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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.

Government officials confirmed today they are considering a temporary pay cut for civil servants to help balance the budget.

Under the proposal there would be a 2 percent reduction in salaries for civil servants earning more than $3,000 per month. In return civil servants would receive four days of unpaid leave each month.

Chief Secretary Donovan Ebanks said the measure could come into effect in October 2009 and run until June 2010.

Civil servants earning less than $3,000 per month and teachers employed on a daily basis by the Education Department.

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.

The OECD has placed the Cayman Islands on their ‘white list’ of countries that have substantially implemented international standards on tax disclosure.

On Thursday Leader of Government Business McKeeva Bush was in Washington DC to sign Cayman’s 12th Tax Information Exchange Agreement (TIEA) with New Zealand.

In April, following a meeting of the G20 in London, the Cayman Islands was placed on an OECD ‘grey list’ of countries that had not met the required standards on tax disclosure. The ‘grey list’ comprised countries that had not signed TIEAs with at least 12 other countries.

Cayman is in discussions to sign further agreements with a number of other countries such as Australia, Germany, France, and Germany.

The Cayman Islands has been placed on a ‘grey list’ of countries that need to substantially implement an internationally agreed tax standard.

The list was published at the end of the G20 meeting in London by the Organisation of Economic Cooperation and Development (OECD).

The ‘grey list’ comprised countries that had not signed Tax Information Exchange Agreements (TIEAs) with at least 12 other countries.

It did, however, avoid being blacklisted and not committed to an internationally agreed tax standard.

The blacklisted countries were Malaysia, Costa Rica, Philippines, and Uruguay.

The other countries on the ‘grey list’ were Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, British Virgin Islands, Cook Islands, Dominica, Gibraltar, Grenada, Liberia, Liechtenstein, Marshall Islands, Monaco, Montserrat, Nauru, Antilles, Niue, Panama, St Kitts and Nevis, St Lucia, St Vincent & Grenadines, Samoa, San Marino, Turks and Caicos Islands, and Vanuatu.

The Cayman Island Government is to slash recruitment in a bid to minimise the effect of the global economic slowdown on the economy.

The government has asked its chief officers to refrain from hiring new staff and reduce their approved expenditure by 6 percent for the 2008/09 fiscal year. The move comes as a result of forecasts that government income for the year will be CI$15 million less than budgeted.

The directive applies to all public bodies and government-owned companies, but will not apply to essential personnel such as police and medical staff.

Kurt Tibbetts, Leader of Government Business, stated last week that the Government of the Cayman Islands remains committed to term limits for foreign workers. Speaking in the Legislative Assembly he said ‘The Government, after the most careful consideration, has concluded that the choice for Cayman is stark: either we retain a system designed to reduce the number of people who are able to stay here indefinitely and become part of the permanent population with all the attendant rights and privileges that must go hand in hand with long term tenure, or we concede that in ten years or less, the control of the destiny of these beloved Islands will be vested in persons who were not born here. For this Government and we believe for the vast majority of Caymanians, the latter result is wholly undesirable and unacceptable.’

Government data indicates that since the introduction of the policy the ‘brain drain’ predicted by many has not materialised. In fact the number of qualified professionals such as accountants and lawyers has increased significantly.

Chief Immigration Officer Franz Manderson has reminded employers that work permit renewal applications must be submitted before current work permits expire. He stated that a growing number of renewal applications are being submitted late, contrary to the requirements of the Immigration Law (2007 Revision).

Under the legislation employees can carry on working after their current permit expires provided a renewal application has been made before its expiration. If an application is made after the expiration date, the employee must stop working until a new permit is issued.

The Cayman Islands Department of Immigration have a new website and logo. The site offers comprehensive information about visas, work permits, permanent residence and Caymanian status.