Published 27th June 2019, 12:30pm
Mr. Chris Kirkconnell, President of the Cayman Islands Chamber of Commerce, Members of Council, Ladies andGentlemen, Good Afternoon, it is my pleasure to welcome you to the Cayman Islands Economic Forum 2019.
I am delighted to join you today to update you on the current state of our economy, Government’s finances and futuredevelopment plans.
I believe that we can all agree this afternoon that the Cayman Islands is currently enjoying an exceptionally robustperiod of economic activity with solid, sustained growth across all sectors; low and falling unemployment; low tomoderate inflation; along with strong and stable Government finances which enable us to invest in infrastructure andimproving public services while generating operational surpluses and decreasing public sector debt.
As a Government and as a Country we have much to be proud of. However, Cayman’s prosperity is hard fought and hardwon and this reality is not to be taken for granted. We need to maintain our focus, support our dynamic businesscommunity and take decisions the country needs, if we are to continue to prosper in the future.
We have taken deliberate steps to create and maintain an environment which encourages investment and innovationwhile also ensuring a robust regulatory environment that meets or exceeds globally accepted standards. Our economicsuccess is also a reflection of how well our citizens, residents and business community engage with each other andparticipate in the Cayman economy.
Let me just focus on the key relationship between government and business. This Government has set out to reduce thefinancial and administrative burdens, particularly on small business, in order to make it easier to start up and thengrow businesses in Cayman. It was good to see that our efforts are being recognised with the publication last week of anew Global Complexity Index which had Cayman in last place, recognising this jurisdiction as the easiest place in theworld in which to do business. Finally, a league table where we can be happy to be in last place!
Gross Domestic Product (GDP)
Preliminary indicators of Economic Growth as measured by Gross Domestic Product (GDP) show that Cayman’s GDP grew inreal terms by 3.4 per cent in 2018, a further improvement on the already impressive economic performance the previousyear which saw growth of 3.0 per cent.
Over the last five years the economy has recorded an average growth rate of 3.0 per cent per year in real terms.This is an impressive track record by any standards. By way of comparison, the GDP growth of 3.4 per cent in 2018 wasstronger than the estimated growth of 2.9 per cent for the US and the 2.2 per cent average growth for the world’s mostadvanced economies. So far in 2019, all indications are that we are on track to record continued expansion of theCayman economy.
The foundations that we have put in place will continue to provide a platform for growth in the medium term. SolidGDP growth is forecast to continue over the next three years. Included in the 12th April 2019 presentation of theGovernment’s Strategic Policy Statement, GDP is expected to grow by 2.8 per cent in 2019; 2.2 per cent in 2020; 2.1 percent in 2021 and 2.0 per cent in 2022. This reduction in outlook for economic growth in the period from 2019 to 2022partly reflects the potential impact of the lowered growth projections of the International Monetary Fund for the USAand advanced economies in general for these years.
With Cayman still projected to achieve growth of 2 to 3 per cent against a background of an anticipated globaleconomic slowdown, it demonstrates the strength and vitality of the Cayman economy and of Caymanian businesses likethose represented here today.
Growth by Industry
Growth in 2018 was broad-based with all major industries recording positive expansion.
The hotel and restaurant sector recorded the strongest increase, with its gross value addedincreasing by an estimated 10.6 per cent, following an increase of 4.3 per cent in 2017. The strong performance of thesector was driven by improvements in local capacity and additional air passenger routes coming on stream. This reflectsthe success of the partnership between industry and government and the strategy that has been pursued under the lasttwo Administrations. I am sure there will be a lot more discussion of this in the panel session later thisafternoon.
The construction sector continued to be a major contributor to growth in 2018 with itsestimated value added increasing in real terms by 8.1 per cent. Growth in the sector reflected the infrastructuralcapacity of the Islands keeping pace with the demand for residential, commercial and public facilities ‒ arising from ahigher population base which was estimated at over 65,000 at the end of 2018.
The financial and insurance services sector, consisting mainly of domestic banking and insurance servicesremains dominant in the economy. This industry directly contributes approximately 31 per cent of GDP and it continuesto grow at a steady rate, estimated 1.8 per cent in real terms in 2018.
The business services sector comprising mainly of legal and accounting services grew by 4.6 per cent in 2018.This industry is Cayman’s second largest sector and directly contributes approximately 13 per cent to total GDP. Theindustry’s performance in 2018 is associated with sharp increases in new company and partnership registrations whichrose by 25.1 per cent and 29.3 per cent, respectively. In addition, the number of listings on the Cayman Islands StockExchange surged by 37.2 per cent. The strength of business activity in Cayman continues to be evident from this data.Despite the blows aimed at us, international business confidence remains strong and the Government remains absolutelycommitted to supporting our financial services industry.
After two consecutive years of declining consumer prices in 2015 and 2016 the CPI increased in 2017.
This increase continued in 2018, peaking at 4.8% in the 2nd quarter, and averaged 3.3 per cent over the year. Risingfuel prices in the international market coupled with higher demand from the increased local population were the keydrivers of inflation during the year.
The preliminary Consumer Price Index Report for the first quarter of 2019 reveals that consumer prices are up by 4.5per cent compared to the same period in 2018. This increase is broad-based with increases being noted across most majorcategories, most notably, the Housing and Utilities index which is up by 11.1 per cent; Communication increased by 7.7per cent; and Recreation and Culture up by 4.1 per cent.
While rising consumer prices are of concern because of the very real impact such increases have on individuals andbusinesses, it does indicate high levels of activity within our economy. The Government will continue to closelymonitor the CPI and implement mitigation options where possible. In the end though, inflation is a product of marketforces and we need to support the market to readjust rather than seeking direct government interference to counteractinflationary pressures. As Milton Friedman said, “inflation is caused by too much money chasing after too few goods.”Our economic strength and our growing population will continue to put money into our economy. That is something weshould celebrate not try to dampen.
Therefore, the answer lies in how we can ensure that the supply of goods increases to meet the growing demand. In myview, that is why we need to give much greater attention to the absolutely vital cargo element of the new port project.I am sure the cruise berthing aspect will be something to debate during the tourism panel session but whatever yourviews on cruise tourism, I hope as businesses you will be able to see why expanded cargo port facilities are essentialif our economy is to continue to grow.
Strong growth in our economy continues to support increases in the demand for labour.
Significant increases in employment in 2018 meant the overall unemployment rate decreased to 2.8 per cent from 4.9per cent at the end of 2017. The decline emanated from reductions in unemployment among Caymanians and Non-Caymanians.Significantly, however, the highest reduction in unemployment was recorded among Caymanians where the unemployment ratefell from 7.3 per cent in 2017 to 4.6 per cent in 2018.
This puts the Government well on track to delivering the commitment we made to achieving full Caymanian employment –an economy where every Caymanian willing and able to work, can do so. That achievement, though, stretches back throughto the measures put in place by the last Administration. As a result, some 3,300 more Caymanians are employed nowcompared with the position when we took office in 2013.
The continued positive economic prospects for the Cayman economy mean that the robust employment market in Caymanwill continue over the medium term. The new department we have established, Workforce Opportunities and ResidencyCayman (WORC), will work with business to ensure that we match growth sectors with suitably qualified Caymanians andalso that we respond more positively and quickly to those businesses that need to bring in workers where no suitablyqualified Caymanians are available. Strong growth means both jobs for Caymanians and acontinued need for work permits. It is not either/or. The task we have set for WORC is to ensure an appropriate balanceis achieved that is good for Caymanians, fair to foreign workers and responsive to changing business needs.
This Government also understands it is absolutely necessary that we ensure Caymanians coming into the workforce havethe skills to compete in an increasingly global labour market.
For that reason, we continue to prioritise investment in education. Perhaps understandably, it is the investment innew school facilities that grab the headlines, most notably the commitment we have made to complete the new John GrayHigh School.
However, whilst suitable classroom spaces are important we understand that it is the teaching that goes on inclassrooms – both new and old – that makes the biggest difference in raising standards of attainment. Accordingly, wehave delivered a significant increase in teachers’ pay to help us attract and retain the best teachers and the nextstep will be to begin the transition to a new, more up-to-date and challenging curriculum.
Beyond that, the Government also plans to introduce a new governance arrangement for Cayman’s public schools. I hopethat when the call comes for volunteers to serve on the new governing bodies that will take responsibility for raisingthe performance of schools, of teachers and of pupils, we will see many of you from the business community answeringthat call. Your skills and your commitment will be crucial in making these future arrangements work.
This Government, like the last, has been willing to invest in the vital infrastructure our country needs as itcontinues to grow. These investments themselves create jobs, support future growth and deliver improvements in thequality of life for all who live here.Major approved public sector infrastructure projects include:
Notwithstanding the public sector projects occurring, growth over the medium-term will continue to be driven by theprivate sector with recently completed and forthcoming projects that will increase the accommodation capacity fortourist arrivals and boost other commercial activities.
Significant new tourism accommodation projects such as: the Grand Hyatt Hotel at the old Pageant Beach; the MandarinOriental Hotel at Beach Bay in Bodden Town; and the Curio Collection Hotel by Hilton on North Church Street in GeorgeTown, are expected to commence construction within the next year providing a further boost to our construction sectorwhile building capacity to facilitate expansion of our tourism sector. In addition, there are several luxurycondominium projects that are currently under construction which are also providing a boost to these two importantsectors.
Other significant private sector-led real-estate development projects that are expected to contribute to growth overthe medium term include the continued development of Camana Bay, including the completion of a new Foster’s Food Fairsupermarket, expansion of the Cayman International School doubling its capacity, and the OLEA residential developmentand there are at least three substantial commercial and residential developments in the Grand Harbour area.
The Government remains committed to the fiscal strategy we established at the start of our first term in office thatis centred on the following key principles:
It is this sound, prudent fiscal strategy which has resulted in the significantly improved state of public financesthat I mentioned earlier and places the Government in the best possible position to respond to any potential economicdownturn.
Government has not borrowed a single dollar since 2012 and where possible, loan balances have been and continue tobe repaid ahead of contractual repayment dates. This, I believe, is unprecedented by any Government in modern times. InNovember of this year, we have a Bond of US$312 million issued in 2009 that matures. While the Bond will be repaid whenit matures, it is likely that we will need to refinance a portion of it in order to maintain compliance with thePrinciples of Responsible Financial Management.
While the amount to be refinanced will be determined later this year as we get closer to the maturity date, I cantell you now that the overall result will be a significant net reduction in public sector debt. Indeed, by 31stDecember 2019, I expect that, with respect to debt obligations other than the Bond Issue, we will have repaid CI$183.1million of debt since 31st May 2013 – when the previous Progressives led Government first came into office.
Our commitment to reducing debt levels means that the significant capital investment programme is being fundedentirely by surplus cash generated from operating activities.
Our financial strategy is right for our country now; appropriate for Cayman’s future needs; and robust in the faceof potential future economic shocks.
The best evidence that I can offer you to support that view is provided by none other than Moody’s InvestorServices, who in March 2019, reaffirmed the Cayman Islands’ Aa3 sovereign debt rating with astable outlook.
Growing revenues through economic growth, controlling operating and financing expenses, containing capitalinvestments and generating substantial cash flows from operating surpluses has enabled us to build and maintainsignificant cash reserves – a key component of ensuring compliance with the Principles of Responsible FinancialManagement and the Framework for Fiscal Responsibility which are set out in the Public Management and Finance Law.
I am probably not giving away state secrets when I tell you that as politicians we often come under pressure to usethose reserves to fund various public sector investments. However, as I have outlined, the maintenance of sufficientcash reserves is a crucial part of our strategy with an eye to the future.
We have all experienced the impact of a natural disaster and of a global economic slump and, robust reserves willgive us scope to act when the inevitable future shocks happen. I must therefore pay tribute to my colleagues in theGovernment Caucus for their willingness to stick with our fiscal strategy in the face of inevitable demands to increasepublic spending.
These prudent financial measures have resulted in exceptionally positive draft financial results for the 2018financial year – which ended on 31st December 2018.
For the 2018 financial year, Central Government achieved record operating revenues of $838.1 million, being $107.4million or 15 per cent more than budget.
I must stress again that this revenue level was achieved without the Government introducing any new revenuemeasures, and with various fee reduction initiatives in place that benefit households and business.
Operating and financing expenditures for 2018 were $669.3 million being $25.2 million or 3.9% more than budget,resulting in an operating surplus of $168.8 million, being $82.2 million or 95% more than budget.
Central Government’s bank balances increased to $559.4 million at 31st December 2018 compared to $462.1 million atthe end of 2017, an increase of 21%..
Debt Balances Our debt management
strategy has resulted in the reduction of debt to $420.0 million at 31st December 2018, compared to CI$577.4million, at 31st May 2013 – when the previous Progressives led Administration first assumed office.
2019 1st Quarter Financial Performance
Just two weeks ago in the Legislative Assembly, I presented the Government’s unaudited financial results for the 1stquarter of the 2019 Financial Year. These results reaffirm the validity of our fiscal strategy, which continues toyield the desired financial results. In summary, at 31st March 2019:
Compliance with Principles of Responsible Financial Management
The Government’s prudent fiscal policies enabled us to maintain full compliance with the Principles of ResponsibleFinancial Management during the 2018 financial year:
As I set out in the House in April, we will remain in compliance throughout the next three year forecast budgethorizon, demonstrating our commitment to the long term position for the country rather than any short term electoraladvantage that might be gained by going on a spending spree.
Revenue Management Systems
The Government’s operating revenues have been steadily increasing over the years. The importance that we place onhaving strong management systems to ensure that revenue is comprehensively collected and cohesively managed in anefficient and effective manner, cannot be over emphasized.
By successfully managing our existing revenue streams the Government can avoid the need to implement new revenuemeasures. Recent improvements include:
Of course you will be aware that the stamp duty changes was also about increasing the duty thresholds for first timeCaymanian home-buyers – providing no to low stamp duty on the purchase of property. This change helps put homeownership within the reach of many more young Caymanians and their families.
That in turn is but one plank of the Government’s overall strategy to improve access to housing for Caymanians.Another has been to work in support of the National Housing Development Trust as it constructs affordable homes forhard-working Caymanians. Thirty such homes have been or are being built and the Trust is continuing to expand itsactivities.
In addition, recently, the Finance Committee of the Legislative Assembly agreed to an additional allocation of $1.62million to fund repairs that will bring back to a habitable condition, the homes of the elderly, disabled or those withyoung children whose properties are damaged often for reasons outside their control.
Future Development Plans
The Government is committed to working with the Private Sector to ensure the long term sustainability of flourishingeconomy whilst also preserving the unique qualities that makes the Cayman Islands such a wonderful place to live, work,visit and do business.
In his Strategic Policy Statement on the 2020 to 2021 Budget, the Premier outlined how the Government intends toaddress the growth of the Islands in a planned and sustainable manner that will ensure the best use of available landwhile preserving our unique environmental heritage.
The “Plan Cayman” development framework, which has now completed its first round ofpublic consultation, will focus on one major land area at a time thereby covering the entire Island over a five yearperiod and then restarting at the beginning. This rolling approach makes for a workable continuous planning reviewprocess.
A Plan is now being developed for the Seven Mile Beach Corridor and will include looking at the merits of thedevelopment of taller buildings and “mixed use” developments that could ease both commercial and residential demands.This will dovetail with the work on the George Town Revitalisation project that is now being driven forward by thededicated Town Manager.
Both of these areas of work will be delivered in close consultation with both residents and local businesses and Ihope you will continue to be engaged in that work as many of you were in the first round of Plan Caymanconsultation.
The area-based approach is being complemented by work to tackle some of the key long term issues that will impactcommunities right across our Islands. The most pressing of those is the on-going need for infrastructure improvementsand the most pressing issue within that is the need to tackle congestion on our roads.
Much to the relief I am sure of those of you who live east of Grand Harbour, the Premier announced in April that theGovernment is responding to the worsening traffic congestion in those areas and intends to reprioritize roadimprovements over the next two years in order to address the traffic issues. Road improvements include extending theeast-west arterial road to Northward then on to Bodden Town. We are also initiating projects around Grand Harbour andwestward into George Town to ensure traffic can move more smoothly. Work will be underway before the end of thisyear.
Just building more roads is not a long term solution given the projected population increases for Cayman. Therefore,the “Plan Cayman” project will also look at alternative transport solutions such as safer cycling and walking routesand a radical new approach to public transport.
The Government will be commissioning a specialist mass transportation study that will analyse the options availablefor us to achieve the necessary change in public transport that the country needs. The study will be completed within ayear so that we will be able to consult widely and draw up detailed plans for inclusion in the next Strategic PolicyStatement.
The creation of the National Energy Policy by the last Administration set ambitious but achievable goals to moveCayman to a more sustainable pattern of energy generation and consumption. The Government is currently implementingseveral important actions including the greater use of electric vehicles and the increased use of renewables forgovernment buildings. There are also plans to encourage the public to purchase electric and hybrid vehicles.
Registers of Beneficial Ownership
By way of an update, the UK Government recently issued its response to the Foreign Affairs Committee Report entitled“Global Britain and the British Overseas Territories” that made sweeping recommendations on registers of beneficialownership, same-sex marriages and UK citizens’ right to vote and hold office in British Overseas Territories.
We are pleased with the UK Government’s recent response that is committed to developing a positive and constructiverelationship with its Overseas Territories and that is has no intention of interfering with locallydetermined franchiseand representational arrangements. With regards to public registers of beneficial ownership, the UK Government hascommitted to following a consultative process and not accelerating the current timetable to implement public registersin advance of the end of 2023.
The Premier has made it abundantly clear that Cayman will continue to resist any attempts by the UK Government toimpose public registers in the absence of a global standard. This is not because we want to see any illegal moneyfunnelling through Cayman’s financial institutions. We do not need or want that. Rather, it is about keeping a levelplaying field in the global market. In short, if and when it becomes the global standard, we will comply.
The Cayman Islands is continuing to benefit from a strong resilient economy that has weathered many challenges. Ourfuture success depends on our ability to adapt and innovate and, as government and business leaders, we all have aresponsibility to do everything that we can to ensure the continued success of these Islands.
The Government is committed to exercising prudent and responsible financial management and improving both thephysical and institutional infrastructure capacity necessary to facilitate economic development in a sustainable andappropriate manner that enhances the quality of life for all residents.
The Government has also shown its willingness and ability to move forward with necessary infrastructure projects,including our expanding road infrastructure, a modern landfill project, an expanded cargo dock and cruise berthingfacility, to the long needed improvements at the airport. These benefit all who live here as well as supporting thegrowth of business.
It is the Private Sector that is the engine of future economic growth that is critical to maintaining our long termsuccess. Over the past six years, I believe government and business have come more closely together to support growth.There is, though, more to do and I look forward to working with you, President Kirkconnell, the Chamber Council and thewider business community, as we work in partnership to achieve our shared ambitions for Cayman.
Thank you and enjoy the rest of this Forum and your afternoon.