The full scale of the economic challenge facing the Cayman Islands has been laid out.
Pledging that the government is committed to presenting "the unvarnished truth", Hon. Minister of Finance Roy McTaggart said it was “disheartening for me to relay such bad news” in outlining the real impact of the economic consequences of the COVID-19 pandemic here.
Unemployment is projected to rise to between 11% to as high as 20% putting up to 10,000 people out of work, about a third of them Caymanians.
The economy is forecast to contract by up to 12%.
THE SHORT TERM OUTLOOK
According to Mr McTaggart, a best-case scenario modelled by the Economic and Statistic Department (ESO) would see the economy reopening by the beginning of July with tourists returning by October of this year, albeit in small numbers.
It projects an unemployment rate of 11.6% contrasted with the 3.5% jobless rate in 2019.
He said: “Under these scenarios, GDP is projected to contract by 11.4% with the unemployment rate rising to 11.6%. The number of displaced jobs was estimated at 8,859 (or an unemployment rate of 18.7%), of which 2,772 would be Caymanian jobs. The scenarios are conditioned on the gradual return of visitors (less than 20% of normal visitor levels that usually prevails at the high tourist season) beginning in the last quarter of 2020.”
The worst-case scenario presents a more dire picture with unemployment projected at close to 20% or around 10,000 people out of work.
He added: “If international developments prevent the arrival of visitors to our shores for the rest of this year, then based on the economic projections, we would see a further uptick in the unemployment rate and a further contraction in the ability our residents to earn money.
“Under this scenario with a July 2020 lifting of most domestic restrictions, the income earning capacity (GDP) of these Islands is projected to contract by 12.2% with the unemployment rate rising to 12.3%."
Mr McTaggart surmised that “as a result of the projected decline, the Caymanian unemployment rate is projected to jump to 19.7% (or 2,981 persons), and a total of 9,582 jobs (or 12.3%) would be displaced.”
In both scenarios, GDP is projected to contract by over 10% year-on-year (between 11.4% and 12.2%).
This drastically contracts with the picture at the end of last year.
"We concluded 2019 with a thriving economy growing at about 3%, led by construction growth of 6.1%, hotels and restaurants by 5.3%, inflation running at 5.7% and an unemployment rate at 3.5%," he stated.
Tourism, which accounts for 20% of GDP, has been severely set back, although the financial sector, the other main economic pillar, remained relatively stable for now.
Construction and development projects are being relied on to ease Cayman out if the current economic doldrums - at best to stabilise the situation.
UPSIDE DOWN OVERNIGHT
“Ladies and gentlemen, we woke up in 2020 and met a different world with COVID-19. It turned our world upside down overnight and it will forever change it,” Finance Minister McTaggart declared.
The government has taken some steps interim to cushion the economic impact of COVID-19 via a series of relief and stimulus measures.
These, Mr McTaggart said, are expected to boost GDP value-added by approximately $184.9 million in 2020, an improvement in the GDP contraction from -11.4% to -7.3%. This translates to roughly 36% of the projected falloff in real GDP.
“As a result of the measures implemented, more jobs will be saved, an estimated 1,468 jobs, of which 678 are likely to go to Caymanians.”
He voiced particular concern about the spike in the unemployment rate, the effect it is having on Caymanian families in particular, and the dismal outlook as presented in the scenarios projected by the ESO modelling.
THE HUMAN FACTOR
Underlining the gravity of the problem, Mr McTaggart, in response to a question from Caymanian Times, 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.”
Stating that the government “cannot do it all ourselves”, he said it will take the private and public sectors working together.
Mr McTaggart mentioned in particular "non-profit organisations really stepping up to the plate and assisting with food and delivering other services to those who are in need, saying he was "extremely grateful “to see the response of our people in giving and supporting these charities as they try to help.”
However, he also noted that “depending on the outcome of the stimulus measures implemented and the timing of the opening of our borders to tourism, the ESO estimates that our revenues could contract to between $632m to $649m for the year.
“If this holds true, this would represent a decline in revenue of between $211m and $227m for the year, or 24% to 26%.”
Looking at the increased spending required to manage the COVID-19 crisis and the economic fall-out, it is calculated that “government could be faced with a deficit of $250m this year.”
Government reserves have been put at CI$ 621m on a declining scale with the Finance Minister revealing that they have already "burned through $38.5m of our cash reserves."
"At the present burn rate that we are going through," he explained, "unless there is a significant turnaround in our financial fortunes, it will be sometime, maybe the first to the second quarter of next year before we will start to run into issues before we might start to run into issues and possibly try and access the standby line of credit."
CREDIT ON STANDBY
Finance Minister McTaggart announced that as a fallback, the Cayman Islands is seeking a short term CI$ 500 million standby line of credit which it would be able to draw down if needed, he announced.
He said the credit line “would only be a security blanket which would give Cayman the ability to access funding quickly if we need it.”
“In light of the significant deterioration in governments’ fiscal performance and in order to give the country the financial security and build the resilience that we need, Cabinet last week authorized the Ministry of Finance to issue a Request for Proposal for the establishment of a Standby Line of Credit in the amount of $500m for a period of 18 months.
“This line of credit will be utilized, or drawn down, only if we find ourselves in the unfortunate position of having exhausted all of the cash reserves available to us.”
Approval for this will be required from the Legislative Assembly and significantly, the Foreign and Commonwealth Office.
CREDIT RATING STILL HIGH
There was some encouraging news showing through when he announced that the international rating agency Moody's had maintained the Cayman Islands’ high credit rating.
“Amidst this crisis our Islands' have become a beacon to the region, Moody's in its latest credit report published April 13, 2020 maintained Caymans' Aa3 rating with a stable outlook, amidst this economic uncertainty,” he reported.
Mr McTaggart said: “They noted that ‘prudent government planning has left the islands with fiscal space to deal with the economic impact of the coronavirus pandemic’."
“Those were the words of Moody's, not mine, he pointed out, adding that, “arguably, even the worlds’ largest debt rating agency has confidence in our little islands and our government.
Meanwhile, It will take a mammoth effort to bounce back from that according to the Finance Minister and it will take an “all hands on deck” to restore the economy to some semblance of equilibrium and growth.
He doesn’t see that happening until late 2022 at the earliest.
HOPE ON THE HORIZON
It was also announced that the government is working on a further series of measures aimed at easing the burden on residents and businesses.
• A low-cost loan program for small businesses most affected by the closure of the tourism industry.
Increasing community employment programs (NiCE and others) post-COVID-19, using unemployed and displaced Caymanians.
• Expedited resumption of Government’s 2020/21 capital expenditure program, focusing initially on the resumption of construction projects that were in progress prior to the onset of Covid19.
This includes projects such as the Mental Health Facility in East End, enhancements to the road infrastructure by the NRA, and the John Gray High School.
• And, continuing with efforts to diversify the local economy, with a focus on agriculture for domestic food security and resilience.
With the gradual reopening the economy, approval is already being expedited for a number of key construction and development projects to kickstart the economy, get people back to work and create jobs.
New opportunities in the growing virtual financial sector are also being explored.
Finance Minister McTaggart stated: "While the challenges are indeed enormous and may seem unsurmountable, I would posit that our actions so far have left us in a strong position and well placed to eradicate COVID-19 from our community.
"We have been safely navigating the single largest health disaster in this generation, and this is a demonstration of this government's commitment to the lives and livelihood of all residents."
While battling COVID-19 and grappling with its economic consequences, Cayman is also preparing for the hurricane season (which starts Monday June 1st) and elections due in May next year.