By Lindsey Turnbull
During his parliamentary address last Friday, outlining the 2022-2023 Budget, Deputy Premier and Finance Minister Chris Saunders advised where the government expected its finances to be in 2021.
Operating Revenues and Expenses
Minister Saunders said core government was forecast to achieve an operating deficit of $98.3m at the end of 2021 Operating revenues were expected to be at $932.3m, which would be 10% higher than estimated in the original 2021 Budget, delivered in 2019. Revenues for 2021 would be $70m better than 2019, before the pandemic.
“Confidence to do business in the Cayman Islands remains at an all-time high,” he stated.
This was primarily due to strong growth in stamp duty, stamp duty on land duty, private fund fees, other company fees, and proceeds from liquidated entities. Revenues from core government were higher than predicted largely due to the impact of the volume of dutiable transactions, along with the continued growth from local real estate markets and the solid reliable performance of the financial services sector, he advised.
Revenue streams from private funds had also brought in strong revenues for the 2021 financial year, which mitigated the shortfall from the lack of tourism industry. The Minister called the private fund fees “a beacon of light” amidst the challenges and thanked the previous government for implementing it. Revenues from other stamp duty was forecast to be $8m better than budgeted and stamp duty on land transfers higher by $54m. Revenue from private funds was looking likely at $52.4m, while mutual fund admin fees would be $6m and other company fees would also be $6m.
Operating and finances expenses had been impacted by the Covid response and recovery and, as such, were forecast at $962m for 2021, 24% or $188m greater than the $774.4. original forecast. $115 or 12% were Covid-related expenses not budgeted in 2019 when this year’s budget was prepared. $60m would have been spent on stipends given to displaced workers, $47.7m on testing supplies and operational costs for Travel Cayman. $3.4 went to business initiatives, $2m to micro/ small business, $1m to the most vulnerable and $800,000 to meet the public’s healthcare and insurance needs.
A further $10.5m was provided as supplementary budget funds for the Storm Grace response and recovery also not budgeted in 2019. Out of this, $3m was given to farmers, $3m for housing, $4m for business initiatives and $500,000 for clean-up and repairs. Donations to NGOs were anticipated to be $23m higher than budgeted due to increased funds provided to the public, including tertiary healthcare, care of the indigent, for seamen, the elderly and disabled, after school programmes for children and food support for the elderly.
Statutory authorities/Government companies
Output from public authorities and government companies was projected to be $34m more than original budgeted, primarily due to increased funding to the Health Services Authority.
Transfer payments were forecast to be $103m million greater than originally budgeted and this was due to support given to displaced workers formerly working in the tourism sector. Other operating expenses were also expected to result in an increase of $34m over budget which was a direct result of Covid-related expenses.
Statutory authorities and government companies were forecast to have a net operating deficit of $54.3m, compared to the original budget of a deficit of $16.9m.
Major loss leaders were expected as follows:
• Cayman Islands Airport Authority: $28m
• Cayman Turtle Conservation and Education Centre: $10.7m
• HSA: $7.5m
• Port Authority: $7.2m
• CINICO: $3.5m
• Cayman Airways: $3.1m.
Even though these government companies and statutory authorities were losing money, these entities provided essential services to the Cayman people and were economic enablers, and in the case of Cayman Airways, economic accelerators, the Minister stated.
“Simply put, they are necessary for the magic of what we have for the Cayman miracle to work,” he said.
Economy shrinkage expected
As a backdrop to Cayman’s contracted economy, the Minister clarified that where world economies had struggled to cope with the pandemic, all economies were affected as global economic activity contracted by 3.1% in 2020, compared to a growth rate of 2.8% in 2019. Global economic activity was set to expand to 5.9% in 2021 before decelerating to 4.9% in 2022 and 3.6% in 2023.
Cayman’s Gross Domestic product (GBP) contracted by 6.7% in 2020 as a result of reduced activities associated with the pandemic.
Economic contraction in 2020 impacted all sectors, with the exception of the health and social work sector, which increased by 15.7%, and the financial services sector which increased by 0.3%
In 2020, Cayman’s industry sectors contracted as follows:
• Hotel and restaurants by 76.6%
• Transportation by 31.5%
• Transport, storage and communication by 14.4%
• Wholesale and retail by 4.3%
• Construction by 4.4%
• Business services by 4.7%.
Prices going up
In 2020 the average CPI increased by 1%, with major rises as follows:
• Food and non-alcoholic beverages by 5.1%
• Communications by 5.9%
• Education by 4.4%
Contraction in the local economy in 2020 contributed to lower demand for labour. Total employment declining by 12.1% to reach 41, 644 and the unemployment rate rose to 5.2% in 2020.