Moody’s Investors Services have retained the Cayman Islands government’s Aa3 rating in their latest Global Sovereign Report, citing the jurisdiction’s ability to rebound from the devastation of September 2004’s hurricane Ivan as demonstrating economic resilience “that underpins the government’s Aa3 rating” (which is the second highest in the Caribbean after Bermuda). Never-the-less, the rating agency’s credit analysis of the jurisdiction points to some crucial issues which need to be monitored. Business Editor Lindsey Turnbull reports.
Good credit ratings have historically been proven beneficial to any government seeking market access for funding. The implication is that the lower the credit rating the more difficult it would be to attract investors in a country and the higher the interest rate needed to attract funding.
The recently released Moody’s Credit Analysis for the Cayman Islands, as at June 2009, places Cayman’s government foreign currency bond rating, its country ceiling and bank deposit ceiling all at Aa3, and its local currency country and bank ceilings at Aaa and Aa3 respectively. All of the above basically means that Cayman’s credit ratings have not changed and remain stable.In its credit analysis of the Cayman Islands, Moody’s state that the stable rating is a reflection of the jurisdiction’s ability to keep its macro-economic fundamentals solid despite further indebtedness associated with what it notes is an “ambitious capital expenditure programme over the next few years.”
The analysis also highlights the factors that prevent upward movement in the rating for Cayman, including its “vulnerability to hurricanes, limited fiscal flexibility given a narrow revenue base that excludes direct taxation, and dependence on exogenous sources of growth.”
The report also warned that Moody’s is closely monitoring “significant negative structural changes in the Cayman Islands’ main sources of growth, tourism and offshore financial services, coupled with steady erosion of public finances” which, they say, could result in “negative rating actions”.Reaction to the stable continuation of ratings has been positive within the industry, though tempered with caution. Eduardo D’Angelo P. Silva, Vice-Chairman of the Cayman Islands Financial Services Association states: “
The recent Moody’s report on the Cayman Islands reinforces the strength and the resilience of our economy, but also points to the significance of financial sector in maintaining the level of economic growth that Cayman has had in the last decades. Securing the competitiveness and stability of the financial industry is crucial for the long term prosperity of our country.” Former Cayman Islands Monetary Authority Chairman, Timothy Ridley offers further insight: “The report is reassuring in the short term in these financially troubled times and helps maintain Cayman’s credibility internationally.
It should be noted however that the report was prepared before the recent election and thus the numbers reviewed will not be the latest ones presented to the Legislative Assembly recently so it is important to note that the report, while confirming confidence in Cayman’s financial strength and resilience, puts down a clear marker for the future in the insightful comment: “significant negative structural changes in the Cayman Islands main sources of growth… coupled with a steady erosion of public finances could result into negative rating actions.”
These are code words that the Cayman government needs to focus on containing expenses, eliminating wasteful spending and getting the revenue earning tourism and financial services industries moving again.”