October 19, 2020

Strategic Policy Statement of the Cayman Islands Government for the Financial Year Ending 30 June 2015

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Strategic Policy statementThank you, Madam Speaker.

On behalf of the Government, I Beg to Lay on the Table of this Honourable House, the Strategic Policy Statement of the Cayman Islands Government for the financial year ending 30 June 2015.

Introduction

Madam Speaker, the Government’s 2014/15 Strategic Policy Statement (the “SPS”) which has just been tabled, outlines the Government’s medium-term fiscal plans, policy priorities and broad strategic outcomes. It also establishes the Government’s financial targets for the next three financial years: 2014/15; 2015/16 and 2016/17, which will form the basis of the budget planning process for these years.

The Governments medium term plans call for a fiscal plan centered on: prudent fiscal management; private sector economic growth; an educated work-ready populace; and the development of modern infrastructure.  In addition, with respect to new initiatives, the Government is planning to make improvements to the financial management regime by:

Med term1. Making amendments to the Public Management and Finance Law;

2. To change the Government’s financial year; and

3. To introduce multi-year budgeting.

Cayman Islands Economic Forecasts

Madam Speaker, the challenges of the global financial crisis and the Great Recession are ongoing. Fragile European economies and slow economic recovery in the USA continue to prevent a full recovery of the world economy. However, despite the uncertainty in international indicators, Cayman’s economic outlook remains relatively favourable, albeit heavily dependent on private sector investments.

Consequently, the Economics and Statistics Office is forecasting moderate economic expansion over the next three financial years. Real Gross Domestic Product (GDP) is expected to grow steadily from 1.7 percent in 2014/15, to 1.9 percent in 2015/16, and then jump to 2.4 percent in 2016/17.

Construction will remain the primary facilitator of growth.

Recently announced projects such as the redevelopment of the Owen Roberts International Airport Terminal; a modern cruise ship berthing facility; and the development of new hotels in Grand Cayman, are expected to substantially contribute towards GDP growth in the medium term by stimulating demand for labour and other goods and services in various sectors such as wholesale and retail; finance and insurance; and real estate.

In particular, the Cayman Health City, which is at an advanced stage of completion, will serve to diversify our tourism product and encourage and compliment planned development and further diversification on the eastern side of Grand Cayman while providing jobs and business opportunities for our local community.

This boost in domestic demand for labour and other goods and services will be reflected in the inflation outlook.  As a result of forthcoming construction projects and other local services linked to these projects, inflation is forecasted to be 2.3 percent in 2014/15.  Thereafter, inflation is expected to inch up to 2.5 percent for fiscal years 2015/16 and 2016/17, provided there are no spikes in international oil prices; US interest rates do not rise rapidly and inflation in the USA remains within the normal range of 2-3%, Madam Speaker.

Additionally, Madam Speaker, because of expected improvements in the local economy, the unemployment rate is expected to fall to 5.7 percent in 2014/15, and continue declining to 5.2 percent in 2015/16 and 4.7 percent in 2016/17.

For the financial year 2014/15, the deficit for the current account of the balance of payments is expected to improve to 18.9 percent of GDP. However, with the impending construction projects poised to accelerate the growth in imports, fiscal years 2015/16 and 2016/17 will see rising current account to GDP ratios of 19.2 percent and 19.3 percent respectively over the period.

Medium Term Fiscal Plan

Madam Speaker, during the 2013/14 Budget, the Cabinet established 12 Broad Outcomes which it intends to achieve over the medium term. The specific intervention measures that will be undertaken in order to achieve these Broad Outcomes are summarised in this SPS.  In summary, the Government’s medium term plan will focus on the following:

Strategy 1: Prudent Fiscal Management

As you may recall from my budget address; prudence is the modus operandi of this Government.  Madam Speaker, this SPS reaffirms our commitment to fiscal prudence, and sets out a sustainable path towards achieving compliance with the Framework for Fiscal Responsibility, as set out in the PMFL.  More importantly, this SPS complies with the fiscal parameters established in the Medium Term Fiscal Strategy: 2013-2017, which was approved by the Foreign and Commonwealth Office in August 2013.

Over the next three financial years, efforts will be concentrated on reducing operating expenditure, paying down debt, and building up cash reserves.  Our efforts will be pursued in tandem with managing risk effectively; improving value for money; and delivering accountability and good governance in all public sector operations.  I should stress, Madam Speaker, that the total of the individual Ministry/Portfolio and Offices’ allocations will adhere exactly to the macro limits stipulated in this SPS.

Strategy 2: Facilitate Private Sector Growth

With respect to private sector growth, the role of small and medium-sized business in our country’s recovery is becoming increasingly important.  The Government recognizes and encourages these small businesses, and where possible, will work to remove the bureaucratic hurdles which impede their success because the cost of complying with excessive government regulation is a greater problem for small businesses than for larger ones.

To this end, training programs and revisions to the trade and business licensing processes are a few of the initiatives which Government supports in an effort to improve the competitiveness of our small businesses.

Strategy 3: Educate and Prepare our Workforce

Madam Speaker, our goals cannot be achieved, nor our economy transformed and diversified without strengthening human capacity.  As such, the Government’s long term strategic plan must be to develop the best-educated, best-trained, and best- skilled workers to ensure that our workforce has the skills necessary for the jobs of today and tomorrow.  Government’s new ‘skills training strategy’ will coordinate private sector apprenticeship programs for scholarship recipients as well as vocational training opportunities which have both educational and developmental components to serve the needs of various industries.

Strategy 4: Develop and Modernize our Infrastructure

Finally, Madam Speaker, the fourth element of the Government’s fiscal strategy is to continue modernizing our infrastructure. Infrastructure investment is crucial to the process of economic development and growth.  By leveraging private sector resources to meet public needs, we will see the development of the following five major infrastructure projects necessary to enable our country to compete and succeed: the cruise berthing facility; the Owen Roberts International Airport enhancement; the revitalization of Central George Town; a solid waste management facility; and an expanded road network.

Three Year Financial Forecasts

Madam Speaker, I will now move on to highlight the financial forecasts which are contained in the SPS document.

Revenue Forecasts

Madam Speaker, I have said it before and I will say it again; the Government does not plan to introduce any new major revenue measures during the next three financial years.  However, there may be some revisions to fees for existing services during this period to adequately reflect the cost of delivering the service.

Therefore, Madam Speaker, as the economy grows, the SPS forecasts that the Government will earn approximately $655.3 million in 2014/15; $669.0 million in 2015/16 and $676.9 million in 2016/17.

Operating Expenditure

In tandem with revenue collection, Madam Speaker, the Government is focused on achieving sustainable reductions to public sector expenditure without sacrificing the effective delivery of much needed public services. Our fundamental responsibility as a Government is to ensure that every dollar is well-spent, and that all available resources are streamlined to best serve our people.  We are adamant that by replacing waste and abuse in Government, with transparency and accountability and efficiency, our country will realize great savings in the medium and long term.

Therefore, operating expenses are forecast to be $531.8 million in 2014/15; $529.9 million in 2015/16; and $528.3 million in 2016/17. For 2014/15, this level of operating expenditure represents a 2.3 percent reduction from the approved 2013/14 budget, while still within the $532 million limit established in the Medium Term Fiscal Strategy.

As a contingency measure, the Governemnt will seek to retain its minimal operating annual overdraft of $15.0 million; however, the Government plans to manage its financial affairs in 2014/15 so that utilisation of such overdraft facility will not be required.

Madam Speaker, while we believe there are further opportunities available to reduce Personnel Costs, our commitment to credible fiscal planning places a higher degree of reliance on savings from areas such as Supplies and Consumables, Purchase of Outputs from Non-Government Output Suppliers and the Purchase of Outputs from Statutory Authorities and Government Owned Companies.

Consequently, the Government is seeking to restructure the financial affairs of Statutory Authorities and Government Owned Companies (“SAGCs”) by mandating that comprehensive reviews of their operations be undertaken with credible and sustainable changes implemented thereafter.

The goal is to improve the financial performance of the SAGC’s and make them less reliant on funding and subsidies from central Government.

Principles of Responsible Financial Management

Turning now to the Principles of Responsible Financial Management. Madam Speaker, in order to comply with all six Principles of Responsible Financial Management set out in the Public Management and Finance Law by the mandatory 2015/16 deadline, this SPS is forecasting the following levels of compliance for the key Principles over the forecast period:

Operating Surplus: The FFR requires that the Government maintain a positive Operating Surplus.  Over the next three years, the Government is forecast to remain in compliance with this requirement. Operating Surplus is forecast to continuously increase from $123.5 million in 2014/15, to $139.0 million in 2015/16 and $148.7 million in 2016/17.

Debt Servicing Ratio: The repayment of debt is a critical component of the Government’s fiscal strategy which is focused on:

1. No new borrowings, and this includes Statutory Authorities and Government Owned Companies;

2. The repayment of existing debt; and

3. Where possible the refinancing of non-amortizing debt into amortizing debt instruments.

The FFR requires that the Entire Public Sector debt service costs not be greater than 10% of core Government Revenues. In 2014/15, forecasts show that the Government will be non- compliant with this requirement, since the Debt Service ratio is expected to be 16.1% of core Government revenues. This is primarily a result of a one-off transaction to refinance a non- amortizing debt obligation which matures in 2014/15.

In addition, during the 2014/15 fiscal year, the Government plans to set aside some $9.1 million of cash into a sinking fund to enable payments in future years for the retirement of a 2003 Bond that matures in April 2018.

By putting the cash into the sinking fund in 2014/15 it increases the Debt Service Ratio in that year but not in the year in which the actual debt repayment will occur.

By FY 2015/16 and FY2016/17, the Government is forecast to be in compliance with the 10% ratio requirement, as the debt service ratio is forecast to be approximately 9.9% and 9.6% respectively.

Net Debt Ratio: The FFR requires that the Government not have a Net Debt balance greater than 80% of core Government’s Operating Revenues. The Government is forecast to be in full compliance with this requirement over the next three years, with the Net Debt Ratio forecast to be 51.4% in 2014/15; 31.0% in 2015/16; and 12.1% in 2016/17. This trend places Government well below the required limit, and proves that Government’s overall debt strategy is consistent, focuses on debt reduction, and does not call for any new borrowings over the forecast period.

Cash Reserves: The FFR requires that the Government have liquid cash reserves of not less than 90 days of estimated executive expenses. This ratio is calculated at the point in the financial year when Government’s cash reserves are expected to be at their lowest; presently that point is in December of each year which allows for a more robust measure of cash reserves.

Over the forecast period, cash reserves are expected to be $60.3 million or 41 days in 2014/15; increasing to $141.5 million or 96.5 days in 2015/16; and then be $238.7 million or 163.2 days by 2016/17.  As such, compliance with this ratio is expected in 2015/16 and 2016/17.

Capital Investment

Madam Speaker, the Government’s capital investment plans over the forecast period, is designed to fit within the fiscal parameters of the Framework for Fiscal Responsibility set out in the Public Management and Finance Law.

Because the Government has committed to no additional borrowing over the next three financial years, any monies available for capital expenditure will be restricted to cash generated from Operating Surpluses.

Over the SPS forecast period, planned Capital Investments will be restricted to $47.0 million per year for 2014/15 and 2015/16; and then rise to $57.0 million in 2016/17. These investments will be directed to support debt servicing obligations in Statutory Authorities and Government Companies and for the development of key pieces of infrastructure for core Government itself.

Planned Initiatives

Madam Speaker, because the SPS which has just been Tabled encompasses a three-year period, I wish to take this opportunity to advise this House and the people of the Cayman Islands of some important initiatives the Government will consider during this three-year period.

Firstly, the Government intends to introduce multi-year budgeting and change the start of its financial year from the present 1July, to 1 January.

This change will take effect from 1 January 2016 which is the earliest that it can be implemented given the required legislative changes to the PMFL and the need to have a new budget in place by 1 July 2014.

Therefore, Madam Speaker, the Government is signaling its intentions to produce multi-year budgets starting 1 July 2014 for 18 months to 31 December 2015 and for 24 months from 1 January 2016 to 31 December 2017. However, as we have not yet amended the PMFL, this SPS complies with the current law.

There are several advantages that will accrue to Government by making such a change. Revenue from financial services related sources is received between January to March each year and is a significant portion of Government’s total annual revenue.  Having a financial year that starts on 1 January is beneficial since it will allow the Government an opportunity to more easily change its expenditure plans if there is a fall-off in financial services revenue.

Whereas with the present 1 July commencement of the fiscal year the Government could be 9 months into its financial year before it becomes known that there may be a significant fall-off in revenue, which would not allow sufficient time for any remedial action to be taken via expenditure reductions.

Additionally, the transition to a 1 January fiscal year start will avoid the present situation of Government’s statistics being presented on both a calendar year and fiscal year basis. Such a change will add clarity to an important area of publicly- disseminated information.

Multi-Year Budgeting

Multi-year Budgeting, Madam Speaker, is another important initiative that the Government intends to effect with approval for such budgets at a meeting of the Legislative Assembly and Finance Committee.

As the term suggests, multi-year budgeting involves the preparation of budgets that encompasses more than one fiscal year.

The Government will review the multi-year budgets systematically and as frequently as required – with the objective of ensuring that such budgets are still appropriate to the fiscal conditions existing at the time. Such an approach means that Government must take a medium-term outlook of its plans and policies – which should be far superior to the “start-stop” process that typifies the preparation of single-year budgets.

Review of PMFL

Madam Speaker, the Government is earnest in its stated intention to perform a comprehensive review of the Public Management and Finance Law regime that determines the financial affairs of Government and its Public Authorities. A Committee, to be led by Councillor McTaggart and inclusive of private sector representation will shortly begin a review the existing PMFL.

Public Authorities legislation

The legislation to effect greater clarity and uniformity in the governance arrangements to be exercised by Government with respect to Statutory Authorities and Government Companies is being drafted and will be brought to this Parliament before the end of the current fiscal year.

Conclusion

Madam Speaker, this SPS highlights the Government’s overarching commitment to managing public finances in order to achieve compliance with all six Principles of the FFR by the agreed 30th June 2016 timeframe. It outlines a credible medium-

term path to fiscal sustainability; a path which positions us towards strong economic growth, decreasing unemployment, contained inflation, and a prudent fiscal position.

Thank you, Madam Speaker.

END

Medium Term Fiscal Strategy of the Cayman Islands Government for the Financial Years 2013-2017

On behalf of the Government, I Beg to Lay on the Table of this Honourable House, the Medium Term Fiscal Strategy of the Cayman Islands Government for the fiscal years ending 30th June 2014 to 30th June 2017.

Introduction

Madam Speaker, the Government’s Medium Term Fiscal Strategy

2013- 2017 (the “MTFS”) which has just been tabled, sets out the Government’s medium-term fiscal parameters, and related strategies, for the four financial years: 2013/14; 2014/15; 2015/16 and 2016/17.  The parameters therein allow the Government to comply with the fiscal responsibility requirements of the Public Management and Finance Law (2013 Revision) (the PMFL) – by the required deadline of 30th June 2016 – and the parameters will lay the foundation for budget planning in those coming years.

The MTFS was approved by the Foreign and Commonwealth Office on 22nd August 2013, a mere week after being submitted for consideration.  This quick turnaround speaks to the soundness and credibility of the plan, and affords us a new level of certainty in Government’s financial affairs over the medium term.

The data and forecast information shown in the MTFS were based on the 31st July 2013 actual financial results of the Government, and decisions made as at that date. During the ensuing three- months, the Government produced a substantive 2013/14 budget and considered the impacts of more recent economic and fiscal performance. Those deliberations and considerations resulted in the Strategic Policy Statement which is also being tabled today. The Strategic Policy Statement  accords with the Medium Term Fiscal Strategy since it is an extension of the MTFS. However, the information outlined in the SPS has the benefit of actual data and Government decisions as at 30th October 2013.

Cayman Islands Fiscal Strategy

Madam Speaker, the fiscal strategies of the Government, over the next three fiscal years, ending 30th June 2017, will be broadly based around five themes: lower operating expenditures; reducing debt; improving cash balances; stabilizing revenue growth; and minimizing public sector capital spending.

Lower Operating Expenditures:

Madam Speaker, using the fiscal year 2012/13 as the “base year” for comparative purposes, over the 2013/14 and 2014/15 fiscal years, the Government proposes to cut a total of $22.5 million (or 4 percent) in annual Operating Expenditures.

Thereafter, from 2015/16, the Government plans that any increase to Operating Expenditures will be less than 1% each year.  As such, total Operating Expenditures are forecast to be approximately $532.0 million in 2014/15; $536.7 million in 2015/16; and $540.2 million in 2016/17. This initial aggressive reduction strategy to managing expenses provides Government the opportunity to attain a higher level of savings early on.

By significantly increasing cash reserves to appropriate levels as mandated by the PMFL, and reducing our debt obligations, Government will attain financial independence within a few years.

Reduce Debt:

Madam Speaker, the Government remains adamant on reducing public sector debt over the next three financial years, by continuing to make principal payments on existing amortizing loans; retiring at least US$10 million in bonds before 2015/16; and minimizing or eliminating future operating overdrafts.

The Government will also explore opportunities to obtain more favourable interest rates on its existing loan portfolio through refinancing options.

Improve Cash Balances:

The Government’s four year Plan shows a forecast cash balance of approximately $340.6 million by the compliance deadline of 30th June 2016, which will be achieved through stable revenues along with moderate reductions in operating and capital expenditures.

The Government will also introduce policies to improve the performance of its 25 Statutory Authorities and Government Owned Companies in order to accrue greater benefits from their performance.

Stabilized Revenue Growth:

Madam Speaker, apart from the non-inflationary fee to be introduced with respect to Licensing and Registration of Hedge Funds Directors, which is scheduled to take effect in the current 2013/14 financial year, the Government does not intend to introduce any new or unproven measures of material value.

Minimal Public Sector Capital Spend:

Madam Speaker, apart from the $22 million per annum in capital injections over the medium term to meet various existing loan repayment obligations of Statutory Authorities and Government Owned Companies, the Government proposes to restrict capital spend in all other areas to $25 million per annum for the next two fiscal years ending 30th June 2016.

This amount is expected to cover capital expansion programs mandated by the new Constitution, road maintenance and upgrades, completion of on-going projects, and replacement or purchase of plant and equipment for service delivery in the Public Sector.

This restricted capital spend is to enable the Government the best opportunity to meet the cash levels required under the PMFL by the 2015/16 deadline.

Conclusion

Madam Speaker, although there is no legal obligation for the Government to have Tabled the MTFS, the Government concluded that its significance warranted its Tabling in the Legislative Assembly.

This MTFS provides a foundation for the country’s future. It changes the way Government conducts its affairs, by focusing more on longer-term decision making and planning.  By setting fiscally prudent targets to be met each year, the MTFS assures a certain level of certainty during the Budget process, and highlights Government’s continued pledge of transparency and prudency for the way forward.

Thank you, Madam Speaker.

 

 

 

 

 

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