Interim Budget Proposed
In view of the UK Foreign and Commonwealth Office (FCO) insisting on further reductions to Cayman Government's operating expenditure for the coming fiscal year, the annual budget has been delayed, the Premier and Finance Minister, the Hon. McKeeva Bush, OBE, JP, said in the House this morning (Wednesday, 27 June).
The Premier moved a Government Motion seeking an interim authorisation for $127 million from the LA to enable the Government to carry on operations from 1 July to 31 August. These include $84.9 million for core government's operating expenditure, $25 million for Government's bank overdraft and $18 million in respect of services that government will seek from statutory authorities and government companies.
Mr. Bush said the FCO has asked Government for a new three-year budget plan.
He also mentioned that as part of consolidating government's expenses, Government is considering dropping immigration procedures for persons departing the Cayman Islands to enable deploying those Immigration officers in other areas where 18 new personnel are required.
(The Premier's remarks (as prepared) to the LA are attached to this release.)
Hon. Premier's Remarks (as prepared) on Government Motion No. 1/2012-13
Authorisation of Executive Financial Transactions for the 2-Month Period of 1 July to 31 August 2012 in the 2012/13 Financial Year
Madam Speaker, the Government operates on a 1st July to 30th June fiscal year. The preparation of the Annual Budget is a lengthy and intense process which begins in October and culminates in the presentation of the Annual Plan and Estimates to this Honourable House prior to the 30th of June each year followed by the approval of the accompanying Appropriation Bill. The Budget, Madam Speaker, reflects the plans and intended policy actions of the Government.
Madam Speaker, in line with the preceding comments, my Government prepared the relevant budget documents and related Appropriation Bill, however, as the Budget of the Cayman Islands now requires approval from the Foreign and Commonwealth Office (the "FCO"), the Government could not simply bring the Budget to the House without getting the nod from the FCO to do so.
On 13th June 2012, I wrote to the FCO and presented the financial results and position in respect of the fiscal year starting on 1st July 2012. That submission indicated that Central Government would have an Operating Surplus of $22 million for the 2012/13 fiscal year; whilst Capital Expenditures and Investments in Public Entities totalled $83 million. Long-term Borrowings of $59 million were requested to help finance the Capital Expenditures and Investments in Public Entities. This submission was not approved by the FCO because:
- it contained long-term Borrowings of $59 million; and
- it also requested a sizeable increase in the Overdraft facility for the 6-month period of 1st July to 31st December.
Since it was clear that the FCO was concentrating on the level of Borrowings requested by the Government - and the FCO sees an Overdraft request in the same light as long-term Borrowing - the Government decided that it would present a Budget on the basis of essentially an almost zero Appropriation request for Capital Expenditure and Investments in Public Entities: the objective of which was to eliminate the previous long-term Borrowings of $59 million - albeit temporarily, until we entered into discussions with the FCO about the extent to which the Capital Expenditure and Investments in Public Entities could be reinstated.
This proposal was made on 22nd June 2012 - via the Governor's Office - to the FCO. This too was rejected by the FCO. The intention of the Government was therefore to present a full 12-month Budget in respect of Operating Expenditures whilst seeking to introduce an element of Capital Expenditure and Investments in Public Entities after discussion and agreement with the FCO.
The FCO is absolutely insisting on further reductions to Operating Expenditures. Such further cost reductions must be carried out in a careful, deliberate and measured way: rushed decisions will be to the detriment of the Public Service and the entire Country. Consequently, the Government and the Civil Service was unable to perform such a further comprehensive review of costs and have this process completed in sufficient time to have a full 12-month Budget prior to 30th June 2012 - that also met with the FCO's approval. It is for this reason that Government is presenting a Government Motion that seeks authorisation to incur executive financial transactions for the 2-month period of July and August 2012 - which will allow the operations of Government to continue and, at the same time, give the Government and the Civil Service more time to examine expenditures.
Madam Speaker, I also want to give the House and the public an indication of the size of the task Ministers of Government wrestled with, in respect of the 2012/13 Budget submissions.
A Budget Circular was issued on 18th January 2012, requiring that Operating Expenses of the Government for the Government's 2012/13 fiscal year should not exceed $498 million and Capital Expenditures and Investments in Public Entities should not exceed $59 million.
When Ministers reviewed the submissions made by the Service, Operating Expenditures exceeded the Budget Circular specification of approximately $130 million. In respect of Capital Expenditure and Investments in Public Entities, the submissions exceeded the limit specified in the Budget Circular by $21 million.
Clearly, both areas exceeded the Budget Circular limits set in January and thereby presented a significant challenge to Ministers in their review of the submissions to have these amounts reduced.
As per Section 7 of the Public Management and Finance Law (the "PMFL"), without an Appropriation Law in place, the Government is normally unable to incur expenditure, make investments, undertake borrowings or conduct other types of financial transactions necessary to fund the operations of Government. The Appropriation Law is normally approved as part of the annual Budget Process.
However, Section 11 of the PMFL states that executive financial transactions can be authorised by a resolution of the Legislative Assembly in advance of a law making appropriations.
STRUCTURE OF MOTION
Section 11 of the PMFL also states that:
- the resolution has to be arranged by appropriation types;
- the resolution will expire after a period of four months from the date of resolution; and
- the resolution will be subsumed by the amounts respectively provided in the law making the appropriations in respect of the transaction when the law comes into operation.
The purpose of this Government Motion is to seek the approval of the Legislative Assembly under Section 11(1) of the PMFL for the Governor in Cabinet to undertake the various types of executive financial transactions necessary to finance the ongoing operations of Government in advance of an Appropriation Law for the 2012/13 financial year.
The approval is being sought for the two-month period: 1st July to 31st August 2012 during which time the Government will prepare a revised full-year 2012/13 Budget and present it to this Honourable House for review and consideration.
Madam Speaker, Members will see in the schedule attached to the Government Motion the amounts relating to the various Appropriation categories, specifically, Output Groups, Transfer Payments, Equity Investments, Financing Expenses, Other Executive Expenses, Executive Assets, Loans Made and Borrowings. The Appropriations have been grouped according to the Ministry/Portfolio/Office structure of the Government.
RATIONALE FOR APPROPRIATIONS
Madam Speaker, when developing the amounts shown in the schedule to the Motion, the Ministry of Finance, Tourism and Development took the proposed 2012/13 Budget (as amended and reduced by Ministerial review) as the starting point and developed a two-month appropriation schedule. These amounts were then adjusted to account for known commitments and the seasonality profile of certain items. Members will see that the majority of the expenditure items reflect the ongoing business of Government.
DETAILS OF THE APPROPRIATIONS
Madam Speaker, for the 1st July to 31st August period, the Motion seeks approval for a total of CI$84.9 million in Operating Expenses in the following Appropriation categories: Ministry/Portfolio Output Groups - $54.3 million; Transfer Payments - $6.1 million; Purchases from Non-Government Output Suppliers - $3.0 million; Purchase of Outputs from Statutory Authorities and Government Owned Companies - $18.2 million and Other Executive Expenses - $3.3 million.
The Appropriations for these categories represent the indicative Core Government's operating expenses for the two-month period and should not be taken for granted as being 2/12ths of the amount that the Government will spend over the full 2012/13 financial year.
I call on all Government Agencies to continue to exercise fiscal constraint and prudence during the coming financial year. The Government is still faced with increased costs as a result of: implementation of the Bill of Rights; provision of national security measures; health care; and demands on the Government for social assistance.
As we go through the revision of the 2012/13 Budget process, Government Agencies need to be cognizant of the fact that their Budgets may be decreased below what they had in 2011/12: in this current environment we must all seek ways to innovate and deliver services at reduced costs.
An Appropriation of $5.5 million in Financing Expenses is sought to cover the interest accruing on the outstanding Public Debt and projected overdraft facilities during the July to August 2012 period.
Appropriations for Equity Injections into Ministries, Portfolios, Statutory Authorities and Government Companies amount to $9.7 million. The main items included in this Appropriation category are:
$4.3 million to fund the ongoing construction of the new John Gray High School and planned works at other campuses;
$0.5 million for the Ministry of District Administration, Works, Lands and Agriculture of which $0.3 million to fund on-going construction of a new hangar for the MRCU aircraft and $0.2 million to be spent on the PWD/Vehicles Driver's License Admin building in Cayman Brac.
$0.9 million is to fund the Health Services Authority;
$2.0 million to fund the Cayman Turtle Farm;
$0.8 million to fund Cayman Airways; and
$0.4 million to fund the Cayman Islands Development Bank;
Appropriations for Executive Assets total $1.9 million - consisting of the following individual items:
$1.0 million is sought for various road surface upgrades and construction;
$0.4 million is to fund the on-going construction of the Cayman Brac emergency shelter;
$0.2 million to fund Cemetery Development; and
$0.2 million to fund on-going fit-out work on the new Government Administration Building; and
$0.1 million to fund the Little Cayman Command Centre.
Appropriations totalling $0.1 million are sought to fund Loans Made by the Government to qualified persons requiring overseas medical care; and loans to Civil Servants.
An appropriation of $25.0 million is being sought in respect of Borrowings. This is to allow for the utilization of a revolving overdraft facility during the customary lean months of the summer period.
Forecast Results for the Year Ending 30th June 2012
Madam Speaker, when I presented the Supplementary Annual Plan and Estimates document for the 2011/12 fiscal year - which ends in a few days from now, 30th June - those estimates indicated that Central Government would essentially break even whilst Statutory Authorities and Government Companies would have a combined Deficit of $7 million. The Entire Public Sector was therefore forecast to have a Deficit of $7 million for the 2011/12 year.
The latest estimates indicate slightly improved results. Central Government is now forecast to have a very small Surplus of approximately $3 million and the Statutory Authorities and Government Companies a combined Deficit of $4 million. The Entire Public Sector is therefore forecast to have a Deficit of $1 million for the 2011/12 year.
Additionally, Government is expected to have an Operating Bank Account balance that will be in an Overdraft position at 30th June 2012, of approximately $11 million.
Financial Information Arising in Respect of the 2-month Budget for 2012/13
Madam Speaker, Members of the Opposition and the public will naturally enquire as to the financial implications of a 2-month Budget for 2012/13.
The most important implication is the value of Government's Operating Bank Account balance that results from the 2-month Budget.
At 31st July 2012, the expected Overdraft balance on the Operating Bank Account is $21 million and at 31st August 2012, the Overdraft balance is expected to be $24.8 million. Members of the House will see that this has led to the Schedule attached to the Government Motion requesting authority for an Appropriation to incur an Overdraft balance of $25 million. The FCO has indicated its support for a $25 million Overdraft balance during the 2-month period of July and August 2012. Madam Speaker, the requested Overdraft balance of $25 million is exactly equal to the existing amount for the Overdraft balance that is contained in the Appropriation Law for the 2011/12 fiscal year. Hence, the Government is not being extravagant in the 2-month period.
Madam Speaker, the Government has much work to do over the next month in order to prepare the full-year 2012/13 Budget and I ask all Members of this Honourable House for their support of this Motion which will allow for the continuity of Government's operations while the full-year 2012/13 Budget is being revised.
For further information contact: Bina Mani