Cayman Government Foresees Vibrant Economy

by Amanda Banks, Tax-News.com, London

05 July 2007

The Government of the Cayman Islands entered a new financial year on 1 July with a budget that forecasts a net surplus amid a continued vibrant economy.

Reflecting a further stabilisation of the economy following the massive re-construction effort in the wake of Hurricane Ivan in 2004, growth in Gross Domestic Product (GDP) is expected to dip to 3.5% from the 4.2% of last fiscal year.

In this new financial year which ends 30 June 2008, government expects to expend $471.807 million (CI$ 0.80 = US$1.00) and receive $499.103 million, for a net surplus of $14.861 million.

When compared to the 2005/06 budget GDP of 5.6%, the forecast of 3.5% for the 2007/08 year points to a settling of the economy following the vigorous activity after Ivan.

"During the 2007/08 financial year, the Cayman Islands' economy is expected to remain robust due to the continued recovery of the tourism sector, the near completion of reconstruction efforts, and the continued expansion of the financial services sector," Financial Secretary, Kenneth Jefferson, told the Legislative Assembly when he presented the budget on 27 April. Lawmakers approved the budget on 22 June.

Total assets of government will be valued at $987 million and liabilities at $504.7 million, leaving it with a net worth of $482.6 million.

With the aim of keeping a lid on inflation, the government introduced no new revenue measures because of potential impact on the cost of living. As a result, much of its planned expenditure will be funded by existing cash balances, current sources of revenue, and borrowing.

Inflation is forecast at 3.5%, up slightly from 2.2% in the 2006/07 financial year. Unemployment is also expected to increase marginally, moving from 3.1% in the 2006/07 year to 3.6% in the coming year.

Government will spend just over $116 million on capital expenditure and investment. This includes $35.5 million to begin construction on three new high schools along with a new primary school, and $18 million to begin work on a new government office accommodation project.

There is a plan to borrow $129.8 million in the coming fiscal year. Government borrowing of loans is controlled by law, which stipulates that interest, other debt-servicing expenses, and repayments on the principal amount borrowed must not exceed 10% of revenue. The forecast is that the debt ratio will remain well within the limit, at 6.6%.

Although government had the ability to borrow $94 million in the current financial year that ends 30 June, 2007, its total loans for the period were approximately $23 million.

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