Real Estate

The UK has given the Cayman Islands permission to borrow $279 million to help deal with its financial crisis.

Leader of Government Business McKeeva Bush broke the news at a United Democratic Party meeting last night. He was speaking after a week of talks with the UK Foreign and Commonwealth Office.

The UK has given immediate approval to $50 million of borrowing. The remainder is conditional on the Cayman Islands making cuts in financial expenditure over the next two financial years. An independent study of the impact of direct taxes on the islands’ economy will also be carried out.

Mr Bush outlined significant cuts in government expenditure including new staff hire, purchases of furniture and equipment, and non-essential travel. He stated there were no immediate plans to introduce income or property taxes. Additional revenues will be raised by increasing customs duties by two percent, passport fees, tobacco duties, and introduction of new duties on luxury and other goods.

The legalisation of gambling was also mentioned as a potential source of new revenue. Mr Bush stated that if this was considered necessary, the matter would be decided in a referendum.

The Cayman Islands Government has stated that it will stick to promises made by the previous administration to the developer of the proposed Dragon Bay project.

Developer Michael Ryan was promised numerous concessions to secure the project including

• A dedicated space for resort guests and owners at Owen Roberts International Airport
• A 99 year lease on the land
• 50 work permits for staff
• Waiving/reduction of import duties

Dragon Bay was announced in March 2009. The proposed project incorporates the Ritz Carlton hotel and the land formerly occupied by the SafeHaven golf course.

Leader of Government Business McKeeva Bush stated in a press conference yesterday that income tax and property tax are not options to resolve Cayman’s financial crisis.

He stated ‘Property tax and income tax. To go this route would change the uniqueness of these islands’ economic base.’

To cover the deficit government are seeking private partners to upgrade Owen Roberts International Airport, develop a new sewage system, build a cruise ship facility, and improve roads.

On September 1 government’s operating bank account was overdrawn by CI$4.3 million, with a limit of CI$15 million. Cash outflows during September are likely to be around CI$79 million with revenues of only CI$30 million.

To meet its obligations government needs to borrow around CI$ 40 million. In order to do this it needs the approval of the United Kingdom Foreign & Commonwealth Office.

On Monday 7 September government is due to present plans to the UK outlining proposals to cut spending and increase revenues. They hope to then receive approval to borrow the money they need to pay government salaries and other expenditure.

Last month government was unable to pay employee healthcare and pension costs.

Leader of Government Business McKeeva Bush held an emergency meeting at the Ritz Carlton hotel yesterday to outline the financial difficulties government is currently facing. Over 400 people attended.

He revealed that:

• For the year-ended June 30 2009 the public sector had an operating deficit of CI$81.1 million.
• On August 25 2009 government held net cash reserves CI$65.6 million, of which CI$76.1 was in restricted cash reserves.
• In order to pay the wages of civil servants on payday on August 25 2009 government postponed payments to contractors, and postponed the payment of employee healthcare and pension costs.
• Government is forecasting a cash shortage at the end of September of CI$44.1 million.
• Since government incurred an operating deficit for the 2008/09 financial year, it needs the permission of the UK Foreign & Commonwealth Office (UK FCO) to borrow additional funds.
• Government has agreed with local banks to borrow CI$372 million to finance its commitments until June 30 2010. To proceed, permission must be granted by the UK FCO.
• On August 28 2009 government wrote to the UK FCO requesting permission to borrow CI$272 million.
• On August 30 2009 the FCO advised government they were unlikely to allow the additional borrowing.
• On August 25 2009 he spoke with the FCO seeking urgent permission to borrow CI$30 million to meet current obligations.
• He had received a letter that day from Chris Bryant of the FCO stating that government needed to present a realistic plan to turn around public finances before they could consider a request for additional borrowing. In the letter Bryant stated ‘To give me the confidence that you will be able to service any new borrowing you will have to widen the tax base. I fear you will have no choice but to consider new taxes – perhaps payroll and property taxes such as those in BVI.’

Bush then went on to suggest a number of measures that could increase revenues. These included:

• Widening the channel in the North Sound to attract mega yachts and their rich owners.
• Building cruise ship berthing facilities.
• Building a sewage system.
• Making additional efforts to attract five star resorts to the Cayman Islands.

He also stated aggressive cost cutting measures were required.

Property developer Michael Ryan has unveiled plans for a 360 acre resort, incorporating the Ritz Carlton and the land at the former SafeHaven golf course.

The project, known as Dragon Bay, will include an 18-hole golf course, a marina, boutique hotel, private residences, and the existing Ritz Carlton hotel.