Severe economic pressures in recent years have made budgeting in every sense of the word, be it at a personal or business level, a difficult exercise.
We have all had to ensure that we work harder, smarter and more creatively in order to attract and retain revenue streams that are becoming increasingly harder to come by, while at the same time ensuring that costs are kept to a minimum.
The scenario is no different when it comes to governments, with some of the largest economies in the world struggling with enormous deficits and record borrowing that have pushed some into teetering on the brink of collapse. One only needs to watch the news to see the plight of Greece, whose economic woes play out like the proverbial Greek tragedy on an almost daily basis.
Although Cayman’s economy is miniscule in comparison to the largest in the world, it has not been without its problems and controversies, with government recently requiring a two month temporary stop-gap budget, during which time it had to quickly explore a variety of ways to increase revenues and decrease costs.
More UK involvement
The Cayman Islands has in recent times found itself in the unusual position of requiring approval of its budget by the UK government, which has thereby caused a considerable degree of back and forth discussions among Cayman’s leaders in order to finally agree on a budget for the next financial year that has now finally been accepted by the UK.
In a further rare step, the UK has agreed to Cayman’s 2012/2013 budget but with considerable restrictions place on the Cayman government. The UK has stipulated a number of conditions to which the Cayman government must adhere, if the UK is to continue its budgetary approval.
These include the implementation of the Framework for Fiscal Policy Law, which must not only be enacted but closely followed as well by the Cayman government. It also stipulates that the UK’s economic advisor, who was sent to oversee the initial budget proposal, must also be allowed to review budget performance on a quarterly basis hereafter.
One of the most important new rulings from the UK has been for the establishment of the Budget Delivery Board, headed by the deputy governor, which will be charged with overseeing the government’s budget.
While specific details as to who will actually be sitting on the board have yet to be forthcoming (at the time of writing), I would hope that all are properly qualified in financial planning and that all concerned have a deep understanding of the local economy and the plight of local businesses. I would anticipate therefore that they would act not necessarily with clinical precision and with more of a feel for the needs of business, going forward.
In my view there are a variety of pros and cons to this closer involvement by the UK. Some may view the UK as something of a white knight here to save the Cayman Islands from fiscal ruin; some might see the extra attention as an infringement on the rights of the Islands to govern themselves when it comes to matters relating to the economy.
On the downside it could be said that such stringent requirements do not allow the country to be quite as independent as it used to be; however if proper checks and balances are introduced then that can only be a good thing.
The Cayman Islands budget can be compared to a mid-sized corporation in the US and as such, if properly and effectively managed, it should be run at a profit, banking reserves in good times and working to reduce operating costs and overheads in bad.
The world is watching
What worries me about the recent to-ing and fro-ing over the budget is that little attention has been given to the wider effects this apparent lack of long-term planning has had on business development. I also do not believe that proper consideration has been given to the fallout and possible repercussions that the proposal of the expatriate tax may have on the economy.
Taxing expatriates only was at one point suggested by government as a method for increasing revenue; however the suggestion was taken off the table almost as quickly as it was put on.
No-one appears to have addressed the effects such discussions have had globally. Major international news agencies were quick to report the notion of a tax in the Cayman Islands all around the world. Our office here in Cayman was interviewed by reporters from the Associated Press, who had flown to the Cayman Islands specifically to report on this story.
In particular, competitor jurisdictions such as Hong Kong, Bermuda and Jersey were all reporting on the expatriate tax proposal. In my view, one of the cornerstones of the Cayman Islands success story has always been its stability of government, but when such fiscal irresponsibility is reported so widely, our image is tarnished.
Capital projects still vital for economic growth
While the Budget Delivery Board gets to grips with the difficult task of maintaining and implementing a balanced budget, it is hoped that capital projects slated for lift off this year get underway. It was cheering to see ground being broken recently on the Shetty hospital project and it is hoped that the Cayman Enterprise City project will also take off soon.
Such projects always ultimately benefit the country, whether it is immediately and directly or due to the spin off from construction and labour from the building of the project, let alone all the local activity that these new projects bring to the country as a whole.
Joint ventures with the private sector are an excellent way for government to complete tasks in a timely manner with the result of long term gains without upfront risk or costs. In my opinion, these are exactly the types of projects the UK government should be willing and agreeable to accept.
One hopes that long-term views to benefit the country via similar capital projects will be built into the budgetary requirements for the country and that those who will be sitting on the Budget Delivery Board will make such issues an integral part of their consideration, for the good of the country as a whole.
What we need now, more than ever before in these Islands’ history, is a cohesive and coordinated approach that takes sound fiscal policies and informed ideas and leads the country into the future in the clear knowledge of the path ahead.