The Cayman Islands economy held steady in what was a turbulent 2007 internationally, according to a report released by the government earlier this week.
There was strong growth recorded in the islands’ financial sector, while tourist numbers saw a drop in overall arrivals and spending but an increase in stay-over visitors.
‘The Cayman Islands economic performance in 2007 was recorded against the backdrop of a global economic standstill, particularly for the United States of America,’ Financial Secretary Kenneth Jefferson said. ‘The global financial markets have been in turmoil since August 2007 due to deepening defaults on sub-prime mortgages in the US, which extended to other advanced nations. The financial crisis also affected the foreign exchange market.’
Despite the international uncertainty, Cayman’s gross domestic product rose 2.2 per cent in 2007. However, that growth did not keep up with inflation, which was recorded at 2.9 per cent. Again, international price hikes on food and oil factored into the local rise in the consumer price index.
Food prices alone in Cayman went up by 5.2 per cent last year.
Most major sectors in the financial services industry were looking up in 2007. The number of both domestic and captive insurers in Cayman increased as did the industry’s net worth and net income. The number of mutual funds registered in the Cayman Islands shot up more than 17 per cent last year, and have risen by 36 per cent since 2005.
Total companies registered in the Cayman Islands grew by about 4.3 per cent last year, while new company registrations grew by 16 per cent.
One trouble spot in Cayman’s financial industry was a reduction in the number of banks and trust licences. There were a total of 281 licences registered in Cayman in 2007, compared to 291 in ’06 and 305 in ’05.
As reported in the Caymanian Compass, stay-over tourism numbers rose substantially in 2007 while cruise ship tourists’ numbers declined sharply. The annual economic report also showed that overall tourist expenditures fell in 2007. Visitors were estimated to have spent $399.1 million here last year, compared to $427.4 million in 2006.
‘The impressive growth in stay-over market arrivals was quieted by the decline in cruise arrivals,’ Mr. Jefferson said.
Mr. Jefferson pointed out that Cayman saw a record number of cruise ship tourists in 2006, which helped boost revenues in that year. He also said the international economy, particularly a downturn in the US, may have led to the decline in tourism dollars.
While Cayman recorded a 9.1 per cent increase in stay-over visitor arrivals, other Caribbean countries saw much smaller increases, and two major competitors, Cuba and the Bahamas actually saw declines in stay-over visitors.
Another area of the local economy that saw a slowdown was the construction industry, although the construction field remained the largest employer in Cayman for 2007. Building permits issued for homes dropped four per cent and permits for apartments and condos plunged 41 per cent.
The drop was expected as Grand Cayman in particular rebuilt housing stock following the devastation of Hurricane Ivan in 2004.
Demand for public utilities also increased in 2007 by 6.2 per cent for water consumption, and 8.7 per cent for electricity consumption. Residential electricity use increased more than commercial or public electricity use.
The annual economic report also noted that the Cayman Islands government’s overall financial position suffered during 2007.
‘The fiscal performance for the Cayman Islands deteriorated as strong growth in expenditure outpaced the moderate increase in revenue,’ the report stated.
Total central government revenues in 2007 reached $512.9 million, while expenditures came to $552 million; a growth of some 27 per cent when compared to 2006 spending.
‘This resulted in an overall fiscal deficit of $39.1 million, or 1.8 per cent of gross domestic product as compared to a surplus of $67.3 million in 2006,’ according to the report.
The report noted government revenue increased based on strong growth in collections from domestic taxes on goods and services, but stated those were partially offset by a decline in receipts from international trade and transactions.
The increase in spending was largely due to a 167.2 per cent increase in government’s capital spending and net lending. There was also a 13 per cent increase in current expenditure recorded for government in 2007.
The overall deficit was financed by disbursements of loan funds which totalled $52.3 million during the year.