-year plan to bring the country's finances back to sustainable levels. Cayman must submit this plan by the end of March. The three-year plan is being developed by the Financial Secretary and his team. Premier Bush stated during the news conference that any borrowings must be for emergencies and the most essential of matters.
Premier Bush says the Deputy Governor is handling the civil service aspects of the cuts. Nevertheless, the Premier says he is very concerned about the level of expenditure.
Cayman's Public Finance and Management Law limits the country's debt servicing ratio to 10 percent of government revenue. The Opposition called for a relaxation of the 10 percent ratio and the borrowing of significant sums to finance Government operations rather than control expenditure. The Premier says this is the same as throwing fiscal prudence out the window and walking a dangerous and slippery slope. "We would not only be encouraged to continue the out of control spending, but we would also have the ability to borrow infinitely to pay for the continued wastage", he told the news conference. He assured the country that this was not the approach of his Government.
Premier Bush says his "Government remains fully committed to the Principles of Responsible Financial Management" as defined in Cayman's Public Finance Management Law. "Our position on this is that we will only accept adjustments to these principles in extraordinary and exceptional circumstances and we wish to see that there are significant controls in place to prevent abuse of these principles by successive Governments. We must adhere to the highest standards of fiscal prudence if we are to maintain this country's good reputation", he said. "Throwing the fiscal rules out the door in a panic is not the way that we will manage this country's fiscal affairs." The Premier told reporters that the FCO certainly appreciated the Government's stance on this principal.