Using the Cayman Islands Government Strategic Policy Statement (SPS) for 2023-2026 as a primary source, what follows is a comprehensive financial review of the Islands' past economic performance, analyzing key trends and indicators that have shaped the fiscal landscape.
Editor's Note: The SPS 2023-2026 was replaced in April of 2024 with a new document entitled "Government Priorities 2024-2026", after the Rt Hon. Wayne Panton resigned as Premier and was replaced by the Rt Hon. Julianna O’Connor-Connolly in November of 2023. The Government Priorities document was ostensibly an abridged version of the SPS with objectives broad and ambiguous enough for the reorganised, fragile new administration and caucus to support. You can download the Government Priorities document here.
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The SPS document was divided into an economic retrospective, projections and assumptions, forecast, outlook and capital project investments. The retrospective section (which focused predominantly on 2022) has been removed, as there is more recent analysis of Cayman's economic performance available here.
Editor's Note: Read on, now with the benefit of hindsight, to see what the then new UPM Government predicted as lying ahead for the Cayman Islands' economy, envisioning the potential growth opportunities, challenges, and strategies for the future.
Economic Projections & Assumptions for 2023-2026
The Cayman Islands are expected to see short-term economic growth due to robust international demand for services.
Projected GDP growth is 2.3% in 2023, but it is expected to decelerate to 1.6% in 2024. Growth is forecasted at 2.0% in 2025 and 2.2% in 2026.
However, there are significant unquantifiable downside risks to this forecast due to geopolitical tensions, concerns about the international banking system, and the fear of a recession.
Despite global uncertainties and rising prices, strong global consumer demand in 2022 is expected to continue into 2023, benefiting the Cayman Islands' stay-over arrivals and the tourism sector.
Sectoral Growth:
The restaurant and accommodations sector is projected to expand by 9.6% in 2023, with an average growth of 4.8% between 2024 and 2026.
Transportation is expected to grow by 8.3% in 2023 and an average of 4.1% between 2024 and 2026, driven by tourism arrivals.
The "other services" sector, including recreational and household activities, is expected to grow by 4.4% in 2023, with an average growth of 2.8% from 2024 to 2026.
The financial services sector is expected to perform well, with an anticipated expansion of 1.0% in 2023 and 1.2% in 2024. Growth is projected to average 1.6% over the medium term.
Business services, including legal and accounting services, are forecasted to grow by 2.0% in 2023 and an average of 2.7% annually between 2024 and 2026.
Other auxiliary sectors like wholesale and retail, electricity and water supply are also expected to experience growth.
Construction and Real Estate:
Rising interest rates and higher prices are expected to dampen local demand, particularly in the construction and real estate sectors.
Construction is projected to grow by 0.5% in 2023 and an average of 1.9% from 2024 to 2026.
Real estate is expected to experience moderate growth in the near term, with a projection of 0.2% growth in 2023, followed by a contraction of 1.2% in 2024. The sector is expected to return to growth, averaging 2.0% annually from 2025 to 2026.
Human Development Index (HDI):
The government's priorities, including building new schools, reducing gender inequality, and improving access to education, are expected to sustain and enhance the educational standards reflected in the HDI.
Initiatives to reintroduce 'A levels' education, offer free tertiary education, increase affordable housing, improve public transportation, and lower the cost of living are anticipated to reduce social inequality and raise living standards in the Cayman Islands.
Employment:
The labour market is expected to align with the projected GDP growth, and an increase in job opportunities is anticipated, primarily within the accommodation sector. Additionally, government initiatives aimed at empowering Caymanian youth through training and mentorship programmes are expected to contribute to sustaining low unemployment rates. With the projected increase in labour demand, it is anticipated that the labour market will remain generally balanced over the medium term. As a result, the unemployment rate is forecasted to be 2.2 percent of the labour force in 2023, with an average rate of 2.5 percent over the remaining three years.
Current Account of the Balance of Payments:
The current account balance is projected to be 10.2 percent of GDP in 2023, with an average of 12.0 percent between 2024 and 2026. This projection takes into account increased receipts from accommodation and financial services, although this impact is partially offset by higher payments for importing goods and services. It is also assumed that receipts from new tourism-related projects in the medium term will contribute to robust receipts and maintain stability in the current account.
Financial Forecast 2023-2026
The government's four-year financial forecasts for the period 2023 to 2026 is based on information and decisions known as of April 25, 2023.
Revenue estimates indicate that the government is projected to earn $3.3 billion in revenue over the Strategic Policy Statement (SPS) Period, spanning from 2024 to 2026.
The forecasts are subject to significant unquantifiable downside risks due to geopolitical tensions, international banking system concerns, and the fear of a looming recession.
Economic Resilience:
Despite uncertainties, the tourism sector demonstrates remarkable resilience and is expected to achieve a growth rate of 4.8% over the SPS Period, which, in turn, is expected to drive growth in other services sectors.
Revenue Sources:
Major revenue sources within this three-year timeframe include other import duty, other company fees, partnership fees, stamp duty on land transfers, private fund fees, mutual fund administrators licence fees, and tourist accommodation charges.
Expenditure and Debt:
Core Government total operating expenditure for the SPS period is forecasted at $3.0 billion, with increases primarily attributed to healthcare insurance premium hikes and new initiatives in education, health, security, and social development.
Finance costs are expected to increase, primarily due to financing arrangements for the construction of the Integrated Solid Waste Management Facility.
Outputs from statutory authorities and Government-owned companies (SAGCs) are expected to remain stable, with a slight decrease in 2026, as efficiency gains are sought.
Transfer payments are expected to increase marginally, primarily due to additional funding for scholarships and bursaries and financial assistance.
The government will explore insuring indigent individuals with CINICO to manage the volatility in tertiary medical care costs.
Financial Outlook 2023-2026:
Over the SPS Period, core Government's Net Worth is expected to improve steadily, with positions increasing from $2.1 billion in 2024 to $2.3 billion in 2026, supported by forecasted improvements in government operations and resulting surpluses.
The Government is projected to close the fiscal years with cash balances of $446.7 million in 2024, $433.9 million in 2025, and $363.9 million in 2026.
Loans are provided to public entities, with interest-free terms until the end of 2023. Repayments commence in 2024 at negotiated interest rates. The government aims to reduce outstanding debt by $215.7 million from the end of 2023 through 2026.
A debt sinking fund is planned for 2023, with an intent to make a lump sum payment of $75 million in 2026 towards the repayment of the construction costs of the proposed ReGen facility.
Cash Flows and Investments:
The Forecast Statement of cash flows shows increasing cash flows from operating activities year on year, driven by rising revenues and controlled government expenditure.
Capital investments are planned, with up to $100 million in 2023 and an additional $300 million during the SPS forecast period from 2024 to 2026.
Debt principal repayments of approximately $215.7 million are expected over the SPS Period, and the government aims to meet all its debt servicing obligations.
Changes in Net Worth:
The government anticipates an improvement in its net worth position over the SPS Period, with forecasted increases in the Entire Public Sector (EPS) Surplus, reaching $2.3 billion by the end of 2026.
Compliance :
Budgeted core government financial status
| Metric | 2024 | 2025 | 2026 |
|---|---|---|---|
| Net worth | $2.1 billion | $2.2 billion | $2.3 billion |
| Net debt ratio | 24.3% | 36.8% | $70% |
| Cash reserve (days) | 117.6 days | 101 days | 90.1 days |
| Debt service or borrowing ratio | 9.5% | 8.2% | 9.9% |
| Operating surplus | $77.4 million | $98.2 million | $103.2 million |
Investment in Capital Projects
The government recognises the importance of wise capital investments to rejuvenate the nation's infrastructure, foster economic expansion, generate employment opportunities, and enhance daily well-being. The projected spending for capital projects and Equity Investments during the SPS Period (2024 to 2026) amounts to $300 million. The government remains committed to a cautious approach to the development of the public sector over the medium term, with a particular focus on fiscal responsibility and necessity.
During the SPS Period, capital investments in ministries, portfolios, and offices will be executed, taking into account the following considerations:
• Continued investments in border control, maritime patrol and public safety
• Continued remediation of the George Town Landfill
• Continued upgrade and expansion of the road infrastructure
• Development of a new Layman E Scott High School in Cayman Brac
• Expansion and upgrades of educational facilities in Grand Cayman
• Investment in a new public transportation service.
The planned Equity Investments by Ministries into SAGCs (Government run businesses) over the SPS Period will encompass the following:
• Cayman Airways Limited
• Cayman Islands Airports Authority
• Cayman Islands Development Bank
• Cayman Islands National Museum
• Cayman National Cultural Foundation
• Cayman Turtle Conservation and Education Centre
• National Gallery of the Cayman Islands
• National Housing Development Trust
• Tourism Attractions Board
• University College of the Cayman Islands.
Click here for more on upcoming major capital projects.
