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.
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The SPS document was divided into an economic retrospective, projections and assumptions, forecast, outlook and capital project investments. Below we have summarised each one into digestible sections. Read on to see what lies ahead for the Cayman Islands' economy, envisioning the potential growth opportunities, challenges, and strategies for the future.
Economic Retrospective on 2022
GDP Growth:
- In 2022, the Cayman Islands experienced robust GDP growth of 3.7% driven by a broad-based expansion as industry rebounded post pandemic.
- Notably, only the agriculture and fishing sectors contracted.
- Growth was primarily fueled by strong international demand, particularly in the tourism sector following the reopening of the Island's ports.
- Sectors like hotels and restaurants, transportation, and other tourism-related activities saw substantial growth.
- Agriculture contracted due in part to damage from Tropical Storm Grace.
Inflation:
- In 2022, the average consumer price index increased sharply by 9.5%, driven by rising international commodity prices.
- Notable increases were seen in the electricity, transportation, and food sectors.
Employment:
- Economic expansion in 2022, especially in tourism, led to increased labour demand.
- Total employment rose by 22.7% to reach 56,355, with an overall unemployment rate of 2.1%.
- Government policies aimed at integrating displaced Caymanians into the workforce may have contributed to lower unemployment rates.
- With a predominantly expatriate workforce, recent figures released by CIMA revealed that between June 2022 and June 2023, more than $300 million left the Cayman Islands economy and was remitted back to their home nations.
Balance of Payments:
- Rising international demand for financial and accommodation services outweighed increased imports, narrowing the current account deficit.
- Total merchandise imports rose by 17.4% to $1,498.7 million in 2022.
Human Development:
- The Cayman Islands had a Human Development Index (HDI) value of 0.877 in 2021, classifying it as "Very High Human Development."
- Trinidad and Tobago was the only other Caribbean country in this category, with an HDI of 0.81.
- The Cayman Islands maintained consistently high HDI values, with a Gross National Income that recovered from a low in 2014 to $48,878 in 2021.
- Life expectancy at birth was 82.1 years in both 2010 and 2021, and the education index ranked high compared to other countries.
Government Coffers:
In 2022, the Cayman Islands Government achieved a record-breaking budget with impressive financial statistics:
- Revenue and Surplus: The government collected over one billion dollars in fees and revenue, resulting in a central government surplus of $47.7 million, which exceeded the original budget by $80 million. This surplus came despite high levels of public spending.
- Operating Revenues: Total operating revenues for the core government amounted to CI$1.02 billion.
- Expenses: Expenses, financing, and other costs for the core government totalled $973.5 million, representing an increase in public spending compared to the original budget.
- Surplus Breakdown: Premier Wayne Panton reported an overall public sector surplus of $26.6 million when accounting for statutory authorities and government companies' deficits. This surplus helped fill an anticipated deficit of $15.8 million.
- Revenue Sources: Approximately 95% of government earnings came from coercive revenue, with fees from financial services, work permits, and property duty contributing significantly.
- Financial Services Sector: The financial services sector continued to be a major revenue generator, with increased work permit revenue and direct fees contributing significantly.
- Challenges: Despite the surplus, the government recognized ongoing challenges, including the rising cost of living, increasing interest rates, and fluctuating global economic trends.
- Work Permit Revenue: Work permit revenue exceeded projections, with a significant increase due to higher demand for workers in response to restaffing needs at the end of the COVID-19 pandemic and the full reopening of borders.
- Property Taxes: While property taxes were higher than budgeted, they decreased by more than 10% compared to the previous year as the real estate sector began to cool.
- Healthcare Expenses: Healthcare expenses saw notable increases, including costs related to tertiary healthcare, health insurance, and knock-on expenses associated with combating COVID-19.
- Supplementary Funding: The government approved additional funding to cover overruns in areas such as healthcare and the tourism stipend.
- Underspending: Some of the overruns were offset by underspending in areas like public sector personnel costs and supplies and consumables.
- Financial Position: As of December 31, 2022, the government had CI$2 billion of net assets and over $351.3 million in the bank.
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.