Resilient Cayman Islands rebounding after Hurricane Ivan

Financial Secretary
Kenneth Jefferson

Friday,  December 2, 2005

GEORGE TOWN, Cayman Islands: The impact of Hurricane Ivan is “working its way out” of the Cayman economy, according to data emanating from the twin pillars of the Islands’ economy – financial services and tourism – as well as the usual economic indicators.

Making his contribution to a debate on a Government motion seeking the Legislative Assembly’s acceptance of the Strategic Policy Statement (SPS) for 2006/2007, the Financial Secretary, Kenneth Jefferson, expanded on economic forecasts contained in the SPS that Government tabled for the year ending 30 June 2007.

The SPS is one of the mechanisms of fiscal discipline that the Government has adopted for itself with the passage of the Public Management and Finance Law. The law was a pivotal step in the Government’s push for an overhaul and modernisation of the way it conducts its activities.

The Financial Secretary reported that economic indicators predict a return to ‘normal’ pre-Ivan economic conditions in the three years covered by the SPS document for 2006/7.

Mr Jefferson told Members that figures produced by the Finance Portfolio’s Economic and Statistics Office (ESO) reveal the remarkable resiliency of the Cayman economy following the devastating impact of Hurricane Ivan.

For instance, while the value of building permits declined by 20% in 2004, in the first nine months of 2005 it had grown by approximately 80%. “This reflects not only the reconstruction effort following Hurricane Ivan but also post-Hurricane Ivan developments -- particularly the Camana Bay project,” the Financial Secretary said.

He noted that while Cayman’s economic outlook had not significantly altered from the position he had outlined in August this year when the 2005/6 SPS was presented, the Islands’ economic growth as measured by the Gross Domestic Product (GDP) indicated a strong rebound during the Hurricane Ivan recovery period.

According to estimates by the Economic and Statistics Office, the GDP grew by 3.7 percent during the 2004/5 fiscal year. A growth of 5.4 percent is being forecast for the 2005/6 financial year that will end on 30 June 2006. “This strong growth reflects both our own rapid recovery from Hurricane Ivan, and the strengthening of global economic conditions,” Mr Jefferson commented.

Nearly all segments of the financial services sector registered a growth during the 2004 calendar year and, more satisfyingly, in the first three quarters of 2005. These included mutual fund, insurance company and new company registrations, stock market capitalization and listings as well as captive insurance premiums.

The one decline was in the number of bank and trust licences, the Financial Secretary outlined.

However, the other mainstay of the Cayman economy, tourism, had taken a considerable beating following Ivan. Visitor arrivals in the 2004 calendar year decreased by 7.5% compared to the previous year. “This entire decline occurred in the post-Hurricane Ivan period,” Mr. Jefferson explained.

The first three quarters of the 2005 calendar year proved no better, especially with air arrivals. The decline continued with a 7.4% decrease in tourist arrivals when compared to the same period in 2004.

“The robust period in 2004 was, of course, before Hurricane Ivan,” the Financial Secretary commented. “The decrease in stay-over visitors is, in large part, a reflection of the temporary decline in available tourist accommodation stock since Hurricane Ivan.”

The expectation is that the decline in stay-over visitors will reverse with the return of all existing tourist accommodation to pre-Hurricane Ivan levels. There were significant increases in air arrivals during the second and third quarters of the 2005 calendar year when hotels such as the Marriott reopened, he pointed out.

Despite the overall decline, cruise-ship arrivals remained steady in the first nine months of 2005 in comparison to the same period in 2004.

Projections relative to another important economic indicator – inflation – also show a positive trend, the Financial Secretary said. Although there was a dramatic rise in inflation from 4.4% for the calendar year 2004 to 8.4% in September 2005, this is expected to “quickly stabilise”.

Mr. Jefferson linked the rapid increase in inflation over the last 12 months to price pressures due to Hurricane Ivan, especially in the housing sector. Projections for the six-year period, from 2003/4 to 2008/9 is, respectively, 2.5%, 6.5%, 5.8%, 2.9%, 2.6%, ending with a return to 2.5%. “This is a clear indication of the effects of Hurricane Ivan working its way out of our economy,” he said.

Growth rates for periods up to and including the 2005/6 financial year continue to indicate the resilient nature of the Cayman economy following Ivan’s impact. The economy is predicted by the ESO to grow by 3.6% in 2006/7 fiscal year and by 3% in 2007/8 and 2008/9.

By 2008/9, Cayman’s workforce is forecast to number some 30,500, a record high, Mr. Jefferson said. Unemployment figures were expected to stabilise at 4.5% throughout the three-year SPS period. “These levels are marginally above the generally accepted 4% ‘full employment’ rate for the Cayman Islands,” he added.

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