Premier on FCO Talks
- Presented to the Cayman Islands Government by the Foreign & Commonwealth Office of the UK Government.
The purpose of this statement is to inform the public of the Cayman Islands of an important document potentially affecting our fiscal policy that has been presented to the Government of the Cayman Islands (the Government), for signature. The matter has the potential to impact not only Government's financial policy-making, but our broader economic status, and Government's overall performance in terms of good governance. This policy document, which we are negotiating with the UK, therefore has the ability to affect the quality of life and the standard of living in these Islands.
As everyone well knows, this Government took over from a previous government that had borrowed and its overspending had placed this country in a dangerous financial position. Because of this, the United Kingdom Government (UKG) has asked us to sign an agreement with them. Based on the historical evidence of what can happen when a financially irresponsible government spends without any thought process or a carefully thought out plan, I am in favour of signing such a mutually agreed Framework for Fiscal Responsibility.
It is understandable that the UKG has seen the need to restrict their exposure in such circumstances as there is no guarantee as to what kind of spendthrift government will be elected in the future.
Economists in the Foreign and Commonwealth Office of the United Kingdom Government have developed a "Framework for Fiscal Responsibility" (the FFR), and it has been presented to the Government for review, discussion and eventual signature.
The FFR was developed on the basis of four (4) fundamental tenets, or principles, and these are as follows:
- firstly, Government should undertake effective medium-term planning to ensure that the full impact of fiscal decisions is understood;
- secondly, Government should put value for money considerations at the heart of the decision-making process;
- thirdly, that Government should demonstrate effective management of risk; and
- fourthly, that Government should drive the delivery of improved accountability in all public sector operations.
These are unquestionably laudable and sensible principles and I support these tenets.
However, my Government has reservations about some of the important methods put forward in the FFR as the means by which these principles are to be achieved.
As an example, in order to achieve effective management of risk, paragraph 28 of the FFR states that Government should borrow only to fund capital expenditures which will yield sufficient revenues to meet debt services costs.
The Government and I interpret that paragraph 28 of the FFR means, as an example, that separate juvenile remand facilities which are required in order to comply with the Islands' Bill of Rights - scheduled to come into effect in 2013 - could not be constructed, using borrowed funds, because such a facility will not generate a revenue stream to fund debt service costs.
Further, under the Bill of Rights, the Government must build and maintain schools to provide primary and secondary education, free of charge. If in the future Government needed to borrow funds to finance additional educational facilities, it would appear that the FFR would disallow such borrowing - simply because such facilities would be unlikely to yield sufficient revenues to meet its associated debt service costs.
Understandably, Government has concerns with respect to this provision of the FFR, and are robustly questioning its application.
As another example, in order to achieve effective management of risk, Appendix A of the FFR indicates that the entire debt servicing costs - which consist of repayments of principal, as well as interest payments - by Government and all its Statutory Authorities and Government Companies, cannot exceed 10% of Government's revenues. The revenues of Statutory Authorities and Government Companies are excluded in this computation but their debt servicing costs are included. It is Government's view that this definition is overly restrictive.
Government's senior Civil Servants have accordingly reviewed the FFR and provided suggested changes to the document, which we will take up with the FCO.
Consequently, the FFR document has not been signed by Government.
The review of the FFR will feature prominently in my discussions with Minister Bellingham, this week.
I am positive that the public will appreciate my stance, that we move to provide an opportunity for the public to review this important FFR document and I urge everyone in the Cayman Islands to make themselves familiar with it, so that they will better understand any debate on this which may follow.
Rest assured that I will always act in the Islands' best interests and may God Bless our beloved Cayman Islands.
For further information contact: Susan Watler