Minister McTaggart Remarks About CI Economy at Today's (Wed 27) Press Conference

Speaking Notes: See also addendum "Response to media query re Tourism Accommodation Tax Waivers"

Press
Briefing Address

by
the Honourable Roy McTaggart, JP

May
2020

Opening

Good
afternoon everyone, I thank you for the opportunity to engage with
you and share information with you about the current economic
environment, share with you what stimulus measures we have taken and
propose to take in the coming months and finally give you an update
on government’s financial performance. In so doing, I hope you will
have a better understanding of the impacts we are seeing and the
fiscal challenges we face. At the conclusion, I will be happy to
answer your questions.

PRE-COVID-19
ECONOMIC PERFORMANCE

Ladies
and gentlemen, "we woke up in 2020 and met a different world
with COVID-19."

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 unemployment rate at 3.5%.

This
state of affairs continued through February and in March when Covid19
was visited upon us, it turned our world upside down overnight and
forever changed it.

So
where are we now?

Economic
Projections for 2020

According
to the International Monetary Fund (IMF) in its April 2020 World
Economic Outlook (WEO), the "great lockdown" will be the
worst recession since the Great Depression and much worse than the
2008/09 global financial crisis. The IMF projects the global economy
to contract by 3.0% in 2020. Advanced economies are expected to
contract by 6.1% with the US forecast to decline by 5.9%.

For
Latin America and the Caribbean, the IMF projects the region will
contract by 5.2%. Among Caribbean countries, Aruba is projected to
show the largest contraction, with a GDP decline of 13.7%. Regional
GDP declines projected for other countries include Antigua and
Barbuda (down 10%), Barbados (down 7.6%), St Lucia (down 8.5%), The
Bahamas (down 8.3%), and Jamaica (down 5.6%) just to name a few. I
hope that this gives some well-needed context to our economic
projections that I am about to discuss.

Cayman Islands GDP
performance

In the best-case scenario that
was considered, the local economy would be reopen by the beginning of
July 2020. This scenario also assumed that visitors to these islands
would begin to arrive, in October of this year, albeit in small
numbers. 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.

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%.

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. It is disheartening for me to
relay such bad news. Still, our government will continue to tell you
the unvarnished truth, whether it be good or bad.

Consumer
Prices

Despite
a sharp uptick in food and medical/sanitary goods inflation for the
first quarter of 2020,a
reduction in non-food demand coupled with a decline in international
commodity prices – including oil prices - is expected to relieve
inflation pressures for the year. The global demand is expected to
remain subdued for non-food items over the short term, especially in
our source markets. In addition, locally, downward pressure on
housing rental is expected as displaced ex-pats exit our shores,
lower transport costs due to lower cost of fuel, and with the halt in
visitor arrivals pushing domestic accommodation prices downwards.
Consequently, these factors combined are projected to exert downward
pressure on the average inflation rate to 0.4% in 2020, compared to
5.7% for 2019.

At
the request of the Government, the Economics and Statistics Office
prepared a report titled "The Cayman Islands Economic Assessment
and Stimulus Plan". This Plan focuses on the Islands' estimated
macroeconomic performance in 2019, together with an assessment of
policies announced and/or implemented by the government in response
to the COVID-19 pandemic to date. In addition, the report presents
forecasts and assumptions for 2020 and recommends stimulus measures
that could be adopted to incite economic recovery.

Some
Recommended Stimulus Measures

Included
in the report is an extensive list of measures submitted by
government ministries, private sector entities, and civil society for
consideration. All of the measures submitted are included in the
report that has been received by Cabinet for consideration.

The
policy measures recommended are based on three broad categories:
Firstly, government policies aimed at leaving money in the hands of
affected individuals. Secondly, policies that support small business
survival by buttressing their bottom line. Third, policies that
assist in the post-crisis recovery by making funding readily
available, streamlining approval processes, and reducing business
cost, aimed at stimulating growth in the core business sectors. And
finally, policies aimed at maintaining fiscal prudence while
stimulating the entire economy.

Current
measures implemented or in the process of being implemented

1. 
   COVID-19
   support funding. To
   further support the efforts of the health sector, the government
   allocated $3.0 million from the disaster relief fund to finance the
   initial costs associated with COVID-19.
   
   
2. 
   Funding
   for vulnerable families.
   Increase staffing at the NAU to accommodate an expected increase in
   applications for assistance.
   
   A
   one-off payment of $425 to the disabled, seamen, veterans and
   persons already receiving personal financial assistance from the
   government.
   
   A
   one-off stipend of $600 paid to taxi drivers affected by the
   fall-out of cruise ship visitors.
   
   A
   one-time grant of $600 to Caymanian tourism workers affected by the
   shut-down.
   
   
   Expanding
   the NAU public assistance to allow work permit holders affected by
   the closure to apply for food voucher assistance.
   
   
3. 
   Pension
   withdrawal and pension payment holiday.
   Amended the pension law to allow persons to withdraw up to 100
   percent of their pension funds not exceeding $10,000, and 25 percent
   of funds above $10,000. In addition, to the suspension of pension
   payments from 1st
   April to 30th
   September for employees and employers.
   
4. 
   Low-cost
   loan financing. A
   loan fund valued at $5.0 million was created and made available to
   micro and small businesses, which are 100 percent Caymanian owned.
   The loans will be provided through the Cayman Islands Development
   Bank at an annual interest rate of 1.0 percent after a six (6)
   months re-payment moratorium.
   
5. 
   Grant
   fund for small and micro business.
   A grant fund valued at $9.0 million was created and made available
   to small and micro business. Assistance to evaluate qualification
   and to apply for the grant is also being provided free of cost.
   
6. Funding
   for technical assistance to Caymanian businesses.
   The government is providing funding of $500,000 for technical
   assistance to Caymanian owned businesses to assist with strategy and
   balance sheet planning. Similarly, funding of $200,000 is being
   provided for Caymanian owned businesses to receive training to
   assist them in planning and navigating this economic downturn.
   
7. Waived
   accommodation taxes and TBL fees.
   Tourism accommodation taxes, trade and business licence fees for a
   short period, etc.
   
8. Streamline
   the project approval process.
   To generate construction activity effectively after reopening the
   application and paperwork approvals should possibly be completed
   before reopening the economy, which will enable the projects to hit
   the ground running.
   
9. Approved
   enhancements to the capacity of the Planning Department to monitor
   and expedite construction projects and applications. The
   construction sector creates the most demand across all other
   industries and hence
   generate the most output in the overall economy. The Planning
   department human capital will be beefed up to handle the increased
   demand for services
   

Economic
assessment of measures announced and implemented to date.

The
measures implemented to date by our government are expected to boost
GDP value added by approximately $184.9 million in 2020, an
improvement on the GDP contraction from -11.4% to -7.3%. This
translates to roughly 36.0 percent 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.

Other
Stimulus Measures that are actively being pursued or under
consideration

I
want to thank the Deputy Governor, civil servants, the private sector
and the general public for participating in the process of submitting
policy suggestions and ensuring that we have an abundance of policy
measures to consider. The ESO through the Deputy Governor received
more than 50 suggestions after merging the similar ones.

I
appreciate all suggestions, but in the interest of time, I cannot go
through them all here today. However, these are the stimulus measures
that are currently being acted on and developed by government:

1. A
   low-cost loan program for small businesses most affected by the
   closure of the tourism industry;
   
   
2. Increase
   community employment programs (NiCE and others) post-COVID-19, using
   unemployed and displaced Caymanians;
   
3. 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. For example, this
   will include projects such as the Mental Health Facility in East
   End, enhancements to the road infrastructure by the NRA, and the
   John Gray High School.
   
   
4. A
   tourism strategic plan is being developed by the Ministry of
   District Administration, Tourism and Transport, to cerograph the
   resumption of visitor arrivals post COVID-19. Tourism represents
   about 20% of the Cayman economy, so it should be abundantly clear to
   everyone that the reopening of our borders to the resumption of
   tourists is of paramount importance to the government and the
   success of the country. We will however only do this when it is safe
   to do so.
   
   
5. Continue
   with efforts to diversify the local economy, with a focus on
   agriculture for domestic food security and resilience.
   

So
the policy and stimulus measures we have implemented thus far is not
the end; we continue to evaluate and continuously monitor the
economy. If other rounds of stimulus measures are needed, then we
stand ready to do whatever is necessary to regain and maintain a
strong economy for these blessed Islands.

Government’s
Fiscal Performance to date

Before
I conclude, it would be remiss of me if I did not take some time to
provide the country with an update of government’s financial
performance for the year to date. Many of you have been asking for
this.

Last
week, the Ministry of Finance released the quarterly financial report
for the three months ended March 31, 2020, and reported on by the
local media. That report may be found on the Ministry’s website.
Because of the continued strong performance of the economy through
the majority of that period, it gave very little foresight into the
financial disaster that unfolded in April, and will continue to play
out in the months ahead. Let me share those figures with you now:

For
the four months ended April 30, 2020, Core Government:

Revenues
were $376m, $28m less than the $404m budgeted;

Expenses
were $248m, $10m less than the $258m budgeted;

Surplus
was $127m, $18m less than the $145m budgeted.

Contrast
that with the results for the three months ended March 31, 2020
where:

Revenues
were $353m, $1m more than the $352m budgeted;

Expenses
were $181m. $26m less than the $207m budgeted;

Surplus
was $172m, $27m more than the $145m budgeted.

What
this means, is that for the month of April, 2020:

Revenues
were $23m;

Expenses
were $68m;

Deficit
was $45m.

We
also burned through $38.5m of our cash reserves.

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%. With the increased
spending required to manage the Covid19 crisis, government could be
faced with a deficit of $250m this year.

I
hope to have a more detailed and complete picture that we can share
with the public once the Ministry of Finance completes their exercise
to re-forecast the 2020 budget. At the present time however, we
believe that the earliest we can reasonably expect to return to a
fiscal surplus will be in 2022.

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. We will of course need to
seek approval of the Legislative Assembly and the Foreign and
Commonwealth Office if and when we need to draw down on the Line of
Credit. We anticipate that the Request for Proposal will be issued
sometime within the next week and will be posted on the Governments
Bonfire Procurement Portal.

Conclusion

You
know, the resilience of these Islands' is astounding. Our ability to
rise from the destruction of Hurricane Ivan in 2004 was a testament
to the resolve of all residents, especially Caymanians. We can
replicate that in 2020! 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. However, we
are aware that this is not the end and we remain resolute and
committed to charting the next steps in this journey just as we have
charted the previous phase, in a prudent, responsible and
professional manner that is befitting of what the Caymanian people
deserve.

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. 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. Arguably, even the worlds’ largest debt rating agency has
confidence in our little islands and our government.

One
of the region's
best-known economists, Marla Dukharan of Barbados,
notes that "The sudden-stop will affect both fiscal and external
accounts, and the countries best positioned to mitigate these impacts
are those that have built buffers, giving them the space to implement
counter-cyclical policy through fiscal and monetary stimulus.” The
Cayman Islands is one of those countries that has built such buffers,
and we will answer that call as we managed prudently during the last
few years, and we will respond with targeted economic stimulus
measures when its safe to do so. Let's take one step at a time; our
focus at the outset is preserving the life, health and wellbeing of
our people, take care of taking care of those who are most
vulnerable, preserving jobs, and supporting our private sector.

Cayman,
I reaffirm my government’s commitment to do all that is humanly
possible to address our economic fundamentals and get these islands
up and running again. We,
as the government, will continue to be prudent while seeking out the
best ways to impact the lives of our citizens in the most positive
ways.

Please
allow me to say a special ‘Thank You’ to all the hard working
public servants in my Ministry for their tireless efforts in very
difficult circumstances. I truly appreciate all that they are doing
and continue to do to keep government functioning.

A
big shout out to my management team, led by Chief Officer, Kenneth
Jefferson, Deputy Chief Officers Anne Owens and Michael Nixon,
Accountant General Matthew Tibbetts, Director of the ESO Adolphus
Laidlow, Postmaster General Sheena Glasgow, Director of the
Procurement Office Taraq Bashir. Also to CEO of CINICO Michael Gayle,
and CEO of CIDB Tracy Ebanks.

Thank you!

ADDENDUM: Response to media query re Tourism Accommodation Tax Waivers

The following response is to a press conference query to Minister Hon. Roy McTaggart regarding tourism room tax, which the Minister said he would provide:

“Cabinet has granted approval for:

a)      The waiver of the tourist accommodation tax that is due from all licensed tourism accommodation properties for the period of 1st April 2020 until 30th September 2020; and

b)      The waiver of the tourism accommodation tax late payment surcharge for taxes due for the months of February 2020 and March 2020.”