(CNS): The Cayman Islands Government is heading for significant fiscal challenges because of increasing public debt to cover its growing list of capital projects and the liabilities to cover the healthcare cost of retired civil servants now and in the future. In her most recent report about the sustainability of public finances, the departing auditor general, Sue Winspear, raised the alarm on a number of issues, including the debt balance.
This has increased in recent years after a period of decline, and Winspear warned that the CIG could find it difficult to meet public spending obligations and service its debt.
While government debt peaked in 2011 at well over CI$630 million, it gradually declined over the next decade until 2021, when the pandemic led to the first new government borrowing for many years. Since then, the debt has more than doubled with the outstanding balance sitting at around $420 million at the end of September last year.
But the government announced that it plans to borrow a further $150 million in this current budget cycle to support planned capital and infrastructure projects. Given the possibility of cost overruns plus other projects that have not been budgeted for yet, Cayman could soon find itself with a debt burden that exceeds its 2011 peak.
The auditor warned that the repayment of this growing debt could put pressure on finite resources and might need to be prioritised over other policies and programmes in the longer term.
In addition to its debt, the government also has significant long-term liabilities for civil servants’ pensions and post-retirement healthcare insurance. As at December 2023, the CIG’s post-retirement healthcare liability was estimated to be $2.4 billion, and the present value of the unfunded pension liability for defined benefit plans was $328 million.
In November 2024, the Office of the Auditor General reported that the post-retirement healthcare liability for ten SAGCs was $401 million as at December 2023. Some SAGCs also had pension obligations for their staff, amounting to almost $16 million.
There are a range of debts and obligations including those for the SAGC loans. The CIG government had worked on reducing debt from its CI$630 million peak to just $223 million in 2011.
Things changed in 2021 when the former Progressive administration secured a line of credit worth $330 million as a back-stop for any possible economic fallout from the pandemic. However, it was drawn down by the PACT finance minister, Chris Saunders, in June 2022. By the end of 2023, government debt had more than doubled.
The CIG is planning to borrow even more money this year and next, and also holds debts for various SAGCs of around $20 million.
Much of the debt has been incurred as a result of capital projects. In its capital project tracker, which is included in the financial report for the second quarter of 2024, the government reported that 38 capital projects with an estimated total cost of $460 million were in progress or planned.
Of these 19 had started by 1 January 2024 and had incurred expenditure of $141 million. The capital expenditure on all projects for last year is estimated to be $79 million, and over the medium term (2024–2026) it is estimated to be $160 million.
“However, we noted that the timescales of several of these projects were still to be determined, and costs had not been estimated for any of the years,” Winspear said in her report.
The tracker includes information on the annual operational costs of a few of these capital projects, which is estimated at $7.7 million a year. This includes $6 million per year for the Poinciana Rehabilitation Centre, the long-term residential mental health facility. The Ministry of Health and Wellness budget for 2024-25 includes an output for the facility of $4.3 million in 2024 and $7 million in 2025.
The government is also embarking on the East-West Arterial extension. The draft environmental statement has estimated that the cost of building and maintaining the road could be more than US$1 billion over the next 50 years. “If the Government goes ahead with this project, it could lead to additional pressures on public finances over the next five decades,” Winspear warned.
Since 2017, the OAG has advised the government to prepare a long-term capital investment plan to inform capital investment decisions, including the affordability of major capital projects and the capacity of the government and industry to deliver them.
“This would significantly improve the Government’s ability to plan for and report on its long-term financial sustainability. However, despite agreeing with this recommendation, the Government has not developed a long-term capital investment plan,” Winspear said.
See the report in the CNS Library.
