The Caymanian government’s fiscal situation has turned out better than expected with revenues being higher than expected while expenditure has been contained.

Actual expenditure is much lower than forecasted six months ago. Initial projections six months ago showed collapsing government revenues and a massive budget deficit.

However, for the first 11 months of 2020, the government raked in revenues of $693.4 million and spent $719.2 million, resulting in an operating deficit of $25.8 million. In addition, surpluses of $3.1 million generated by statutory authorities and state entities brought the entire public sector deficit down to $22.7 million two months ago.

Six months earlier in July 2020, government had projected full-year revenues of $682 million and expenditures of $855 million, which would have left a $173 million hole in the budget. But speaking recently on Cayman Compass’ ‘The Resh Hour’, Finance Minister Roy McTaggart boasted that the country’s finances have performed remarkably better than anyone would have anticipated.

He described the two-month period last year when the economy ground to a halt “some of the darkest days”. Minister McTaggart admitted that the numbers then scared him, noting that they were the worst-case scenario.

Full-year numbers not yet complete

Although the full-year results are incomplete, McTaggart contended that the full year’s  results should therefore not be worse than a deficit of $50-$75 million. He noted that December is typically a solid month in terms of government revenues because of the Christmas season.

Pointing out that this smaller-than-feared deficit was largely the result of government savings that mitigated increased expenditures to tackle the COVID-19 pandemic, the Finance Minister explained that the largest savings included lower-than-budgeted government salaries, because the civil service did not fill certain positions that were already funded. In addition, there were lower consumables expenditures on both operating supplies and the use of consultants and services.

The smaller government deficit also means government has more available cash to spend. According to McTaggart, while government believed in May and June that it would exhaust almost all of its free cash flow and reserves by the end of 2020, he was gratified that this really didn’t materialize.

At the end of November 2020, government had $456.3 million in cash and reserves, compared with $363.1 million in November 2019. About $279 million of that cash balance is unrestricted and available to spend immediately.

Cayman government spending more monthly since pandemic

Since the start of the pandemic, the Caymanian government has been spending about $20 million more each month than budgeted with Minister McTaggart indicating that this “cash burn rate” was much less serious than anticipated earlier last year.

He stated that at this rate, the government will be able to go until the middle of 2021, and possibly longer, without having to touch the recently arranged $310 million line of credit with a consortium of local banks. McTaggart conceded that the government’s cash requirements for next year are “a moving target” and difficult to predict given the uncertainty around government revenues and how quickly the economy and, in particular, the tourism industry can get back to its feet once the borders reopen.

In the summer of 2020, government had projected an economic contraction of 7.2% of Gross Domestic Product (GDP) predicated on a gradual border reopening beginning in September, which never happened. However, the expectation is that the full-year drop in GDP for 2020 will be somewhere between the initially projected 7.2% and the 11.3% experienced in the first half of the year.