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Cayman Assembly Backs Fiscal Responsibility Law

Amanda Banks,, London

27 November 2012

The Cayman Islands Legislative Assembly has finally passed the amendments to the Cayman Islands Public Management and Finance Law (PMFL) that incorporate a United Kingdom-drafted fiscal framework.

The approved version was the third to go before the assembly and incorporates the agreed the Framework for Fiscal Responsibility (FFR) into the Cayman finance law.

The FFR commits the Cayman government to "restoring prudent fiscal management," in order to help "create an environment in which people and businesses can plan for the future with confidence."

The FFR states that the Cayman Islands government’s fiscal strategy consists of the following five components: controlling government expenditure; limiting new borrowings; re-aligning the revenue base; improving the performance of Statutory Authorities and Government Companies; and reducing costs by working in partnership with the private sector.

In August, the United Kingdom government endorsed the revised Cayman budget for 2012/13 but restricted the size of a second overdraft facility to limit Cayman borrowing.

The budget was the result of a second revision of budget proposals from the Cayman government, which was instructed to rewrite its initial budget plans earlier this year after the UK government blocked the territory from increasing borrowing to service the islands' recurring budget deficits. A second draft of the budget was drawn up in early August, but this draft was promptly abandoned after an outcry from the local financial industry regarding a proposal to introduce a direct tax on expatriate workers' income.

The overdraft facilities, with a combined value of USD81m, are being provided in recognition of the cyclical nature of Cayman revenues from the financial services industry. At the request of the UK's Foreign and Commonwealth Office, the Cayman Islands will be required to establish a 'Budget Delivery Board' to ensure that it achieves a budgetary surplus, as well as the repayment of the two credit facilities to the UK government by January 31, 2013, and June 30, 2013.

TAGS: investment | public sector | law | international financial centres (IFC) | budget | Cayman Islands | United Kingdom | offshore | legislation

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