ESO reveals BOP deficit rise
(CNS): The country’s balance of payment deficit has increased, according to the latest statistics from the Economics and Statistics Office (ESO), despite a fall in imports. The overall current account balance of the country was CI$422 million at the end of 2009, the first calculated using a full national survey. The BOP had decreased by $9.3 million over the 2008 figure, which was calculated using secondary data. Although imports fell to $640 million from the previous year’s high of $771million, receipts from services were also down from just over $633 million in 2008 to less than $458 million, leading to the increased deficit.
As the ESO begins its campaign to encourage local business to take part in the survey for 2010, the office revealed the results from the 2009 BOP, which was based on data collected from the first ever full business survey. The office explained that calculating an accurate BOP is not just an important part of complying with the country’s Public Management and Finance Law but that it is also a key indicator for evaluating the potential and actual macro-economic impact and sustainability of monetary and fiscal policies.
“The overall BOP has a direct bearing on the changes in foreign currency reserve balances of the Cayman Islands currency board system, which is mandated by law to support the fixed exchange rate system currently in effect,” the ESO said in the report.
A negative balance of payments implies a decline in currency reserves, which could undermine the fixed exchange rate, hence the need for banks and governments to produce and monitor BOP statistics as a pro-active instrument for monitoring the sustainability of their exchange rate system. ESO also noted that it was justas important for the private sector, other analysts and regular people to monitor the statistics as unsustainable balances impact on everyone’s well-being.
Cayman’s BOP is made up by examining figures from four areas: firstly, the balance of trade in goods, which was -$640.5 million; secondly, the balance of trade in services, which was $457.9 million; then the balance of income transactions, which was -$57.0 million; and finally the balance of current transfers, which was -$182.5 million.
The ESO said the trade in services, which includes the financial sector and the tourism industry, was the only account in surplus for the country, demonstrating the importance of services to Cayman’s economy.
The ESO pointed out that Cayman’s BOP deficit is not unexpected as the economy is highly dependent on imports for consumption, intermediate goods, fuel and capital goods. However, aside from the significant amounts Caymanians spent on imported goods, the BOP reveals that people here also paid out some $681.9 million on direct investment, which comprised the largest net payments by residents to non-residents, even larger than net payments for merchandise goods.
Money was also flowing out of the country from workers, who sent some $181.1 milllion of their wages overseas, though that was less than in 2009. However, money Caymanians received from people working overseas also fell by $2.5 million to $62.4 million.
Download the Balance of Payments report below or visit the ESO website
Category: Headline News
The persistent balance of payments deficit, academically interesting as it may be, has nothing to do with the fixedexchange rate (CI$=US$1.20) and the currency reserves. The amount of Cayman dollars in circulation (around CI$85 million) is insignificant and unrelated to the flows (almost all in US$) set out in the report. Likewise the currency reserves of around CI$95 million.
It is therefore misleading of the ESO to suggest that the balance of payments deficit puts the currency system and the reserves under pressure. There are indeed reasons to be concerned about the deficit. The impact on the CI$ is not one of them.
Caymanians working abroad sending home $62.4 million?
I find that hard to believe. However, if true, Mac will find a way to tax it.
Is that an increased deficit or a decreased surplus or a decreased deficit?
Either way I am sure it must be very important.
***** “More nonsense has been written about the balance of payments than virtually any other aspect of economics… worries about the national balances of payment are the fallacious residue of the accident that statistics of exchange are far more available across national boundaries than elsewhere.” – Murray Rothbard, a Doctor in Economics from Columbia University.
No wonder why the ESO is finding it so hard from certain businesses to play along with their PMFL’ uk requirements. The balance of payments’ record is insignificant, worthless statistics under “monetary and fiscal policies” that are hurting the economy. The best policy has always and will always be free and unhindered trade in goods and services! Trade restrictions and barriers set by a government so uptight with a PMFL system, and always playing Mr. fix-it with the exchange rate, will do both sides no good!
Thanks CNS… this demonstrates the waste of time and energy from the economics sector!
Wow that’s great!!! Or is it bad?
Has anyone noticed that when the cost of work permits risen, the rollover to name a few, the Island has changed and not for the best. Does the government not realize what they have done. You have increased the work permits to a point that people cannot afford to do business here, the rollover, stops people from investing their money, why don’t you listen to the businesses because quite obviously you aren’t!!!! Double, triple the cost of work permits…its ridiculous. Promises from McKeeva "I am going to cut the rollover time", you don’t hear anymore about that!!!! Don’t you think it is a hardship when you lose an employee after seven years…and don’t start with the hire a Caymanian…they don’t want to do the work…they are unskilled and want the high paying jobs…..
Why are things the screwed up way they are in Cayman? Why are they in debt when there is so much money coming in and they don’t have to spend anything to get it? Why is it so hard to get anything done on time and on budget on this island? Why does the current leadership demand that everyone follow him only on his journey to find anything that he cannot fail at? If you have to ask then your from here. Things will only change when the people themselves change or so totally run out of money that they can no longer afford to borrow more money. Soon come.
***** The term limit policy makes it difficult for the employment sector to recruit and retain experienced staff. Even Cayman Finance Chairman Anthony Travers made the following statement, “A financial services business is based in equal part on relationships with clients and on the quality of the professional service. The rollover policy was forcing out high level employees and that unfortunately also removed these essential elements of the Cayman financial experience.” See caymanfinances.com, article dated the 19-Feb-10. The rollover policy is slowly draining the professionalism and expertise from our business community.
You are absolutely right there. Rollover simply destroys extremely valuable human capital and reduces Cayman’s financial industry to a short term rent a professional like some of its competitors.