Minister of Finance reveals Economic Impact of Pandemic
A PATH TO RECOVERY
The Cayman Islands Minister of Finance Roy McTaggart on Wednesday laid out for the first time the extent of the economic challenge facing the territory due to the impact of the COVID-19 pandemic.
Presenting the much-anticipated report he spoke of global confidence in the territory’s ability to bounce back from what he described as the most severe economic shock it has ever faced.
THE PEOPLE IMPACT
Underlining the gravity of the problem, Mr McTaggart, in response to a question, said it bothered him to see people queuing for food.
“Personally it does bother me to see my people in that position. I've never seen it in Cayman in my life. I grew up at a time where for the most part life was really good. The economy worked well. We were all quite prosperous and all benefited."
He lamented that "now this is a very significant impact on us all and you are seeing it. You are seeing hundreds of Caymanians now having to seek food from charities to put food on the table.”
Mr McTaggart was speaking of the human cost of the crisis in sheer economic terms.
While Cayman has been fortunate in escaping the feared death toll of the disease, the territory’s economy has taken a battering.
THE ECONOMIC IMPACT
The Finance Minister said it will take some time to recover to a position of surplus in the government’s finances.
He is pinning hopes on a gradual re-opening of the economy now taking place to restore some a degree of equilibrium, especially to the government's finances.
He said he does not expect government finances to return to surplus until by the end of 2022 at the earliest “possibly even beyond that.”
Government reserves have been put at CI$ 621m on a declining scale.
"We concluded 2019 with a very strong thriving economy growing at about 3% per annum led by construction growing by about 6.6%, hotel and restaurant growing by 5.3% inflation at 5.7% and unemployment at a low of 3.5%, he reported.
However, that rosy economy reality was upended in March when COVID-19 landed in Cayman.
According to the Finance Minister, “It turned our world upside down overnight and it will forever change it.”
THE NUMBERS THAT MATTER
Tourism, which accounts for 20% of GDP, has been severely set back.
While the finance sector, the other economic pillar, remained relatively stable for now, Mr McTaggart painted an uncompromising picture of the economic reality that confronts Cayman.
“In the best-case scenario, the local economy would be reopened by the beginning of July 2020. This scenario also assumed that visitors to these islands would begin to arrive in October of this year although in small numbers."
"Under these scenarios," he explained, "GDP is projected to contract by 11.4% with unemployment rising to 11.6%. The number of displaced jobs is estimated at 8,859 for an unemployment rate of 18.7% of which 2,772 would be Caymanian jobs.”
The Finance Minister said the scenarios are based on the gradual return of visitors at a rate of 20% off the normal high tourist season numbers.
But he cautioned that if international developments prevented the return of tourists “we would see a further uptick in unemployment and a further contraction in the ability of our residents to earn money.”
“Under this scenario with a July 2020 lifting of most domestic restrictions the income earning capacity of GDP of these islands is projected to contract by 12.2% with the unemployment rate rising to 12.3%.”
As a result of these projected declines, Mr McTaggart said the outlook prepared by the Economics and Statistics Office(ESO), suggest that the Caymanian unemployment rate is projected to increase by up to 19.7% or 2,981 persons, and a total job loss of 9, 582 or 12.3% would be displaced.”
“It’s really disheartening for me to have to say that and share that, but that is the stark reality of what we are likely to face going forward,” Finance Minister McTaggart declared.
For the year to date, government revenues have continued to tumble month by month pushing it into unprecedented deficits.
The government had previously put a package of relief and stimulus measures in place to cushion the shock to the economy, especially on the business sector and the family finances.
Those come at a cost.
“Depending on the outcome of the stimulus measures and the timing of the opening of our borders to tourism, the ESO estimates that revenues could contract to between CI$632 million and CI$ 649 million for the year.”
Mr McTaggart said if this holds true, it would represent a decline in revenue of CI$ 232 million to CI$239 million for the year, a decline of between 24% and 26% year-on-year.
He also reported that with the increased spending to manage COVID-19, the government could be faced with a deficit this year of up to CI$ 250 million.
“That ladies and gentlemen is the challenge that faces us as a country,” Finance minister McTaggart stated.
STAND BY CREDIT LINE
Against this background the Cayman Islands is seeking a CI$ 500 million standby line of credit for a period of 18 months which it would be able to draw down if needed, he announced.
Finance Minister McTaggart said the credit line “would only be a security blanket which would give Cayman the ability to access funding quickly if we need it.”
STILL IN MOODY'S GOOD BOOKS
There was some encouraging news showing through when he announced that the international ratings agency Moody had maintained the Cayman Islands high credit rating.
“I’m proud to say that Moody’s in their credit report published on April 13th 2020 maintained Cayman's AA3 credit rating with a stable outlook amidst all of this economic uncertainty.
“They noted that prudent government planning has left the Cayman islands with fiscal space to deal with the economic impact of the coronavirus pandemic," Mr McTaggart said noting that "it was their words, not ours."
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