Government may need to put together a $300 million-plus economic-stimulus package to avoid an ‘unprecedented humanitarian crisis’ as the Cayman Islands faces up to the consequences of the coronavirus.
That’s the verdict of the Chamber of Commerce in a detailed written response to questions from the Cayman Compass about the impact of COVID-19 and the measures taken to stop its spread.
Business leaders have given their total support to government’s decision to shut the borders and restrict movement as Cayman attempts to protect its residents from the highly contagious virus.
But they warn the economy is already teetering on the brink of collapse.
Thousands of jobs across multiple sectors could be impacted by the closure of the borders for an extended period, the Chamber believes.
Chamber CEO Wil Pineau, writing on behalf of the Chamber’s 12-person leadership council, said government would need to move soon on measures to protect the economy.
“With the economic picture in terms of employment, on the current track, under either best- or worst-case scenarios, absent some intervention, we are headed for an unprecedented humanitarian crisis,” he wrote.
He said any stimulus plan should focus on ensuring all Caymanians and residents had roofs over their heads and food on the table.
“In terms of size, the UK and US government stimulus packages (already announced) amount to 10-15% of GDP, which for Cayman would equate to around CI$290 million to CI$435 million. This is the order in which our government should be thinking,” he wrote.
The business leaders acknowledged and supported government’s focus on health and safety first, and emphasised that they are not calling for any relaxation of business closures.
“While the government has rightly said that stopping the spread should take priority, and we agree 100%, other countries have shown that it is possible for a government to fight the war on two fronts at one time,” the Chamber said.
Here are the full responses from the Chamber leadership to our questions:
For how long and how bad do you expect the consequences of this economic crisis to be?
It’s very hard to say because right now because we don’t know how widely the virus will spread globally or here in Cayman. That’s why we need to consider different possible scenarios and make a plan for each one.
In the best-case scenario, we’ll succeed in our attempts to contain the virus and stop the spread in our community. This is, of course, the outcome we’re all hoping for.
But to remain virus-free, we’d need to remain closed to visitors until the virus stops spreading in other countries.
While the peak is expected to come within the next few months, most studies suggest the virus will continue to circulate well beyond the next year, or until a vaccine is developed.
Under this scenario, our tourism sector would essentially remain closed until our borders re-open to allow stay-over and cruise visitors.
Estimates of employment in tourism vary. While the labour force survey suggests around 7,000 are employed directly in tourism between accommodation, bars/restaurants and transport, a recent report from Trinidad-based economist Marla Dukharan citing the World Travel and Tourism Council estimated the total economic contribution to Cayman employment at over 11,000 jobs.
This means that for as long as the island remains closed to tourists, and work permit holders unable to leave to return home, at least 7,000 people will be unemployed, around half of whom are Caymanian.
Although some employers are paying their employees a basic wage for a period (which does not cover the gratuities they normally depend on), this is not sustainable beyond a period of weeks, and many small businesses are not paying hourly workers at all. Many of these workers are already running out of money.
Outside of tourism, the extent of the economic impact will depend on the length and extent of the lockdown period during which many businesses are simply unable to operate.
Construction sites, which together employ over 5,000 people (including 2,000 Caymanians), are closed. Although some contractors are continuing to pay their employees, with many on reduced pay, continuing to pay workers on any level during a shutdown is not sustainable.
The real estate sector, employing 900 people, is also unable to function. Arts and entertainment employ a further 1,300. Most workers in these sectors are essentially self-employed and so have already stopped earning.
These are only the direct (or “first order”) impacts. Other sectors will be affected by the knock-on effects from these sectors. Even the financial industry, which may be relatively unaffected in the short term, will begin to suffer a loss of clients from the decline in markets and the global macro-economy.
This is not the worst-case scenario; it is the status quo.
We are already seeing other countries put stimulus packages in place. Do you think Cayman needs something similar?
Similar economies such as Turks and Caicos and Jersey (which have also seen only a handful of cases) both released detailed economic mitigation and stimulus plans in recent weeks. As you can see from the economic picture in terms of employment, on the current track, under either best- or worst-case scenarios, absent some intervention, we are headed for an unprecedented humanitarian crisis.
A stimulus plan of some kind will be needed in Cayman, and we have already seen the government support some of the most immediately affected Caymanian workers.
The immediate problem is the level of uncertainty for the business community, which means that businesses are unable to plan effectively.
A business that can’t make a plan to stay open and pay its workers has no other choice but to close.
What would/should that look like in your opinion?
The Chamber of Commerce has submitted several proposals, but any stimulus plan should be focused on one thing: ensuring that all Caymanians (and all residents) have a roof over their heads and food in their fridges.
This may include direct payments to unemployed persons, as well as soft loans to businesses.
But the public and the government should understand that the purpose of loans to business is not to line business-owners’ pockets, but to keep people employed. Any stimulus package should include controls to make sure the money is going to the right place.
In terms of size, the UK and US government stimulus packages (already announced) amount to 10-15% of GDP, which for Cayman would equate to around CI$290 million to CI$435 million. This is the order in which our government should be thinking.
While the government has rightly said that stopping the spread should take priority, and we agree 100%, other countries have shown that it is possible for a government to fight the war on two fronts at one time.
The longer we delay action to mitigate the economic impact, the worse the humanitarian crisis will be.
Many hear the Chamber and others talk about a plan for the economy and assume we want the lockdown to end or for less to be done to fight the spread of the virus. Nothing could be further from the truth.
The Chamber supports everything the government has done, and lauds their swift action and decision making, to prevent the spread of the virus. Vital though it is, this task should not continue to consume the entire apparatus of government.
We have run budget surpluses and kept debt ratios low – does Cayman have a financial opportunity to put in place the kind of package that other countries cannot?
Fiscally, Cayman is in much better shape than most developed countries. Cash balances at the end of 2019 were estimated at close to $500 million.
Pre-crisis debt-to-GDP ratio was under 10% compared to 80-100% in most developed countries.
If the government had to fund 10,000 unemployed people with payments of $1,000 per month for six months, it would cost 60 million dollars. That is a large number but far from unaffordable for our government. Insert almost any numbers within reason into that equation, the bottom line is that the government has the money, or the borrowing capacity, to afford it.
The government deserves a lot of credit for achieving this position of strength. The question now is how they can best use it.
If Cayman makes it through this crisis with a debt-to-GDP ratio of 25% or less, that will not only be a manageable level to deal with, but an extraordinary success story.
How long can small businesses hang on amid an extended border closure?
Every business that ever went out of business did so for one reason and one reason only: they ran out of cash. Therefore, businesses need to do everything possible to conserve cash.
Small businesses should budget carefully to ascertain the minimum amount of revenue they can realistically continue to make, reduce their expenses as far as possible, negotiate payment terms with suppliers and creditors, and ensure their cash reserves can last through the coming months of losses.
Above all, businesses should continue to communicate in an honest and transparent way with their suppliers, their customers and, most importantly, their employees. Otherwise, the business may survive, but their reputation may not.
Any other thoughts on this issue or suggestions as to what government/business can do to lessen the inevitable economic pain.
The Chamber has made several proposals beyond the formulation of an economic stimulus plan, including:
- Conducting an urgent economic impact study to forecast the most likely economic scenarios.
- Forming a council of trusted economic advisors to collate policy proposals and make recommendations to government.
- Formulating a set of special temporary immigration policies and procedures to apply during the crisis.
- Allowing the temporary suspension of pension payments for those employees 10 years or more from retirement.
- Developing a plan to redeploy workers from unproductive sectors like tourism, to more productive areas like home delivery.
- The outsourcing of means testing for both business and individuals to any CIIPA-licensed accountant (to prevent overloading the NAU/Cayman Islands Business Development Centre).
- The diligent tracking of layoffs to ensure the government can base decisions and action on the most up-to-date data possible.
- Establishing of a task force of health and aviation experts to consider a way to allow high priority, negative-tested workers to travel safely.
- Temporarily waiving or deferring all government fees for affected businesses.
- The establishment of strict hygiene protocols and guidelines for delivery workers with a robust oversight and inspection regime.
The Chamber of Commerce leadership council all contributed and signed up to the answers in this article. They are:
Mike Gibbs, President-Elect