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Monday, January 09, 2006 

Predictions for decade of growth in economy

Monday, January 9, 2006

According to a press statement release by Government, members of the current Administration are very optimistic about the country’s economic future. According to the current Government the economy of the Cayman Islands is projected to go on a 10-year growth spurt that would take the country’s Administration from a $10 million operating deficit in the current financial year to a $62.8 million operating surplus by June 2016.

Within this growth period, the Government has said it anticipates that all capital spending programmes announced in the current budget will be fully financed by 2011. It also said there would be an end to borrowing in the following year because the operating surplus is projected to grow to a level that will allow normal capital expenditure to be funded from the Operating Surplus.

This long-term view of Cayman’s public finances is contained in the 2006-2007 Strategic Policy Statement (“SPS”) that was recently tabled in the Legislative Assembly.

The SPS normally establishes financial targets for a three-year period but projections were made for 10 years as Government found it necessary to show how borrowing in the 2006-2007 budget would be managed over a period longer than the normal SPS forecast.
“It is important to note that projections are not forecasts,” Government cautioned in the SPS. “There are many uncertainties involved in looking-out over a longer-term period and these uncertainties are too great to be able to prepare robust forecasts of likely financial activity. However it is possible to project future revenue, expenditure, balance sheets, etc., on the basis of actual activity to date…The longer-term projections have been prepared on this basis.”

The $10 million deficit with which Government begins this decade-long projection is owed to Hurricane Ivan-related expenses contained in the current budget that ends on 30 June.

At the time of presenting this budget to the Legislative Assembly, Financial Secretary Kenneth Jefferson explained to the House that the hurricane recovery expenses are some $13 million, and must be considered extraordinary expenditure.

He said the true surplus of Government for the current financial year would have been $3 million, were it not for spending on recovery that eroded the surplus.

This projection to 2016 is based on an annual revenue growth figure of 2.5 per cent. The SPS explains that this increase of income to Government is based on economic expansion in the Cayman Islands and not on new revenue measures.

While the Government income is anticipated to grow over the projected period by 2.5 per cent per year, its operating expenditure is also set to increase by two per cent per year over the same period.

Other factors on which the projection is based are that Government says, as it continues its borrowing at current rates and terms, present policies that include the existing levels of economic and social support remain the same, and that there are no external shocks to the Cayman economy.

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