By Staff Writer
As the PACT (People-driven, Accountable, Competent and Transparent) coalition government’s Strategic Policy Statement continues to be analysed and scrutinised within the political realm, the private sector and the general citizenry, Caymanian Times looks at a few core areas which underpin the SPS.
While the budget will be presented and debated in November, the SPS gives a firm indication of the government’s direction of travel in how it manages government finances and create an “enabling environment” for economic recovery.
When he laid out the SPS in Parliament Mr Saunders painted an overall picture of optimism and a forecast that the economy will bounce back within the SPS period.
Much of that is based on the relative “robust” nature of the government’s finances as described in the SPS - and in spite of an ongoing tiff between the current and former finance ministers over the state of government finances left by the previous Progressives-led government and inherited by the new PACT administration.
Gross Domestic Product (GDP) is estimated to have contracted by 6.7 percent in 2020 based on actual indicators for the year resulting from reduced economic activities due to the pandemic.
The SPS states that the impact of closing the borders to travel and domestic lockdown was partly mitigated by various stimulus measures.
However, the domestic economy is expected to recover over the near term beginning with a growth of 1.2 percent in 2021. Economic activity is expected to accelerate further by 4.7 per cent in 2022 and an average of 2.9 per cent per year between 2023 and 2025.
The 2021 SPS says “The economic recovery should be led by the construction sector, with further expansions foreseen as the measures implemented in 2020 take full effect during 2021.”
The government expects that most industries are expected to contribute to growth in 2021, led by construction. However, it notes, some industries lead by hotels and restaurants along with transport and storage are expected to fall even lower as the islands continue to enforce quarantine measures.
The contraction of the local economy in 2020 contributed to a reduction in the demand for labour during the year. Total employment declined by 12.1 percent to reach 41,644 in the Fall 2020 Labour Force survey. With the decline in labour demand outweighing a 10.5 percent fall in the labour force, the overall unemployment rate rose to 5.2 percent in 2020.
However, a turnaround is expected with employment forecast at 5.0 percent of the labour force in 2021, falling to 4.4 percent in 2022 and then average 3.6 percent in the remaining three years.
Mr Saunders also announced that the Government's policy to prioritize the integration of displaced Caymanians into the workforce is also expected to shift the labour market dynamics and minimize the impact of displacements on the overall unemployment figure.
COST OF LIVING AND INFLATION
According to the SPS, during 2020, inflationary pressures emanated mainly from food and non-alcoholic beverages, communication and education, which rose by 5.1 percent, 5.9 percent and 4.4 percent, respectively.
The rise in food prices reflected imported inflation and was driven by a general increase in all food indices on the international market. Communication prices may have risen due to increased demand resulting from more persons working from home and increased digital communication during the curfew period.
The Consumer Price Index (CPI), which measures the change in retail prices, is expected to increase by 2.1 percent in 2021 followed by 1.9 percent in 2022, 2.0 percent in 2023, and 2.6 percent in 2024 primarily driven by forecasts from the United States the principal market from which the Cayman Islands imports its consumer products.
Overall, for 2020, the average consumer price index in Cayman moderated by 1.0 per cent.
NO NEW TAXES
The revenue forecasts do not include any new revenue measures during the SPS period. Revenues are expected to increase over the SPS forecast period (2022 to 2024), surpassing pre-COVID 19 levels.
As the Tourism Sector begins to recover, other major sectors of the local economy are showing tremendous resilience and growth, the expansion of the construction sector, is expected to result in increased demand for goods and services - driving additional revenue from import duties and other consumption-based revenue items.
FINANCIAL SECTOR LEADS AREAS OF GROWTH
While some sectors struggled, the financial services industry generally withstood the COVID downturn.
The SPS notes that financing and insurance services sector is estimated to have grown by 0.3 percent for the year, while business services fell by 4.7 percent. Both of these sectors showed some resilience during the pandemic as the industry got employees to work remotely.
Further, the SPS points out, the removal of Cayman from the European Union’s “blacklist” may have also boosted demand for financial services, as uncertainty fell.
The health and social work sector are estimated to have grown by 15.7 percent due to increased mobilization and purchases. Other Government services are also estimated to have expanded by 7.2 percent for the period.
GOVERNMENT BORROWING AND DEBT
The 2021 PACT SPS says the Government intends to borrow $330 million - 230.0 million in 2021 and a further $100.0 million in 2022 - to be spent on Capital Expenditure/Investments and government’s operating revenues.
The SPS describes the Government’s forecast financial position as “robust and improving” projecting that over the SPS forecast period (2022 to 2024), Core Government’s Net Worth is expected to improve from $1.3 billion in 2022 to $1.4 billion in 2023 and thereafter increasing to the higher end of $1.4 billion in 2024.
It also anticipates that Government is expected to close the 2022 fiscal year with a cash balance of $441.7 million, $352.5 million in 2023 and $291.6 million in 2024.
Core Government’s debt is expected to be $499.1 million by the end of the 2022 fiscal year. The Government plans to reduce the outstanding debt to $398.8 million by the end of 2024.
Finance Minister Saunders concluded his presentation of the PACT coalition’s first Strategic Policy Plan (SPS) by stating: “The Government remains steadfast in its commitment to delivering its programme to improving the quality of life for all Caymanians whilst balancing the need to manage the Country’s finances in an ‘accountable, competent and transparent manner’.”