Cayman maintains Moody’s Aa3 credit rating
(CNS): International credit rating agency Moody’s has given the Cayman Islands economy a thumbs up. Along with a stable economic outlook report, the government maintained its Aa3 bond issuer rating and Aaa country ceiling rating in a report issued on Thursday, 8 June. Cayman’s stable political environment, policy continuity, sound fiscal management, and economic growth supported the report.
Premier and Minister for Finance and Economic Development Wayne Panton said in a press release that this was a testament to the government’s prudent fiscal policy, the strength of our economy and the resilience of the people as we rebound from the pandemic.
“Moody’s made note of the significant economic recovery made in 2022, and this is an achievement that we can all be proud of,” he said. “The ‘high’ rating for the Cayman Islands Government positively affects all economic activity within the Cayman Islands as it reinforces investor confidence in the Cayman Islands, which then leads to higher levels of investment, increased economic activity and greater opportunities for Caymanians.”
Securing the rating is a positive achievement, but Moody’s and other agencies have taken a battering over the years as they have often given institutions a clean bill of health only for them to fail a short time later. Moody’s had given the Silicon Valley Bank (SVB) an ‘A’ rating prior to its collapse earlier this year. And six days before the infamous Lehman Brothers collapse, which triggered the 2008 financial crash, Standard & Poor’s (now S&P Global Ratings) had given the institution an ‘A’ rating.
Moody’s evaluated the rating of the CIG on 5 June. It found that the islands’ economic fundamentals and strength have not materially changed since the last review in October last year.
“The Aa3 sovereign rating remains in the top tier of Moody’s ratings matrix, and our government’s rating is only three notches below the highest rating of Aaa. Bonds that are rated Aa are judged to be of high quality and are subject to very low credit risk,” the premier stated.
The Cayman Islands has a similar rating to Belgium, the Czech Republic, Hong Kong, Ireland, the Isle of Man, and the UK.
“With nominal GDP of US$6.8 billion in 2022, Moody’s notes that the Cayman Islands is a fraction of the size of much larger Aa-rated peers, which have a median nominal GDP of US$416 billion. However, with per capita income of US$87,135 in 2022, the Cayman Islands is significantly wealthier than similarly rated peers,” he said.
Although Moody’s notes that the Cayman Islands’ economy is significantly smaller and less diversified than that of its rated peers, the country’s strong institutional framework supports economic resilience. The Cayman Islands’ debt-to-GDP ratio was 8.9% at the end of last year, a fraction of the 43% of GDP median for similarly rated countries.
“Moody’s determined that the Cayman Islands’ strong institutions and track record of effective policy making mitigate risks associated with our small size and highly concentrated economic structure,” Panton said, adding that the islands’ ongoing relationship with the UK played a part in the rating.
“Moody’s notes that the Cayman Islands Government’s fiscal policy is anchored within the Framework for Fiscal Responsibility (FFR), which sets guidelines for a range of fiscal targets, including debt levels, borrowing and debt service,” Panton stated. “Compliance with FFR targets has resulted in the Cayman Islands’ fiscal metrics being significantly stronger than similarly rated peers.”
Moody’s economic outlook for the Cayman Islands is stable, reflecting expectations that economic policies will continue to support macroeconomic stability and that Cayman will be able to effectively navigate global efforts against tax evasion. The risk factors remain only our location and associated hurricanes, size and reliance on tourism, leaving the country vulnerable to climate-related shocks.
While the rating agency’s rationale for the reaffirmation of the Cayman Islands’ Aa3 rating is reassuring, the premier said there remains no room for complacency.
“This latest evaluation from Moody’s reflects confidence in our country’s economic, fiscal and institutional strengths. However, it also underscores our responsibility to ensure that these accomplishments are maintained for the benefit of this and future generations,” he said. “We must remain committed to keeping our debt burden low and affordable, diversifying and growing our economy, protecting our financial services sector, and mitigating the potential risks posed by climate change and other weather-related disasters.”
See Moody’s rating action report here.
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Category: Government Finance, Politics
Useless numbers.
Lowest minimum wage, highest prices, poverty, but for a wealthy investor it’s a paradise.
Global growth will decelerate this year amid sticky inflation and higher borrowing costs, with the slowdown to be largely driven by advanced G20 economies, including the US, UK, and Germany, Moody’s Investor Service reported.
According to the ratings agency, real GDP growth in the G20 will slow to 2.1% in 2023 and 2.2% in 2024, from 2.7% in 2022
“We expect very weak growth in key advanced economies in particular, including mild recessions in the US, UK, and Germany, and stagnant economic activity in France and Italy,” the report reads.
“We forecast economic growth rates around 1% in 2023 and 2024 for the US economy, significantly lower than the 2.1% recorded in 2022 and below trend growth. These forecasts incorporate a mild recession – a couple of quarters of sequential contraction that will increase the unemployment rate to around 5.0% – in the second half of 2023,” Moody’s wrote.
“Our growth expectations already incorporate a significant pullback in overall demand for credit from high interest rates, so we have not materially changed our forecasts because of the recent stress at US regional banks,” the agency added.
In Germany’s case, manufacturing sector weakness, labor shortages, high interest rates, and sticky and elevated inflation have worsened the economic outlook, Moody’s noted.
After growing by 3.7% and 2.1% in January and February, industrial production in the Eurozone’s largest economy declined 3.4% in March. “While the automotive industry contributed the most to the decline, the deterioration was broad based, and consistent with the decline in new orders. April manufacturing PMI survey reveals continued contraction in orders,” Moody’s said.
The ratings agency has maintained its annual growth forecast of 0% in 2023 and 1.2% in 2024 for the German economy.
Meanwhile, economic activity in the UK continued to moderate given high inflationary pressures, Moody’s said, adding it expects the British economy to contract 0.1% this year.
The report indicated that in 2023, the impact of higher prices and tighter financing conditions has continued to hamper the economy. “As highlighted above, we expect BoE’s [Bank of England’s] policy rate to peak at 4.75% and for monetary policy to remain tight over the coming years, which will weigh on consumption and investment,” it said.
The International Monetary Fund announced last week that it no longer expects a recession in Britain this year, with its new growth projection foreseeing the nation edging ahead of some rich-world peers, including Germany.
However, Prime Minister Rishi Sunak has warned the UK economy could be in recession next year as stubbornly high inflation pushes interest rates to more than 5%.
With billions in unfunded pension and healthcare liabilities, and many government departments still failing to deliver what the OAG categorizes as acceptable accounts, the CIG continues to fudge its way to FFR compliance. This ruse is not going to last forever.
“…the islands’ ongoing relationship with the UK played a part in the rating…” is the understatement of the year. This high grade rating is simply not possible without the UK backstopping the loan book with its full faith and credit. It’s critical to the retention of that investment grade rating. Compare with Bahamas, stable at B+/B1, or Jamaica B+/B2, both highly speculative sub grade debt, where borrowing is much more expensive. If our MPs don’t understand that the Federal Reserve Chair sets Prime rate, we shouldn’t expect them to fully comprehend the delicacy of our parent relationship and the benefit we reap on preferential borrowing costs. Both revelations are scary!
See https://caymannewsservice.com/2023/03/premier-admits-widening-of-caymans-economic-success-gap/comment-page-1/#comment-587383
It begins: “ Cayman is presently incapable of self-government. Expats should be allow to both vote and stand for election. Four examples of incompetence/corruption demonstrating this fact: …”
who else is on the grey list with an Aa3 rating?
remember these are the same guys who were getting paid to give out AAA during 2008-2009