Following a budget deficit of $38 million last year, government forecasts a much larger shortfall for its core operations of $98 million in 2021 and $59.6 million in 2022.
This is despite higher-than-expected revenues of $812.6 million and $838.7 million in the two years respectively, compared to $789.6 million last year.
Government believes coercive revenues will mainly rise because of the new private funds regime, which added $5.7 million to government’s coffers when it was introduced last year.
In the first full year of its application in 2021, the licensing fees of private funds are expected to raise $40.2 million, according to a ‘Pre-election Economic and Financial Update’ released by the Ministry of Finance.
However, operating expenses are also predicted to balloon to $910.9 million this year from $827 million in 2020.
Personnel costs are projected to increase by $21.5 million this year and transfer payments are forecast to be $26.5 million higher.
This includes $27 million budgeted for the $1,500 monthly stipend benefiting displaced tourism workers, up from $11 million last year; $6.8 million to support small businesses ($2.7 million more than in 2020); permanent financial assistance of $13 million (up $2.4 million); $10.6 million in scholarships and bursaries ($2.3 million higher); and $1.8 million more for seamen and ex-servicemen than the $9.8 million paid last year.
In addition, government will continue to incur COVID-19-related expenses, which amounted to $65.4 million last year alone. However, these costs are expected to decline by about $15.2 million this year.
As a result of the deficits, core government debt is forecast to rise to $354.3 million this year and to $497.1 million in 2022, as the government draws down its available line of credit arranged with a syndicate of local banks.
The update noted that senior finance ministry officials believe that the projected deficits are the “worst-case” scenarios and actual results could be more favourable.
After an estimated GDP decline of 6.5% last year, government said, “Barring any further significant domestic and global shocks, Cayman’s economy is expected to recover partially in the current 2021 year and continue on a trend growth path over the near term.”
With the construction sector expected to lead the economy, government now forecasts an economic expansion of 3.2% this year, accelerating to 6.3% in 2022 and 3.8% GDP growth in 2023.
The construction sector’s anticipated growth of 10.2% this year will be the result of several large-scale projects, including many high-end apartment complexes and some hotel projects.
“Hotel projects that are expected to peak in 2021 include the NCB Hilton Hotel, the new Hyatt Hotel (Pageant Beach site), and the starting of the Mandarin Hotel at Beach Bay. Additionally, approved public sector projects such as the runway extension at the Owen Roberts International Airport and construction of key Government buildings are also expected to contribute to growth over the medium-term,” the document said.
The government forecasts the financial services sector to sustain its recent performance over the medium term, whereas border closures for at least the first half of 2021 will mean that the hospitality sector will contract by a further 38.2% this year.