Economy of the Cayman Islands
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Economy of Cayman Islands
Currency Cayman Islands dollar (KYD)
Fixed exchange rates 1.00 KYD = 1.20 USD
Fiscal year 1 April – 31 March
Statistics
Population 78,554[1]
GDP $5.936 billion (2021 est., nominal)
$2.507 billion (2021, PPP)[2]
GDP rank 161st (nominal)
191st (PPP)
GDP growth 3.3% (2021)[2]
GDP per capita $91,392 (2021)[2]
GDP by sector agriculture: 0.3%
industry: 28.2%
services: 71.5% (2014)
Inflation (CPI) 1% (2014)
Population below poverty line 3.7% [3]
Gini coefficient 0.3995 (2010)[4]
Human Development Index 0.888 (2013)[5]
Labour force 54,398 (2021)[6]
Labour force by occupation agriculture: 1.9%
industry: 19.1%
services: 79% (2008 est.)
Unemployment 5.7% (2021)[6]
External
Exports $15.2 million (2014 est.)
Export goods turtle products, manufactured consumer goods
Imports $705.3 million (2014 est.)
Import goods foodstuffs, manufactured goods, fuels
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.
The economy of the Cayman Islands, a British overseas territory located in the
western Caribbean Sea, is mainly fueled by the tourism sector and by the financial
services sector, together representing 50–60 percent of the country's gross domestic
product (GDP).[7] The Cayman Islands Investment Bureau, a government agency, has
been established with the mandate of promoting investment and economic development
in the territory. Because of the territory’s economic success and it being a popular
banking destination for wealthy individuals and businesses, it is often dubbed the
‘financial capital’ of the Caribbean.[8]
The emergence of what are now considered the Cayman Islands' "twin pillars of
economic development" (tourism and international finance) started in the 1950s with the
introduction of modern transportation and telecommunications.[7]
Contents
1History
2International finance
o 2.1Financial services industry
2.1.1Foreign Account Tax Compliance Act
2.1.2Sanctions and Anti-Money Laundering Act
3Tourism
4Diversification
5Standard of living
6References
7See also
History[edit]
From the earliest settlement of the Cayman Islands, economic activity was hindered by
isolation and a limited natural resource base. The harvesting of sea turtles to resupply
passing sailing ships was the first major economic activity on the islands, but local
stocks were depleted by the 1790s. Agriculture, while sufficient to support the small
early settler population, has always been limited by the scarcity of arable
land. Fishing, shipbuilding, and cotton production boosted the economy during the early
days of settlement. In addition, settlers scavenged shipwreck remains from the
surrounding coral reefs.
The boom in the Cayman Islands' international finance industry can also be at least
partly attributed to the British overseas territory having no direct taxation. A popular
legend attributes the tax-free status to the heroic acts of the inhabitants during a
maritime tragedy in 1794, often referred to as "Wreck of the Ten Sails". [9] The wreck
involved nine British merchant vessels and their naval escort, the frigate HMS Convert,
that ran aground on the reefs off Grand Cayman. Due to the rescue efforts by the
Caymanians using canoes, the loss of life was limited to eight. [10] However, records from
the colonial era indicate that Cayman Islands, then a dependency of Jamaica, was not
tax-exempt during the period that followed. In 1803, the inhabitants signed a petition
addressed to the Jamaican governor asking him to grant them a tax exemption from the
"Transient Tax on Wreck Goods".[11]
Sir Vassel Johnson, who became the only Caymanian ever knighted, was a pioneer of
Cayman's financial services industry. Cayman Islands Past Governor Stuart Jack said
'As one of the architects of modern Cayman, especially the financial industry, Sir Vassel
guided the steady growth of these Islands as the first financial secretary. His remarkable
vision set the foundation for the prosperity and economic stability of these islands.
Without his input, Cayman might well have remained the islands that time forgot.' [12]
International finance[edit]
The Cayman Islands' tax-free status has attracted numerous banks and other
companies to its shores. More than 92,000 companies were registered in the Cayman
Islands as of 2014,[13] including almost 600 banks and trust companies, with banking
assets exceeding $500 billion. Numerous large corporations are based in the Cayman
Islands, including, for example, Semiconductor Manufacturing International
Corporation (SMIC). The Cayman Islands Stock Exchange was opened in 1997.
Financial services industry[edit]
Butterfield Bank in George Town
The Cayman Islands is a major international financial centre. The largest sectors are
"banking, hedge fund formation and investment, structured finance and
securitisation, captive insurance, and general corporate activities".[14] Regulation and
supervision of the financial services industry is the responsibility of the Cayman Islands
Monetary Authority (CIMA). Sir Vassel Johnson was a pioneer of Cayman's financial
services industry.
Sir Vassel, who became the only Caymanian ever knighted in 1994, served as the
Cayman Islands financial secretary from 1965 through 1982 and then as an Executive
Council member from 1984 through 1988. In his government roles, Sir Vassel was a
driving force in shaping the Cayman Islands financial services industry. [15]
The Cayman Islands is the fifth-largest banking centre in the world, [16] with $1.5 trillion in
banking liabilities as of June 2007.[14] In March 2017 there were 158 banks, 11 of which
were licensed to conduct banking activities with domestic (Cayman-based) and
international clients, and the remaining 147 were licensed to operate on an international
basis with only limited domestic activity. [17] Financial services generated KYD$1.2 billion
of GDP in 2007 (55% of the total economy), 36% of all employment and 40% of all
government revenue. In 2010, the country ranked fifth internationally in terms of value of
liabilities booked and sixth in terms of assets booked. It has branches of 40 of the
world's 50 largest banks. The Cayman Islands is the second largest captive
domicile (Bermuda is largest) in the world with more than 700 captives, writing more
than US$7.7 billion of premiums and with US$36.8 billion of assets under management.
[18]
There are a number of service providers. These include global financial institutions
including HSBC, Deutsche Bank, UBS, and Goldman Sachs; over 80 administrators,
leading accountancy practices (incl. the Big Four auditors), and offshore law practices
including Maples & Calder.[19] They also include wealth management such
as Rothschilds private banking and financial advice. [20]
Since the introduction of the Mutual Funds Law in 1993, which has been copied by
jurisdictions around the world, the Cayman Islands has grown to be the world's leading
offshore hedge fund jurisdiction.[19] In June 2008, it passed 10,000 hedge fund
registrations, and over the year ending June 2008 CIMA reported a net growth rate of
12% for hedge funds.[21]
Starting in the mid-late 1990s, offshore financial centres, such as the Cayman Islands,
came under increasing pressure from the OECD for their allegedly harmful tax regimes,
where the OECD wished to prevent low-tax regimes from having an advantage in the
global marketplace. The OECD threatened to place the Cayman Islands and
other financial centres on a "black list" and impose sanctions against them. [22] However,
the Cayman Islands successfully avoided being placed on the OECD black list in 2000
by committing to regulatory reform to improve transparency and begin information
exchange with OECD member countries about their citizens. [22]
In 2004, under pressure from the UK, the Cayman Islands agreed in principle to
implement the European Union Savings Directive (EUSD), but only after securing some
important benefits for the financial services industry in the Cayman Islands. As the
Cayman Islands is not subject to EU laws, the implementation of the EUSD is by way of
bilateral agreements between each EU member state and the Cayman Islands. The
government of the Cayman Islands agreed on a model agreement, which set out how
the EUSD would be implemented with the Cayman Islands. [23]
A report published by the International Monetary Fund (IMF), in March 2005, assessing
supervision and regulation in the Cayman Islands' banking, insurance and securities
industries, as well as its money laundering regime, recognised the jurisdiction's
comprehensive regulatory and compliance frameworks. "An extensive program of
legislative, rule and guideline development has introduced an increasingly effective
system of regulation, both formalizing earlier practices and introducing enhanced
procedures", noted IMF assessors. The report further stated that "the supervisory
system benefits from a well-developed banking infrastructure with an internationally
experienced and qualified workforce as well as experienced lawyers, accountants and
auditors", adding that, "the overall compliance culture within Cayman is very strong,
including the compliance culture related to AML (anti-money laundering) obligations". [24][25]
On 4 May 2009, the United States President, Barack Obama, declared his intentions to
curb the use of financial centres by multinational corporations. In his speech, he singled
out the Cayman Islands as a tax shelter.[26] The next day, the Cayman Island Financial
Services Association submitted an open letter to the president detailing the Cayman
Islands' role in international finance and its value to the US financial system. [27]
The Cayman Islands was ranked as the world's second most significant tax haven on
the Tax Justice Network's "Financial Secrecy Index" from 2011, scoring slightly higher
than Luxembourg and falling behind only Switzerland.[28] In 2013, the Cayman Islands
was ranked by the Financial Secrecy Index as the fourth safest tax haven in the world,
behind Hong Kong but ahead of Singapore. In the first conviction of a non-Swiss
financial institution for US tax evasion conspiracy, two Cayman Islands financial
institutions pleaded guilty in Manhattan Federal Court in 2016 to conspiring to hide more
than $130 million in Cayman Islands bank accounts. The companies admitted to helping
US clients hide assets in offshore accounts, and agreed to produce account files of non-
compliant US taxpayers.[29]
Foreign Account Tax Compliance Act[edit]
On 30 June 2014, the tax jurisdiction of the Cayman Islands was deemed to have an
inter-governmental agreement (IGA) with the United States of America with respect to
the "Foreign Account Tax Compliance Act" of the United States of America.[30]
The Model 1 Agreement recognizes:[30]
The Tax Information Exchange Agreement (TIEA) between the United States of
America and The Cayman Islands which was signed in London, United Kingdom on
29 November 2013. Page 1 – Clause 2 of the FATCA Agreement. [30]
The Government of Great Britain and Northern Ireland provided a copy of the Letter
of Entrustment which was sent to the Government of the Cayman Islands, to the
Government of the United States of America "via diplomatic note of October 16,
2013".
The Letter of Entrustment dated 20 October 2013, The Govt of Great Britain and
Northern Ireland, authorized the Govt of the Cayman Islands to sign an agreement
on information exchange to facilitate the Implementation of the Foreign Account Tax
Compliance Act – Page 1 – Clause 10. [30]
On 26 March 2017, the US Treasury site disclosed that the Model 1 agreement and
related agreement were "In Force" on 1 July 2014.
Sanctions and Anti-Money Laundering Act[edit]
Under the UK Sanctions and Anti-Money Laundering Act of 2018, beneficial ownership
of companies in British overseas territories such as the Cayman Islands must be
publicly registered for disclosure by 31 December 2020. [31] The Government of the
Cayman Islands plans to challenge this law, arguing that it violates the Constitutional
sovereignty granted to the islands.[31] The British National Crime Agency said in
September 2018 that the authorities in the Cayman Islands were not supplying
information about the beneficial ownership of firms registered in the Cayman Islands. [32]
Tourism[edit]
Tourism is also a mainstay, accounting for about 70% of GDP and 75% of foreign
currency earnings.[33] The tourist industry is aimed at the luxury market and caters mainly
to visitors from North America. Unspoiled beaches, duty-free shopping, scuba diving,
and deep-sea fishing draw almost a million visitors to the islands each year. Due to the
well-developed tourist industry, many citizens work in service jobs in that sector.
Diversification[edit]
The Cayman Islands is seeking to diversify beyond its two traditional industries, and
invest in health care and technology. Health City Cayman Islands, opened in 2014, is a
medical tourism hospital in East End, led by surgeon Devi Shetty. Cayman Enterprise
City is a special economic zone that was opened in 2011 for technology, finance, and
education investment. Cayman Sea Salt (producing gourmet sea salt) and Cayman
Logwood products are now made in the Cayman Islands.
Standard of living[edit]
Because the islands cannot produce enough goods to support the population, about
90% of their food and consumer goods must be imported. In addition, the islands have
few natural fresh water resources. Desalination of sea water is used to solve this.
Despite those challenges, the Caymanians enjoy one of the highest outputs per capita
and one of the highest standards of living in the world.
Education is compulsory to the age of 16 and is free to all Caymanian children. Most
schools follow the British educational system. Ten primary, one special education and
two highs schools ('junior high and senior high') are operated by the government, along
with eight private high schools. In addition, there is a law school, a university-college
and a medical school.
Poverty relief is provided by the Needs Assessment Unit, a government agency
established by the Poor Persons (Relief) Law in January 1964.
