The Cayman Islands government will be $81 million worse off at the end of 2025 than it originally thought it would be, thanks to increased spending that wasn’t budgeted for and revenue-generating laws that were never enacted.
It was originally expected that the Cayman Islands government would have an operating surplus of $54.7 million, but the updated forecast released by the Ministry of Finance and Economic Development shows that there is instead likely to be an operating deficit of $26.2 million by the end of 2025 — a difference of $80.9 million.
This means a financial headache for whoever makes up the new government following the general election on 30 April, and raises the likelihood of the Cayman Islands having to seek permission from the UK for further spending or borrowing.
Figures in the 2025 ‘Pre-Election Economic and Financial Update of the Government of the Cayman Islands’, which by law has to be published no fewer than 28 days before a general election, revealed the economic forecast for the current and next financial year.
An operating surplus, or deficit, is the money left over from government income once all day-to-day expenses have been taken out, such as public sector salaries, finance costs, spending by government departments, pensions and healthcare. Capital expenditure, such as road building, land acquisitions and building construction, is not included in operating surplus or deficit calculations.
Revenues hit by policy delay
The 2025 budget was approved by Parliament in December 2023. Revenues for 2025 are now predicted to total $1.121 billion — $15.3 million lower than the $1.136 billion expected. This was, according to the report, “primarily due to the non-implementation of planned legislation that was expected to generate additional revenue. This shortfall highlights the fiscal risks associated with delays in policy execution.”
As well as the fall in revenue, there was $86.6 million in additional expenses in 2025 compared to 2024. This included increased borrowing costs, the 5% cost of living allowance (CoLA) paid to civil servants and the minimum salary uplift to $3,000 a month, which will cost government $20 million this year.
The difference between the expected surplus and actual deficit was, according to the report, primarily due to “increases in financial assistance to members of the public, and forecast increases in the value of outputs produced by SAGCs [Statutory Authorities and Government Companies].
“Additionally, the original budget for 2025 did not fully account for the rising demand and increased costs associated with providing medical services to financially vulnerable individuals and overseas tertiary healthcare expenses which cover specialised medical treatments not available locally.”
The outgoing Auditor General Sue Winspear frequently warned about both the rise in public spending and the unrealistic healthcare budgets which were consistently exceeded.
In her report, ‘Improving Financial Accountability and Transparency: Long-Term Financial Sustainability’, Winspear said, “Over the six-year period, 2018 to 2023, the Government reported financial surpluses each year except for the two years of the COVID-19 pandemic.
“However, it is worrying that public sector spending increased at double the rate of revenues over the same six-year period, reaching over $1.3 billion in 2023. This is unsustainable in the long term and raises critical questions about the Government’s ability to meet future financial commitments.”
Winspear also said she was “disappointed that there continues to be poor budgeting for tertiary healthcare”, and that despite warning on this issue five years ago, “significant overspending continues, requiring annual supplementary budgets”.
Increased spending
Details in the accounts show that $14.4 million was originally budgeted for tertiary medical care in Cayman and overseas but has since jumped to $60.5 million. Permanent financial assistance has increased from $12 million to $35.2 million, and the pension uplift from $5 million to $8.3 million.
Supplementary expenditure approved by Cabinet in 2025 included an $11.4 million in recruitment connected with public safety and public service pensioners uplift, and increased transfer payments reflecting the cost of widening the scope of assistance offered to members of the public in need, such as rental deposits, transport and internet as well as food and accommodation, educational scholarships and ex-gratia benefits to seamen and veterans.
The $26.2 million operating deficit for 2025 means government will have broken one of its six principles of responsible financial management, that of requiring an operating surplus, and is expected to break two of them in 2026, regarding the operating surplus and cash reserves not being less than estimated expenses over a 90-day period.
UK oversight
Non-compliance with any of the six rules means that government has to prepare a plan to fix the issue and get official approval from the UK Government’s Foreign Commonwealth and Development Office before carrying out any major financial plans such as borrowing more money, selling assets or spending more than $10 million on a project.
The current forecast for the end of 2026 is for an even greater deficit of $44 million.
Government debt is forecast to total $501.9 million by the end of 2025, but it is expected to fall to $451.5 million by the end of 2026, with debt for the Entire Public Sector — known as EPS and consisting of core government ministries as well as public authorities — totalling $514 million by the end of 2025, falling to $461.5 million in 2026.
The government’s financial buffer is also less than expected and is forecast to shrink even further. Core Government is forecast to have closing bank account balances totalling $395 million at the end of 2025, $8.6 million less than the $403.6 million shown in the 2025 original budget, and this is forecast to fall nearly 40% by the end of 2026 to just $246.8 million.
For the EPS, closing bank account balances are forecast to be $815.3 million at 31 Dec. — $51.2 million less than the $866.5 million shown in the 2025 budget. For financial year 2026, EPS closing bank balances are forecast to be down to $659.5 million.
GDP, inflation and employment forecasts
The report shows that real economic growth of 2.6% is expected for 2025, with growth expected to decline slightly to 2.4% in 2026. Inflation is expected to fall from 2.9% in 2025 to 2.5% in 2026, while over the same period, unemployment is expected to fall slightly from 3% to 2.9% by the end of 2026.
Government receives the bulk of its $1.1 billion income from ‘coercive revenue’, which includes duty on imports such as alcohol, fuel, tobacco and goods, cruise ship fees, work permits, building permits, stamp duty, tourist fees and court fines. The report said that government is expected to use the whole of its $150 million loan facility in 2025 to finance planned capital expenditure projects.