Website of the Central Procurement Office of the Cayman Islands.
[This extract is taken from an article in The Round Table: The Commonwealth Journal of International Affairs.]
Conclusion
The UK has influenced public–private partnerships in its Caribbean BOTs significantly, but not in the way one would expect. The UK’s Project Finance Initiative was a policy-based framework. Since its beginning, in 1992, PFI sought value for money and gave a certain degree of freedom to civil servants as to how to make it happen. In contrast, the lack of trust from the motherland has led to rigid, finance-centric PPP frameworks in its Caribbean BOTs. Whether this fiscal focus is due to the UK’s paternalistic attitude, or to bring Caribbean BOTs in line with worldwide trends of fiscal conservatism, is a judgement of opinion.
There is a direct relationship between UK trust, financial prowess and liberal regulation of PPPs: those territories showing better financial management deserved the UK trust and were given more lax checks in getting PPPs off the ground. That means those countries with greater incentives for PPP implementation face the toughest stopovers. This is because PPPs allow the off-balance sheet accounting treatment for the public sector’s initial investment, under certain circumstances. Therefore, Caribbean BOTs with lower GDPs have more incentives for PPP use and the harshest safeguards against them. For instance, the Cayman Islands, with the highest GDP among the sample, only needs to ask the UK for budgetary approval on the years when they do not expect to comply with the framework for fiscal responsibility. This only happened during most of 2021, when COVID-19 expenses were at their highest. In sharp contrast, Anguilla, with a much lower GDP, needs to prove fiscal compliance for two years before doing away with UK approval of its own budget. Also, there is a direct relationship between fewer administrative safeguards and fiscal resilience: the better a country performs economically and fiscally, the more accommodating and flexible the PPP regulatory framework is, and the fewer are the administrative safeguards. For instance, most countries either have both fiscal responsibility and public procurement frameworks with legal, binding value, like the Cayman Islands and Turks and Caicos Islands, or no framework at all. PPP accountability is as strong as the weakest link in the planning, approval and execution of the public budget. No country among the sample has PPP-designated accountability mechanisms so far, and they rely on Parliament and Auditor General checks. This is likely due to the low and recent intake of PPPs across the sample.
This rationale has led to significant diversity in results despite the small sample. The Cayman Islands and Turks and Caicos Islands stand as top performers: their public procurement and fiscal frameworks tick all the boxes of a modern framework with a Caribbean flair. This could be because, as an aftermath to the GFC, the UK had to take over Turks and Caicos Islands’ Government and came close to intervening in the Cayman Islands Government affairs due to their cash shortages. Since then, these two territories have clearly proven how much they have moved past their financial woes. The two Bs, Bermuda and British Virgin Islands, would certainly score worse than that, and need resilient, binding frameworks for both PPPs and procurement. Bermuda is the more urgent of the two, as a PPP has already started, and it is unclear whether compliance with the law is guaranteed or just an option. Some overseas territories have a rougher path. Montserrat, financially dependent on the UK since 1995 and with no fiscal responsibility framework, has not been able to launch a PPP that has been in progress for almost a decade. This is, in part, due to the rigidity and lack of clarity of the framework. In Anguilla, among the smallest countries with the highest vulnerabilities, the UK has deterred PPPs by setting excessive restrictions on project eligibility.
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A New Scenario for British Overseas Territories and Crown Dependencies?
Whilst financial sustainability is a noble goal, the UK is currently missing an opportunity to improve Caribbean PPPs. PPPs in Caribbean BOTs remain untapped. The model is too rigid, the administrative steps are too many and the safeguards make the project so time-intensive for civil servants that it is often not worth pursuing. Effectively, such frameworks are deterring PPP use for most and preventing off-balance sheet investment from being unlocked. The UK has accumulated over three decades of experience: from Prime Minister Major and his Chancellor of the Exchequer Lamont’s implementation in 1992 until May and Osborne’s cancellation of new PFI in 2018, followed by remaining operational PFI/PF2 contracts. Yet, there has not been a recognisable effort by the UK to share lessons learnt with their overseas territories. The UK should take a supportive approach and cooperate with its overseas territories in modelling their PPPs in their own image. This is urgent: with PPPs ongoing in Bermuda and Turks and Caicos Islands, about to start in Montserrat, and having collapsed before taking off the ground twice in the Cayman Islands, this is the moment to implement the lessons learnt and set PPPs in good stride.
The UK priority in steering the overseas territories towards prudent fiscal management is to avoid mismanagement of public funds and potential bailouts, which would be politically damaging to fund with UK taxpayer money. The sophisticated provision of goods, works and services, and the symbiotic relationships between public and private sector in project delivery that normally drive PPPs are an afterthought. What matters is preserving the fiscal sustainability of its territories. Bank crashes can happen, interest rates can rise and financial fortunes can change. In those circumstances, the UK’s priority is to ensure that its overseas territories’ cash flows, first and foremost, navigate calm seas and fair winds.
Laura Panadès-Estruch is Lecturer in Law, Truman Bodden Law School, George Town, Cayman Islands.
