Minister McTaggart Highlights CI Economy

Emphasising that there were no plans for new indirect, or direct, taxes, Finance Minister Hon. Roy McTaggart focused on the current economic and fiscal picture of the Cayman Islands as well as the way forward during the ongoing global COVID-19 response.
 
Minister McTaggart was speaking in the Chamber of Commerce’s 3rd Annual Economic Forum, which is jointly organised by the Ministry of Finance and Economic Development as a virtual event this year for subscribed participants.

He also underscored the measures put in place to benefit the people of the Cayman Islands, particularly the underprivileged and vulnerable to help Caymanians and residents alike cope during the COVID-19 crisis.

Minister McTaggart said, “My message today is not all doom and gloom. Yes, we are currently facing severe economic and financial hardships that will require all of us to dig deep in order to persevere and survive. But because of the fiscal strategy employed over the past two terms, good reserves and decreased debt, we are facing the economic impact of this pandemic in as strong a fiscal position as I could have expected. This level of economic strength has allowed us the leverage needed to make certain decisions to better respond to the virus so as to protect life and health, and then later as we started our phased programme of recovery.”
 
He added, “I am confident that with the same perseverance and resilience we have shown many times in the past, this too shall pass and we will weather through.”

Minister McTaggart also highlighted a release yesterday by an online media site that stated “COVID -19 recession could lead to tax” in the Cayman Islands and termed the headline as “unnecessarily alarmist”. He advised all to view his full interview on CIGTV, which occasioned the release, to hear what he said.

He summarised, “I did not say Government was considering direct taxation …. My reference to the word taxation in my interview referred to the existing indirect tax regime – not direct taxation.”
 
Minister McTaggart underscored that Government is not contemplating any change to its well-established fiscal strategy of no new taxes; paying down debt; and managing expenditure to produce significant budget surpluses.

“The current realities of the COVID-19 Pandemic mean that Governments across the world are severely challenged to meet the fiscal burdens caused by decreasing revenues; contracting economies; and increasing demand for public services.

“For us here in the Cayman Islands we are doing everything possible to ensure that our country and economy can rise above this crisis. We are committed to living within our means as we meet the needs of our people.”

He noted that as opposed to a thriving economy that was growing at an annual average rate of 3.3% between 2015 and 2019, the GDP faces an estimated and forecast decline by 7.2% but substantially recovering by 6.4% in 2021.

“The measures and actions implemented by Government at the start of, and during, the crisis, with the support of the business community, have left us with a solid foundation on which to chart our future. The collaboration by Government and the private sector to develop world-class infrastructure and regulatory framework prior to the crisis has allowed our financial and business services sector to remain on a sound footing throughout the crisis and reduced the potential fallout,” the Minister emphasised.

However, the contraction in industry growth in 2020 is expected to span across key sectors including hotels and restaurants (by 74.6%), transportation, storage and communication (by 14.7%), finance and insurance (by 3.8%), and business services (1.7%).

Also, the overall unemployment rate is projected to rise to 6.9% at end of 2020. To combat this, amid re-emerging and rebuilding local businesses and establishments, Government is prioritising the re-employment of Caymanians, the Finance Minister said.

Another negative fallout of COVID-19 is the projected fall in Government revenue by $142.9 million or 17.3% lower than budgeted – with overall revenue forecast to be $682.1 million.

Likewise, Government forecasts that by end 2020, the operating and financing expenses will be $855.3 million which is $95.6 million or 12.6% higher than budgeted. A significant portion of this expense total is due to a series of economic stimulus measures including help for individuals as well as small businesses, and spending on programmes to support the vulnerable, to buoy up the economy and meet COVID-19 related costs such as purchase of testing kits.

Consequently, the Government forecasts an Operating Deficit of $173.2 million by the end of 2020 – which is $238.5 million or 365.3% lower than the budgeted Operating Surplus of $65.3 million.

Minister McTaggart explained that so far, Government has been able to finance all COVID-19 related expenses and the stimulus measures from existing healthy cash reserves.

However, to “avoid the depletion of all of our cash reserves and to assist with meeting our financial obligations over the next two years, the Government made the decision to seek a loan of CI$500 million or US$609.7 million.” The Government is currently considering one syndicated bid from five local banks, the Minister revealed. However, the draw down from this $500 million line of credit will not be automatic but strictly determined by Government’s need, he added.

Another fallout will be Government’s non-compliance with the established Principles of Responsible Financial Management, which calls for written approval from the UK Government’s Foreign and Commonwealth Office (FCO).

Yet, preliminary discussions with the FCO had raised no specific issues as a result of this non-compliance. With the Government expected to become fully compliant with the Principles within three years, the Ministry of Finance is embarking on developing a plan for Government to become fully compliant.

He also added that negotiations are underway with local banks for a loan guarantee programme to help medium and large-sized businesses stay afloat and ultimately to thrive.

The full text of Minister McTaggart’s remarks can be viewed on www.gov.ky at https://www.gov.ky/news/press-release-details/minister-mctaggart-underlines-ci-finances.

To view Minister Mctaggart's speaking notes please click here