CAYMAN ECONOMY STRONG BUT THREATS LOOM

By Staff Writer

The economy of the Cayman Islands is ‘strong and stable’ but that stability is threatened by a set of circumstances that could undermine the progress made as the recovery from the COVID recession continues.

That’s the assessment drawn from a keynote address given by Hon. Premier Wayne Panton at the annual Cayman Islands Chamber of Commerce Parliamentary Luncheon on Wednesday, 14 June.

In praising the resurgence in government revenues post-Covid pandemic, Mr Panton sounded a cautionary note that the rate of government spending could hamper efforts to maintain the current economic growth trajectory.

DISPARITY

“Operating Revenues have increased steadily from $862 million in 2019 to $1.02 billion for 2022. For the first five months of 2023, Operating Revenues were $589 million, with total 2023 revenues projected at $1.03 billion. So, purely on the revenue front, CIG has recovered and surpassed 2019 levels,” he reported.

On the other hand, that recovery is at risk of being threatened by spiralling government spending.

“However, CIG’s day-to-day Operating Expenditures have also increased - from $718 million in 2019 to $967 million in 2022. For the 5-month period ended May 31st 2023, Operating Expenditures amounted to $415 million. Understandably, a position which is not sustainable in the long term,” Mr Panton admitted.

In 2019, the government’s surplus was $144 million but 2020 and 2021 saw deficits of $58 million and $18 million respectively. There was a turnaround in 2022 with a surplus of $54 million which he said described as still a remarkable achievement.

Among the reasons cited for the disparity between government income and spending are policy measures including concessions to assist Caymanians, especially first-time home buyers, and the growing size of the civil service.

“The Civil Service has grown from 3,918 in 2018 to 4,401 in 2022. The total headcount for core Government as of May 31st (2023) stood at 4,511 which represents an increase of 15% in headcount during the last 5 years.”

MOODY’S CONFIDENT IN CAYMAN

Nevertheless, especially when compared to other countries in the region, Mr Panton is confident in his PACT administration’s management of government finances and the economy.

“This is a remarkable accomplishment because it was achieved even as we continued to waive millions of dollars of revenue in an effort to help Caymanians purchase their first home, continue to incentivise investment in the Sister Islands and supported dozens of businesses and non-profits, including schools, with waivers of stamp and import duty.”

A further plus for Cayman, he added, is the continued confidence shown by the rating agency Moody’s.

“The most ringing endorsement that CIG’s fiscal performance and its fiscal position have improved since the 2020 and 2021 COVID period was made late last week when Moody’s announced that its rating of CIG remained at a lofty Aa3 and, its outlook for the Islands was maintained as ‘stable’.”

“Our economy is growing and thriving,” the Premier enthused,

‘HARD DECISIONS’

But it was clear from his pronouncement that there is an underlying concern about the discrepancy between the government’s revenue and its spending.

It’s a matter Premier Panton said that the PACT administration will have to address in the forthcoming budget presentation, expected by October. It will be his first as Finance Minister since he took over the role from his now ex-PACT Cabinet colleague Chris Saunders following a controversial split a few months ago.

While he did not give away any details, Mr Panton indicated that the 2024-2025 budget expected in October “will involve hard decisions as it is expected that expenditure requests will not be met by existing revenue projections…We will have to make some hard decisions but we will do that to ensure that we have a balanced approach and that the people of this country receive the services they need.”

In that vein, he also disclosed that consideration is being given to providing further assistance “to relieve some of the economic stresses on vulnerable Cayamanian families both this year, next year and into 2025.”

Pointing to other specifics within the government’s policy and budget performance, he highlighted the strong bounce back of the tourism sector, the strength of the banking sector, a historically low unemployment rate of 2.1%, and the heavy demand for work permits which brings its own policy challenges.

However, while underscoring his Government’s support of the business community to the Chamber’s leaders and membership, the Premier said economic growth must be balanced by offering job opportunities to Caymanians first.

On the abiding issue of the cost of living, now further aggravated by current global developments, Premier Panton noted that the consumer price index fell to 6.6% which he said indicates the steep increase in inflation is flattening out. “This is good news locally and reflects a downward trend in the US Consumer Price Index, important as the US is our largest trading partner. “

The decision of the US Federal Reserve to maintain the current interest rate level was particularly welcomed by the Premier, as was the decision of the Cayman Islands Bankers Association(CIBA) to give a minimum of 30 days’ notice before implementing any changes to their rates and fees.

The latter he said followed a series of meetings he had with CIBA.

POPULATION EXPLOSION

Another pressing issue that is occupying the attention of the Premier is that of work permit requests and the rapid population growth. 

“The incredible rate of population growth in the last year - 8,000 people moved to the Cayman Islands between October 2021 and 2022, compared to 16,000 in the previous 10 years – is straining systems that were not prepared to handle that type of surge,” Mr Panton pointed out.

Crediting his PACT government with charting the post-pandemic economic recovery, the Premier also spoke of future-proofing the Cayman Islands announcing plans to “facilitate a national dialogue…to create a collective long-term vision as a first step.”