Budget Address 2022-2023

Mr. Speaker, it is indeed an honour to rise this morning to present The Appropriation (Financial Years 2022 and 2023) Bill, 2021.

Mr. Speaker, just over six months ago, our Honourable Premier, Wayne Panton in his inaugural address reminded us of the words from Reverend Peter Raible when he said:

We build on foundations we did not lay;
We warm ourselves by fires we did not light;
We sit in the shade of trees we did not plant;
We drink from wells we did not dig; and
We profit from persons we did not know.

Mr. Speaker, it is in that vein, that I want to start this budget address by first and foremost thanking the Lord above for his continued blessings on our beloved Cayman Islands, our Caymanian people, and all those that call the Cayman Islands home.

Mr. Speaker, I want to use this opportunity to thank the people of the Cayman Islands for their continued confidence in this PACT Government. It is only through their support, encouragement, and consent that we are here today.

Mr. Speaker, I have to also use this opportunity to thank the good people from my home district of Bodden Town West who have been very patient and understanding with me over the past seven (7) months as I focused my attention on the two Ministries that were entrusted to me by the Hon. Premier, namely the Ministry of Finance and Economic Development and the Ministry of Border Control and
Labour.

Mr. Speaker, you of all people know what it takes to run the Ministry of Finance, but I must say that I am blessed to have a talented and dedicated team lead by Financial Secretary and Chief Officer in the Ministry of Finance – Ken Jefferson.

Likewise, I am also blessed to have a talented and dedicated team in the Ministry of Border Control and Labour led by Chief Officer Wesley Howell.

Mr. Speaker, those two Ministries led by those two dedicated, committed, and very competent Chief Officers have made the load to carry much lighter and I want to thank their families, especially their wives, Farida and Renee, for imposing on their family time late at nights, on weekends, and on Public Holidays.

Mr. Speaker, as I said earlier, we build on foundations we did not lay and as such I want to take this opportunity to thank the various Ministers of Finance that went before me, starting with you.

Mr. Speaker, more than 12 years ago, on the 6th of November 2009 when our current Constitution came into effect, you became the very first Minister of Finance for our beloved Islands.

Back then Mr. Speaker, you took the reins of the public purse in the aftermath of the 2008 Global Financial Crisis and had to steer the good ship Cayman through troubled waters. I can assure you Mr. Speaker that I now know firsthand what that feels like and on behalf of the Caymanian people I would like to thank you for your steady hand and decisive actions taken at that time. You reminded us all back then that it was not the time to retreat but rather the time to be bold and audacious.

Mr. Speaker, I must also pay tribute to my colleague the Hon. Minister of Education who also previously served as the Minister of Finance and has been the only woman to do so, to date. It was on her watch that she continued with your policies and returned the Country to a surplus position of $44.6 million in 2013, which was a turnaround of $194.0 million from the deficit position of $149.4 million that you inherited back in 2009.

Again Mr. Speaker, I commend you and your Government of 2009 to 2012 for returning the Cayman Islands economy and the Government finances to the right track.

Equally Mr. Speaker, to give Jack his jacket, I must also give credit to former Ministers of Finance, Marco Archer and the Hon. Leader of the Opposition, Roy McTaggart for maintaining the Surpluses that you and Minister Juliana O’Connor-Connolly created. Like I said before, we all build on foundations we did not lay.

And now Mr. Speaker, it is our turn, our time for this PACT Government to build on the foundations that successive Governments before us have built.

Mr. Speaker, the budget presented to this Honourable Parliament for the 2022 and 2023 financial years is a budget that is “Investing in the Wellbeing, Resiliency, and Sustainability” of the Caymanian people and the Cayman Islands.

It is a budget that my colleagues and I are proud to present to the Country.

Mr. Speaker, this budget extends support to our people through investments in education, healthcare, and various social programmes, while simultaneously defending and growing our existing economic pillars of financial services and tourism to ensure their resiliency and continued success, all at the same time protecting our environment to ensure a sustainable future for all Caymanians and those that call the Cayman Islands home.

Simply put Mr. Speaker, this is a People-driven budget!

Mr. Speaker, this budget delivers on many of the promises made during the campaign to invest in our people and their wellbeing. From free school lunches for our children to removing the duty on day-to-day essential items such as baby food, baby diapers and sanitary products for women.

Mr. Speaker, I must pause here to also inform this Honourable Parliament that the Government intends to bring a Consumer Protection Bill, and if needs be, take additional steps to ensure that many of these savings are passed on to consumers.

Mr. Speaker, time and time again, we have seen many items on which there is no customs duty being the most expensive on the shelves. Just recently, we noticed that with the Lateral Flow Test Kits where the Government made the decision to make the kits duty free and some of the prices charged are borderline immoral.

Additionally, Mr. Speaker, the Government also recently expanded the number of international markets where cement, which is vital to our construction industry, may be sourced at lower prices, and again, in many instances, the savings were not passed on to consumers.

Again Mr. Speaker, I want to put everyone on notice that if the savings are not being passed on to the consumers, we will take the necessary steps to ensure that they will be - even if we have to partner with others or import the items ourselves.

Too much money is being taken out of the pockets of our people and they are not receiving value for their hard work!

Broad Outcome No. 3, Mr. Speaker, in the Government’s Strategic Policy Statement is a commitment to “Providing Solutions to improve the Well-Being of Our People so that they can achieve their Full Potential.”

My colleagues and I in this PACT Government takes that commitment very seriously and it cannot be business as usual where many people are being taken advantage of with some of the prices being charged on essential items.

Mr. Speaker, this budget also reflects our commitment to modernise our infrastructure through investments and partnerships as well as an increase in funding to automate many government services. We believe that this is necessary to free up resources so that they may focus more on enforcement and compliance to ensure that Caymanians are protected both in their homes and in the workplace.

In short Mr. Speaker, we have increased funding to ensure that our laws are enforced so that Caymanians will have greater opportunities and advancement in the workplace so that we may begin the process of closing the dignity gap.

Mr. Speaker, I want to highlight a point that the Premier made in his inaugural address when he reminded us that while we cannot guarantee equal outcome, we can guarantee equal opportunity.
This budget is about providing our people with the opportunities and tools necessary to build the best life that they want to live for themselves and their families.

Mr. Speaker, I am not going to tell you that this was an easy process as I know that you know better. The process was even more challenging because of the strain on our finances as a result of the on-going impact of the global pandemic. Putting this budget together consisted of many long hours, arguments, disagreements, but ultimately compromise in the best interest of our people and I want to commend my colleagues on this side for making the hard, but necessary decisions to ensure
that we have a budget that invests in the wellbeing, resiliency, and sustainability of
our people.

Summary — 2022 and 2023 Budgets

Mr. Speaker, the Appropriations set out in the Bill now before Parliament along with the Budget Documents that I Tabled earlier, collectively, form the Government’s 2022 and 2023 Budgets.
On 14 July 2021, the PACT Government presented its 2022-2024 Strategic Policy Statement (SPS) which set out, in macro terms, the Government’s medium-term fiscal policies and financial forecasts for the next three financial years – 2022 to 2024.

The 2022 and 2023 Budgets are consistent with the policies and forecasts that are set out in the SPS. As frequently is the case, the amounts in the Budgets will differ from those in the SPS but the direction and the trend remains the same. The changes made to the SPS results and position, reflect the more accurate and up-to-date information now available on which to base these estimates.

Mr. Speaker, before I provide the details of the 2022 – 2023 Budgets and the Government’s plans in those years, let me first summarise some of the key fiscal policies and headline figures that are contained in the 2022 and 2023 Budgets:

• Commencing 2022, the Government will return to full compliance with the Principles of Responsible Financial Management as prescribed by the Public Management and Finance Act, or PMFA. These Principles are the same as those specified in the Framework for Fiscal Responsibility (the FFR) which, is also a part of the PMFA;
• There are no new fees or taxes levied on the public;
• In order to meet all of the Government’s planned capital investments over the Budget period, the 2022 and 2023 Budgets show borrowings of up to $349.1 million: $299.1 million in 2022 and a further $50.0 million in 2023. Therefore, none of the Government’s day-to-day Operating Expenses are met by borrowings – such costs are met entirely by Government’s Operating Revenues;
• Core Government is forecast to earn Operating Revenues of $940.9 million in 2022 and $978.1 million in 2023;
• Together, Operating and Financing Expenses are forecast to be $921.5 million in 2022 and $950.4 million in 2023;
• Core Government Operating Surpluses are forecast to be $19.4 million in 2022 and $27.7 million in 2023;
• Closing Cash Balances will be $404.8 million at 31 December 2022 and $312.2 million at 31 December 2023; and
• Core Government Capital Investments are forecast to total $170.1 million in 2022 and $133.4 million in 2023.

Moreover, Government plans on investing, as Equity Investments, in its Statutory
Authorities and Government Companies, $30.4 million in 2022 and $28.9 million in
2023.

Additionally, Government will make Loans of $26.9 million in 2022 and $12.1
million in 2023 to Public Entities, as further financial support to those Entities’ ongoing
operations.

Let me move next to the Government Returning to Compliance with the Principles
of Responsible Financial Management.

Mr. Speaker, when the PACT Government took Office in May of this year, we were already facing an uphill battle given the impact and uncertainty that the COVID-19 response and recovery had on the Country’s economic activities and the Government’s finances. As reported in the 2021 Pre-Election Economic and Financial Update, which was prepared in March 2021, Core Government was
forecast to achieve an Operating Deficit of $98.3 million at the end of 2021 and an
Operating Deficit of $59.6 million at the end of 2022.

Later in my Address, I will provide a detailed breakdown of how, primarily due to better than expected Operating Revenues performance, the forecast Operating Deficit for the 2021 financial year is now re-forecasted to a much improved $29.7 million which is approximately $69.0 million better than where it was forecasted to be when we arrived in office.

Additionally Mr. Speaker, the budgeted surplus for 2022 of $19.4 million is $79.0 million better than when we arrived in office which is a combined improvement of $147.6 million between 2021 and 2022 when compared to the Pre-Election Forecast.

Again Mr. Speaker, I want to thank my colleagues on this side, led by a very caring and competent Premier for making the hard, but necessary decisions.

Mr. Speaker, as you would imagine, starting out with the prospect of an Operating Deficit, is not the most preferable financial result to be facing a new Government. I know you know first-hand how this feels as you and your Government faced a similar challenge back in 2009 after the elections. Admittedly, it has posed some challenges for the PACT Government and has required us to refocus some of our planned goals and commitments.

Mr. Speaker, an Operating Deficit is a breach of the Principles of Responsible Financial Management under the PMFA - as the PMFA requires the Government to achieve an Operating Surplus.
Compliance with the Principles of Responsible Financial Management under the PMFA is a requirement – it is not optional. Failure to comply means that we will have to surrender control of our budget to the United Kingdom – stripping us of that most basic privilege of deciding for ourselves how we can spend our money.

The United Kingdom Government is aware of the likely Deficit for the 2021 financial year, but has not sought, in any way, to control Government’s budget because it understands a Deficit for 2021 is realistic in a global pandemic and it has given its support to the PACT Government’s SPS plans to return the Cayman Islands Government finances to compliance with the Principles, in 2022 and maintain compliance in the 2023 financial year.

Mr. Speaker, the PACT Government is committed to ensuring that the Cayman Islands maintains its financial independence and ability to control its own budget.

Having said this, Mr. Speaker, one of the first challenges and fiscal policies of the PACT Government is to return the Government to full compliance with the Principles of Responsible Financial Management under the PMFA.

The PACT Government is pleased to report that although the Government is forecast to achieve an Operating Deficit in 2021, Core Government will achieve Operating Surpluses in the 2022 and 2023 financial years and therefore return to full compliance with the Principles of Responsible Financial Management under the PMFA.

Over the next two (2) years, the PACT Government intends to continue maneuvering through the uncertainties of the COVID-19 pandemic, while at the same time, being financially prudent in order to deliver the programmes that it promised the people of these Islands.

Mr. Speaker, another fiscal policy of the Government is that No New Fees or Taxes will be Levied on the Public.

Again Mr. Speaker, I want to underscore the PACT Government’s commitment to Broad Outcome No. 3 in our Strategic Policy Statement where we are determined to Improve the Well-Being of Our People so that they can achieve their full potential.

The PACT Government is committed to ensuring that our citizens and residents not only have opportunities to earn a living, but can also afford to live here in the Cayman Islands - while at the same time be able to save for a rainy day.

Mr. Speaker, the PACT Government is committed to implementing measures that are aimed at lowering the cost of living and one way of doing so, is to not impose any new fees or taxes on residents and businesses, and the 2022 and 2023 Budgets do not contain any new fees or taxes.

Mr. Speaker, it is Government’s fiscal policy to minimize the extent of borrowing undertaken for any financial year. The longer-term aim is to expand Operating Surpluses to the extent that such surpluses can fund Capital Expenditures and Investments.

Operating Surpluses for the 2022 and 2023 financial years are not sufficiently large enough to fund Capital Expenditures and Investments in those years and as such we will have to borrow during that period. Again, I want to highlight that Government does not borrow to fund its day-to-day operating expenses and, it will only borrow to fund Capital Expenditure and Investments.

The 2022 and 2023 Budgets encompass borrowing that will not exceed a total of $349.1 million: $299.1 million in 2022 and $50.0 million in 2023.

Mr. Speaker, I will provide further details on the borrowings, later in my Address.

2021 Financial Forecasts

Mr. Speaker, before I provide the details of the 2022 – 2023 Budgets and the Government’s plans in those years, let me provide a brief update on the current state of public sector finances and the forecasts to the end of this financial year which ends on the 31 December 2021.

Operating Revenues are forecast to be $932.3 million, which is 10% higher than estimated in the original 2021 Budget. I must all add Mr. Speaker that the forecasted revenues for 2021 are $70.0 million better than 2019 – before the COVID-19 global pandemic hit. In short Mr. Speaker, the confidence to do business in the Cayman Islands remain at an all-time high and I want to thank my colleagues on this side for creating this positive environment.

Mr. Speaker, this better than expected performance is primarily attributed to strong growth in Other Stamp Duty, Stamp Duty on Land Transfers, Private Fund Fees, Other Company Fees and Proceeds from Liquidated Entities.

Overall, revenues for Core Government are forecasted to be higher than originally budgeted largely due to the impact of higher volumes of dutiable transactions along with the continued growth of local real estate markets and the solid reliable performance of the financial services sector. Revenue stream for Private Funds, which came online in 2020, has also brought in strong revenues for the 2021 financial year. These critical revenue streams ultimately mitigated the significant shortfall in revenue from the Tourism Sector, which was understandably suppressed due to the impact of COVID-19.

Mr. Speaker, Other Stamp Duty is forecasted to be $8 million better than Budget, and Stamp Duty on Land Transfers are forecasted to be higher than the 2021 original budget by $54.0 million. Revenue from Private Funds is forecasted to bring in $52.4 million in 2021. Other revenue sources with likely significant positive variances are: Mutual Fund Administration License Fees ($6.0 million, positive
variance); and Other Company Fees ($6.0 million, positive variance).

Mr. Speaker, the response and recovery of the COVID-19 pandemic has adversely impacted the Government’s finances. Operating and Financing Expenses for Core Government are forecast to be $962.0 million for 2021, which is 24% or $188.0 million greater than the 2021 original budget of $774.4 million. Of the $962.0 million that is forecast for Operating and Financing Expenses for
2021, 12% or $115.0 million is comprised of COVID-19 related expenses, which
were not budgeted for in 2019 when the 2021 Budget was prepared. The COVID-
19 related expenses include:

1. $60.0 million for the stipend given to displaced workers in the Tourism industry;
2. $47.7 million for testing, supplies and operating costs of Travel Cayman to
3. combat COVID-19;
4. $3.4 million to support business initiatives;
5. $2.0 million for support to micro and small business entities;
6. $1.0 million for financial assistance to the vulnerable; and
7. $0.8 million to assist members of the public to maintain healthcare coverage by meeting their premium obligations.

Mr. Speaker, a further $10.5 million was provided as supplementary budgetary funds with respect to Tropical Storm Grace response and recovery – which was also not budgeted in 2019 when the 2021 Budget was prepared. Tropical Storm Grace related expenses included:

1. $3.0 million for assistance to farmers;
2. $3.0 million for housing assistance;
3. $4.0 million for support for business initiatives; and
4. $0.5 million to assist with clean-up and repairs.

Mr. Speaker, Outputs from Non-Governmental Output Suppliers, otherwise known
as contributions and donations made to NGOs and charitable organisations doing
valuable social work, are anticipated to be approximately $23.0 million higher than
budgeted due to increased assistance provided to the community. These
programmes include tertiary healthcare at local and overseas institutions for
seamen; care of the indigent, elderly and disabled; after school support
programmes for children; food support services for the elderly and other similar
programmes.

Mr. Speaker, on behalf of my Government colleagues, I would to pause here and
thank the many organizations that do great work in our communities. To borrow
the tag line from the Honourable Premier and Parliamentary Secretary Heather
Bodden – Community Creates Country.

Mr. Speaker, Outputs from Public Authorities and Government Companies are also
projected to be $34.0 million more than originally budgeted, primarily due to
increased funding to the Health Services Authority.

Transfer Payments are forecasted to be $103.0 million greater than the original
2021 budget. This is due primarily to the support given to displaced workers
formerly employed in the Tourism Sector.

Other Operating Expenses are also expected to result in an increase of $34.0 million
over budget which is also a direct result of COVID-19 related expenses.
Mr. Speaker, Statutory Authorities and Government Companies are forecast to
have a net Operating Deficit of $54.3 million for the year ending 31 December 2021
compared to an original budgeted Operating Deficit of $16.9 million. The major loss
leaders are expected to be:

• The Cayman Islands Airports Authority – $28 million;
• Cayman Turtle Conservation and Education Centre Limited – $10.7 million;
• Health Services Authority - $7.5 million;
• Port Authority of the Cayman Islands – $7.2 million
• Cayman Islands National Insurance Company – $3.5 million;
• Cayman Airways – $3.1 million

Mr. Speaker, while the accumulated results of all of these changes is that Core
Government is now forecast to achieve an Operating Deficit of $29.7 million, which
is a $105.0 million drop from the originally budgeted Operating Surplus of $75.3
million; the forecast Operating Deficit is still $69.0 million better than the $98.3
million that was reported in the 2021 Pre-Election Economic and Financial Update
– which was prepared in March 2021.

Core Government’s Cash Balances at 31 December 2021 are forecast to be $304.5
million, which is about $20.0 million better than the $284.7 million that was
originally budgeted.

Mr. Speaker, as I mentioned earlier, the forecasts for 2021 indicate that the
Government will not be in full compliance with just one (1) of the Principles of
Responsible Financial Management and the FFR - Core Government is forecast to
have an Operating Deficit of $29.7 million.

However, Core Government will be in compliance with all of the other Principles:

1. Net Worth - which should be positive, is forecast to be $1.4 billion at 31December 2021;
2. Debt Service Ratio - which should be no more than 10% of Core Government Revenue, is forecast to be 6.2%;
3. Net Debt Ratio - which should be no more than 80% of Core Government’s Operating Revenue, is forecast to be 1.2%; and
4. Cash Reserves - which should be sufficient to cover 90 days of Core Government’s estimated operating expenditures, is forecast to be at 92.9 days at 31 December 2021.

Economic Forecasts

Mr. Speaker, world economies have struggled to cope with the COVID-19
pandemic. All economies were affected as global economic activity contracted by
3.1 percent in 2020 compared to a relative growth of 2.8 percent in 2019, prior to
the pandemic. Global economic activity is projected to expand to 5.9 percent in
2021 before decelerating to 4.9 percent in 2022 and 3.6 percent in 2023.

The success of vaccination programmes worldwide has reduced uncertainty in
global demand as most countries gradually return to routine economic activities.
However, the fast pace of recovery in the U.S. and other advanced economies has
created a short-term mismatch in the labour market and supply chain challenges
which has increased pressures on global inflation. In the United States of America,
inflation is projected to accelerate to 4.3 percent in 2021 from 1.2 percent in 2020.

Cayman’s Gross domestic product or GDP is estimated to have contracted by 6.7
percent in 2020 as a result of reduced activities associated with the pandemic. The
impact of the global lockdown, the closure of Cayman’s air and seaports and curfew
measures were partly mitigated by the stimulus measures which were established
to increase construction, increase disposable income and provide liquidity funding
for affected businesses.

Mr. Speaker, the economic contraction in 2020 impacted all Sectors with the
exception of the Health and Social Work Sector, which increased by 15.7 percent
and the Financing and Insurance Services Sector which increased by 0.3 percent.
In 2020:

• the Hotels and Restaurant Sector is estimated to have contracted by 76.6
• percent;
• Transportation contracted by 31.5 percent;
• Transport, Storage and Communication fell by 14.4 percent;
• the Wholesale and Retail Sector contracted by 4.3 percent;
• Construction contracted by 4.4 percent, due to the lack of activity during the shutdown period; and
• the Business Services Sector fell by 4.7 percent as the industry showed some resilience as employees were able to work remotely.

In 2020, the average consumer price index or CPI increased by 1.0 percent,
compared to 6.0 percent in 2019. Food and non-alcoholic beverages rose by 5.1
percent while communication rose by 5.9 percent and education by 4.4 percent.

The contraction of the local economy in 2020 contributed to a reduction in the
demand for labour during the year. With total employment declining by 12.1
percent to reach 41,644 in the Fall 2020 Labour Force survey, the overall
unemployment rate rose to 5.2 percent in 2020.

Mr. Speaker, the domestic economy is expected to recover partly with a growth of
1.2 percent in 2021. Economic activity is expected to accelerate further by 5.0
percent in 2022 and an average of 3.2 percent per year between 2023 and 2025:

• the Hotels and Restaurants sector is expected to contract further by 88.0 percent in 2021 but is expected to recover partially, with an average annual growth of 224.9 percent per year between 2022 and 2025;
• the Transport sector is also projected to contract by 26.9 percent in 2021, due to the Islands’ border closure and Cayman Airways operating on a restricted schedule, before recovering to an average annual growth of 12.0 percent in the next four years;
• the Wholesale and Retail sector is projected to rise by 2.2 percent in 2021 with an average increase of 3.7 percent per year between 2022 and 2025;
• the financial services sector is expected to continue its robust performance with a projected expansion by 1.9 percent in 2021 and an average growth of 1.0 percent per year between 2022 and 2025;
• with planned construction projects including high-end apartment complexes, the NCB Hilton Hotel, the Hyatt Hotel, the Mandarin Hotel at Beach Bay, the Indigo Hotel, John Gray High School, the construction of a mental health facility and continued road expansions, the Construction Sector is projected to expand by 9.4 percent in 2021 and average 5.3 percent per year between 2022 and 2025; and
• Mr. Speaker, the Business Services sector is projected to expand by 3.7 percent in 2021 and grow at an average rate of 2.2 percent between 2022 and 2025.

Due to relatively stable rental prices and declines in transport and electricity,
inflation is projected at 1.3 percent in 2021, increasing to 3.4 percent for 2022 and
an average of 2.2 percent for the next three years.

Mr. Speaker, given the increase in employment opportunities from planned
construction projects and the Government's policy to prioritize the integration of
displaced Caymanians into the workforce, the unemployment rate is forecast at 5.0
percent of the labour force in 2021, improving to 4.4 percent in 2022 and averaging
3.6 percent in the remaining three years.

The 2022 and 2023 Budgets

Mr. Speaker, now turning to the details of the 2022 and 2023 Budgets.
It is important to repeat what I said earlier: the 2022 and 2023 Budgets do not
include any new revenue measures.

Operating Revenue for 2022 is forecast to be $940.9 million, with $897.9 million
being Coercive Revenue and the balance of $43.0 million in Sales of Goods and
Services, Investment Revenue, Donations and Other Operating Revenue.
In 2023, Operating Revenue is forecast to be $978.1 million with $934.6 million in
Coercive Revenue and $43.5 million in Sales of Goods and Services, Investment
Revenue, Donations and Other Operating Revenue.

Operating Expenditure in 2022 is forecast to be $921.5 million and $950.4 million
in 2023.
Mr. Speaker, my colleagues will provide further details, on each of their Ministries,
of the planned Operating Expenditure levels in 2022 and 2023 during the debate,
but I want to outline the major cost drivers:

1. Personnel Costs are budgeted to be $437.2 million in 2022 and $459.3 million in 2023 to fund: 

• Recruitment activities for additional teachers;
• Bolstering of public safety resources in the Royal Cayman Islands Police Service, the Prison Department, the Fire Department and Border Control;
• Increased resources for the promotion and regulation of the financial services industry; and
• Increased Civil Servants’ health insurance premiums;

2. Supplies and Consumables are budgeted to be $149.4 million in 2022 and $149.2 million in 2023;

3. Depreciation is budgeted at $45.0 million for 2022 and $47.5 million for 2023 and reflects the increase in the value of the Government’s assets as various capital projects are completed. Mr. Speaker, it is important to remind Honourable Members and the general public that depreciation is a non-cash expenditure item which recognises the cost of assets through the operating statement, in a systematic way, over the expected useful life of the asset; and

4. Financing Costs - Mr. Speaker, as I mentioned earlier in my speech, the 2022 and 2023 Budgets allow the Government to borrow up to $299.1 million in 2022 and a further $50.0 million in 2023 – for a total of $349.1 million over the two financial years.

New borrowing should not be a surprise to the Opposition, Mr. Speaker. In June 2020, the PPM Government established a stand-by Line of Credit of CI$330.0 million (US$403.0 million). The purpose for the Line of Credit was to provide additional financial resources in the event that such resources are needed and, to mitigate the effects of Government's loss of revenue and increased expenditure related to COVID-19. In June 2022, any amount advanced and unpaid under the Line of Credit will be converted to a 15-year fixed-rate amortising loan. 

Mr. Speaker, the Government has been fortunate enough that, thus far, there have been sufficient cash reserves to fund all of its expenditure including the unbudgeted costs resulting from COVID-19 and Tropical Storm Grace. 

However, the time has come where the Government can no longer afford to deplete its existing cash reserves and there is a possibility that the Government may access the Line of Credit established by the previous Administration to ensure that the minimum number of cash days remain compliant with the PMFA.

Mr. Speaker, over the Budget Period, the Government will continue to keenly monitor its cash reserves and cash needs and will only draw down on the loan funds if and when it is absolutely necessary to do.

Of the $349.1 million of intended borrowings with respect to the 2022 and 2023 financial years:

• $303.5 million will be used to fund capital investments by Core Government; and
• $59.4 million will fund investments into Statutory Authorities and Government Companies.

As a result, of existing and the new borrowing, the Government is expected to incur Financing Costs of up to $14.7 million in 2022 and $16.9 million in 2023. These expenses cover the interest payments and other financing costs associated with the Core Government’s portfolio of Debt, which could increase to $485.4 million in 2022 and decrease to $482.1 million in 2023. The increased borrowings over the 2022 and 2023 financial years will result in a Debt to GDP Ratio of 9.3% in 2022 and 8.7% in 2023. This will still be one of the lowest Debt to GDP Ratio in the world. 

Mr. Speaker, I want to inform this Honourable Parliament that the Government is currently conducting an exercise to determine whether its existing debt can be refinanced, at a lower interest rate, in order to lower the forecasted financing costs.

5. Outputs from Statutory Authorities and Government Companies (or Public Entities) are expected to total $161.9 million in 2022 and $164.8 million inb2023. The budget in this category will be used to fund the following:

• $50.1 million in 2022 and $51.6 million in 2023 to CINICO for the provision of health insurance benefits to civil service pensioners, and qualified seafarers and veterans;
•  $42.4 million in 2022 and $42.2 million in 2023 to the Health Services Authority for the provision of various medical services to the community;
•  $18.6 million per year in 2022 and 2023 to Cayman Airways Limited for the provision of international airlift to the Cayman Islands from strategic tourism markets and domestic airlift between our three Islands; and
•  $31.8 million in 2022 and $33.5 million in 2023 to the Cayman Islands Monetary Authority for enhanced regulatory capacity to keep abreast of ever changing international regulatory requirements.

6. Outputs from Non-Governmental Output Suppliers are expected to be
$42.5 million in 2022 and $50.8 million in 2023. The major items in this
category are:

• $20.9 million in 2022 and $21.6 million in 2023 for tertiary medical care at various local and overseas providers for uninsured, underinsured and indigent persons;
• $2.7 million per year for 2022 and 2023 with respect to Legal Aid Services;
• $7.4 million in 2022 and $14.9 million in 2023 for the Public School Meals Programme; and
• $2.0 million per year in 2022 and 2023 for the care of indigent and disabled elderly persons.

7. Transfer Payments are forecast to be $61.5 million in 2022 and $52.9 million in 2023. These funds will be used to deliver critical social programmes that support our young people in achieving their educational goals and provide vital financial support to the most vulnerable in our society. The major
Transfer Payments budgeted for in 2022 and 2023 are:

• $10.0 million per year in 2022 and 2023 for Local and Overseas Scholarships to more than 2,500 students per year to enable them to pursue advanced studies and acquire the skills necessary for our modern Cayman job market;
• $13.7 million in 2022 and $14.5 million in 2023 for Temporary and Permanent Financial Assistance to support the most vulnerable in our community;
• $11.1 million per year in 2022 and 2023 for Ex-Gratia payments to our retired Seamen and Veterans; and
• $10.3 million in 2022 for the Extraordinary Relief Stipends – which will be in respect of assistance to persons in the Tourism Sector.

Net Operating Performance of Public Entities (i.e. Statutory Authorities and
Government Companies) are forecast to incur a Net Deficit of $35.2 million in 2022
and $19.1 million in 2023.

Most notably, the Cayman Islands Airports Authority is forecasting Operating
Deficits of $14.9 million in 2022 and $3.2 million in 2023. Cayman Turtle
Conservation and Education Centre Limited is forecasting Operating Deficits of $8.8
million in 2022 and $7.1 million in 2023, and Cayman Airways is forecasting
Operating Deficits in 2022 of $7.2 million and $6.5 million in 2023.

For 2022, when considering the forecast Operating Revenues of $940.9 million and
the forecast Operating and Financing Expenses of $921.5 million, Core Government
is forecast to earn an Operating Surplus of $19.4 million. When factoring in the
forecast $35.2 million Operating Deficits of Public Entities, the Entire Public Sector
is forecast to have an overall Net Deficit of $15.8 million for 2022.

For 2023, when considering the forecast Operating Revenues of $978.1 million and
the Operating and Financing Expenses of $950.4 million, Core Government is
forecast to earn an Operating Surplus of $27.7 million. When factoring in the
forecast $19.1 million Operating Deficits of Public Entities, the Entire Public Sector
is forecast to have an overall Net Surplus of $8.6 million for 2023.

Turning now to Capital Investments and Loans to Public Entities, Mr. Speaker, this
Government recognises that public sector capital investments are a necessary and
important economic catalyst for the continued economic development of these
Islands.
The Government intends to make Capital Investments into Ministries, Portfolios
and Offices totalling $170.1 million in 2022 and a further $133.4 million in 2023.
These planned Capital Investments will be funded from borrowings. The major
investments in this category include:

• $74.5 million for Education – primarily for the completion of new John Gray High School and the upgrade and refurbishment of school buildings;
• $53.1 million for Sustainable Development – primarily for the ReGen project (formally known as the Integrated Solid Waste Management System) and the purchase of land for conversation and preservation purposes;
• $77.2 million for Infrastructure Development – for the undersea cable project; road works expansions; and road surface upgrades; and
• $22.9 million for Security – for upgrades to the Prison; the new proposed Court House; the purchase of a Coast Guard vessel.

In addition, the Government is also planning to make Capital Investments into
Public Entities totalling $30.4 million in 2022 and a further $28.9 million in 2023.
These investments include:

• $19.0 million to the National Housing Development Trust to cover debt servicing obligations and the construction of affordable homes;
• $18.2 million to Cayman Airways Limited to cover debt servicing and operating expenditures;
• $6.4 million to the University College of the Cayman Islands to fund operational deficits; and
• $5.0 million to the Cayman Turtle Conservation and Education Centre Limited to cover operational deficits.

Mr. Speaker, in order to assist with the payment of their on-going operations until the tourism sector rebounds, Core Government will also be loaning the Cayman Turtle Conservation and Education Centre and the Cayman Islands Airports Authority a total of $39.1 million over the Budget period: $26.9 million in 2022 and $12.2 million in 2023.

The loans to both Public Entities are interest-free in 2022 and 2023. Effective 1 January 2024, the loans commence repayment at an interest rate to be negotiated between Government and the Public Entities. The loan to the Airports Authority is to be repaid over 15 years, whilst the loan to the Cayman Turtle Centre is to be repaid over five (5) years.

With respect to Compliance with the Principles of Responsible Financial Management set out in the Public Management and Finance Act and the Framework for Fiscal Responsibility, the 2022–2023 Budget forecasts the following levels of compliance with the principles:

1. Net Operating Results: should be positive – Core Government’s Revenues should be greater than its Expenses. For 2022 and 2023, compliance is achieved as the Core Government is forecast to record a Net Operating Surplus of $19.4 million in 2022 and $27.8 million in 2023;
2. Net Worth: should be positive – Core Government’s Assets less its Liabilities should be positive. The Government’s Net Worth is forecast to be $1.3 billion at 31 December 2022 and $1.4 billion at 31 December 2023;
3. Debt Servicing: that is, the annual payments of interest and principal related to all Public Sector borrowing commitments should be no more than 10% of Core Government’s Revenue – the Core Government is forecast to have a Debt Servicing Ratio of 7.4% in 2022 and 8.3% in 2023;
4. Net Debt: The total debt of Core Government, plus the weighted average debt balance of Public Entities less Core Government’s liquid assets, should be no more than 80% of Core Government’s revenue for the fiscal year – the Net Debt ratio is forecast to be 18.6% in 2022 and 27.6% in 2023 which is well below the 80% requirement.
5. Cash Reserves: The unrestricted cash reserves (Operating Bank Account and General Reserves) of the Core Government – measured at the lowest point in the fiscal period – should be sufficient to cover 90 days of Core Government’s estimated operating expenditures – for 2022, the Government is forecast to have sufficient cash reserves to cover approximately 137.9 days of operating expenditures at the lowest point during that fiscal year. In 2023, it is forecast to have 95.9 days of cash reserves. Both years Mr. Speaker are above the minimum 90-day requirement.

Conclusion

Mr. Speaker, the Appropriations outlined in the Bill before Parliament and the
accompanying budget documents set out a clear plan for how the PACT
Government intends to utilise and prudently manage our financial resources.

The 2022–2023 Budget ensures that the Government has the resources to continue
to make progress towards achieving all of its Broad Outcomes placing particular
emphasis on education, healthcare, social welfare, sustainable development,
financial services and tourism.

In other words, with this budget we are reaffirming and carrying through our
commitment to “Investing in the Wellbeing, Resiliency, and Sustainability” of the
Caymanian people and the Cayman Islands.

Mr. Speaker, as you are no doubt aware the preparation of the Government’s
Budget is a massive undertaking and is only possible with the commitment and
dedication of the Civil Service.

I wish to thank His Excellency the Governor; the Honourable Premier; Cabinet
Ministers; Official Members of Cabinet; Parliamentary Secretaries; Chief Officers
and their staff for their commitment to the budget process. I especially wish to
thank the Financial Secretary and his team within the Ministry of Finance for their
excellent work and commitment to produce the 2022–2023 Budgets. I have seen
the long hours they have worked, often late into the evenings and on weekends, in
order to prepare this Budget and get us to this point. I am very grateful to them all!

Mr. Speaker, in closing, I would repeat, COVID-19 has dealt us a hand which has
stress-tested one of our main economic pillars. We have certainly been shaken,
but we have not bowed due to the strong foundations built by previous
governments.

Our PACT budget continues to ensure the equitable distribution of stimulus
resources to residents, with an intentional focus on those who have been hurt most
by the pandemic.

As custodians of the public purse, we have ensured no new burdens have been
placed on the shoulders of our people and that investments in our people and
infrastructure remain a top priority.

I am conscious that many Caymanians face and continue to face enormous
difficulties and challenges, and we ask you to take courage and share the hope that
our best years are still ahead of us. Today I want to leave you hopeful that the PACT
government is on the path to leaving this economy in better shape for those who
come after us.

I quoted Reverend Peter Raible at the start of my budget address today, noting that
this and previous Governments have all built on foundations we did not lay, having
been entrusted by the people to continue building responsibly for our society’s
collective future.

And I would also like to close with some further words from Reverend Raible, which
underscore the importance of joining together as we move forward.

He said:

“Together we are more than any one person could be.
Together we can build across the generations.
Together we can renew our hope and faith in the life that is yet to unfold.
Together we can heed the call to a ministry of care and justice.
We are ever bound in community.
May it always be so.”

I now humbly commend The Appropriation (Financial Years 2022 and 2023) Bill,
2021 to Parliament and ask all Honourable Members for their support of the Bill.

May God continue to bless these Cayman Islands, the Caymanian people, and
everyone that calls the Cayman Islands home.

Thank you, Mr. Speaker