Public purse full but concerns on horizon

| 29/05/2018 | 27 Comments

(CNS): In what appears to be a first for the government when it comes to reporting on public spending, the Ministry of Finance and Economic Development has published the unaudited financial results for the first three months of 2018. The report outlines how well core government has done collecting revenue, controlling spending and managing its cash and debt so far this year. But while the report reveals a healthy surplus for this first quarter and lower than forecast spending, it also reveals some potential concerns over future revenue.

According to the report, which focuses largely on core government, the public purse recorded a $199 million surplus, over $34 million more than had been forecast for this period in the budget, due to higher coercive revenues and less spending on government personnel. The overall fiscal performance is 20% higher than budget, with the statutory authorities and government companies (SAGCs) doing better than expected, too, and contributing a further $2.2 million to the overall surplus for the Entire Public Sector.

“Vigilance and strict adherence to policy have yielded significant improvement in the overall cash and deposit balance held by core government,” the government bean counters stated in the report.

But despite the favourable looking results for this first quarter, which appears to bode well for the coming year, the revenues that government has collected show a mixed picture. Government brought in around $16.3 million above budget expectations, largely on stamp and import duties, as well as cruise ship departure charges and accommodation taxes. The report indicates that stamp duty was higher than expected due to more property transactions and an increase in the cost of property.

But not all sources of government earnings were doing so well.

Despite the increase in the number of work permit holders, fees from work permits and working permanent residents were down some $2.9 million on budget forecasts, in some cases due to a change of fee categories. Other areas of government coercive revenue also fell short of the predictions, such as fees on exempt companies, which was $3.5 million less than expected. Partnership fees were also lower due to an increase in regulated partnerships, which attract a lower annual fee.

The report indicated that licences and registration in the financial sector “will need to be bolstered by the results of other income streams such as duties on imports and tourist accommodation charges” for the rest of the year, otherwise government may not make its targeted year-end results.

There are concerns that the boost in earnings from tourism could be reversed as it has been largely fuelled by the impact of hurricanes last season on other competitive destinations in the region. While the Department of Tourism is working hard on its marketing strategy, there are no certainties that the current growth is sustainable.

Although there was good news about earnings from some SAGCs, which led to a combined surplus of $2.2-3.6 million more favourable than budgeted for the period, it was down to mixed results in tourism. While fees from the airport and port boosted earnings, unfavourable performances by Cayman Airways Limited and the Cayman Turtle Centre serve to demonstrate the precarious nature of some SAGCs.

Government may also see its spending increase through the remainder of the year as officials believe previously delayed recruitment across the civil services and capital projects begin to come online. “Early savings experienced in expenses will not likely hold true for the remaining three quarters of 2018,” the report warns.

Not meeting the full budgeted surplus for the first twelve months of the CIG’s first ever two-year budget will have future implications for the finance ministry’s plans for managing the national public debt. Government has reduced that debt considerably in recent years, helped by the freeze on borrowing for the last seven years. Central government now owes around $448.6 million.

But it is facing the need to pay back a bullet bond next year, and while the current cash position is strong, the need to partially refinance the bond borrowing means government will need to tread carefully if it is to remain compliant with the Public Management and Finance Law.

Speaking at the Chamber of Commerce economic forum last week, Finance Minister Roy McTaggart explained that when the November 2019 repayment of the 2009 bond of US$312 million becomes due, government may need to re-borrow up to $153 million, or 58%, of the amount of that bond.

Government’s debt is then forecast to stand at $286.7 million by the end of 2019. Opting not to substantially deplete government’s cash balances to pay it all off, unless there are unexpected increases in the cash balances, it will  mean government will not comply with the debt servicing cost ratio during the 2019 financial year.

As a result, government will need to keep an eye on all of the other elements of fiscal management the government must adhere to. Any significant reduction in government revenue and additional spending could impact the ratios and put what may appear on the surface to be the most robust finances the CIG has enjoyed since the crash of 2007 in jeopardy.

See the government first quarter report in the CNS Library

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Category: Government Finance, Politics

Comments (27)

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  1. Anonymous says:

    4 foot sea level rise by end of century…..

  2. Anonymous says:

    If we’re planning to fail to retire over half the loan made to us 10 years ago at historically easy interest rates, and refuse to acknowledge the liability portfolio against unaudited accounts, how do these guys pretend the public purse is full? Full of avarice maybe.

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  3. West Bay Premier says:

    How the government is figuring out the financial situation, is like someone who only looks at their money quarterly , and don’t remember that all payable bills are coming in the last quarter, then find out that there’s not enough money to cover all the expenses for the year .
    Better known as drunken sailors , not smart business people.

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  4. Anonymous says:

    halmark of communism….government and it’s cronies go rotten rich and the people/mass go rotten poor!!!?

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  5. Anonymous says:

    If this regime is determined to defer and bamboozle the responsibility to pay down future healthcare and unfunded pension messes (that have been reported on in the past), how do those blatant omissions speak to their legacy of fiscal responsibility? Default seems inevitable under their watch, and still no Standards in Public Life…

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    • Anonymous says:

      Actually, default will happen on someone else’s watch because they falsely claim success (and the glory for it) today.

  6. Anonymous says:

    And the govt loans coming due next year 2019??

    • Bean Counter says:

      The long term pension liabilities nearly 2 billion and civil service Heath care liabilities which are not recorded in the P&L stands to harm our credit rating. Just wait till they build the cruise dock for $350m and give control of our port to Carnival, Royal Caribbean cruise lines and Dart. The solution is not to give access CHEC a foothole in Cayman by securing long term financing for more projects like building roads, EE bulk storage project, schools who will bring in their own workers buy products from China and deprive Caymanians employment opportunities. The perfect financial storm is coming but government is not prepared. Cayman will become the Greece of the Caribbean.

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      • Anonymous says:

        Combined value of “record” air and sea arrivals amount to fees of just $50mln/year. If a pier is green-lit, it’s not going to save the day. The financier will be wanting at least half of that number over 15+ years, and that CIG receivables will decline commensurably, not rise. Coercive revenue from exempt company incorporations and related work permits is over $300mln/yr. Just on the basis of those two variables, we are already staring down the barrel of 30-40% decline in CIG forward revenue.

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  7. Anonymous says:

    Oh dear. They actually seem not to understand that immigration policies are acting to destroy a critical source of revenue. Not that there is a problem with that. The problem is that they did not take any account of or plan for the inevitable consequence of keeping the lowest paid on work permits while granting managers status. It was always going to diminish government revenue. That it is suddenly surprising them and causing them to create made up reasons to explain work permit revenues decreasing is what I find truly scary. What is the plan guys? Do you even understand what you are doing and how it all interacts? It seems plainly not.

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    • P&L says:

      Great point. And yes seems obvious they do not think through the consequences of their decisions further down in the chain reaction. a course in intro economics (macro 101) would instill an understanding of such shifts. Perhaps we need an MLA course so they can learn some of the fundamentals needed to be making the level of decisions they are involved in.

      No Econ courses…okay well many Caymanians are damn good chess players. So play chess at least in your politics and think of the consequences of every action and the subsequent actions that may follow. You cannot make decisions in isolation. Basic 101.

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      • Anonymous says:

        Not sure how great a point this is. The reality is that the financial services sector has been in decline for quite awhile. Take note of the number of financial institutions that have pulled up operations in Cayman and moved to other jurisdictions. The immigration policy is merely speeding up the process of a trend that has been in place. If Cayman was still the hot and sexy jurisdiction it used to be the immigration policy would not be a factor.

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  8. Anonymous says:

    Thanks for publishing these figures CIG.

    Is this information based on full accrual accounting principles?

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  9. RICK says:

    Wow expats pumping alot of money in to Cayman for Caymanians to live the easy life

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  10. Anonymous says:

    As refinancing needs UK approval, I would expect permission to be conditional on positive compliance with the government’s obligation to provide a public register of entities.

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    • Anonymous says:

      The post Nov 2019 refinanced coupon will >7.75% if we retain UK-backstopped Aaa2 rating. We will struggle to afford to service new debt, which continues to omit a Billion in unfunded liabilities.

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      • Anonymous says:

        It won’t be UK backed if the CIG is still throwing its toys out of the pram about the register.

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        • Anonymous says:

          The one thing the UK has no power to do is divest itself of its territories. Attempting to do that would put it in trouble with the UN, and therefore with every other country that has territories. If the UK wants to dictate to us because it backstops our finances, then it must remind itself why it backstops our finances: it has no choice. Consider yourself educated.

  11. Anonymous says:

    That’s good ,but if they keep up those trips to England band and all ,we sure won’t have it for . Don’t look like it impress Theresa may .

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  12. Anonymous says:

    This, in the face of possible loss of financial sector business if the UK pushes ahead with the threatened Order in Council, is not a pretty picture. Especially as potential lenders for the refinancing of government debt, may have concerns about Cayman moving towards independence, in which case we will lose our “Lender of Last Resort” – the UK.

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  13. Anonymous says:

    keyword: “unaudited”

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  14. Anonymous says:

    Just another wonderful day in our much improved civil service.

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  15. Anonymous says:

    How about you stop spending money providing free services to many hundreds of non Caymanians who are not legally entitled to them; and since you went there, you gotta tell us about this 2.9 million work permit shortfall based on a change of fee categories.

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    • Anonymous says:

      There is no change of fee categories. The Law requires the same fees to be paid even if you retire. The only ways out are to become Caymanian, leave, marry a Caymanian, become married to a Caymanian, move to the Special Economic Zone, move to the civil service, or die.

      Perhaps the Minister can explain the alternative he is referring to?

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