Moody’s Investors Service warns that despite the Cayman Islands’ foreign currency bond maintaining the Aa3 rating, it may face challenges if there is a slowdown or recession in the United States.
The leading international country economic rating agency, says that Cayman’s maintenance of its government foreign currency bond rating demonstrates the Islands’ economic resiliency.
In a March report, compiled by Moody’s Vice-President and Senior Analyst, Alessandra Alecci warned of challenges to tourism, such as a recurring slowdown expected over the next couple of years, and a recession or slowdown in the economy of the US, Cayman’s main tourism market.
In 2006, Cayman held the same Aa3 government foreign currency bond rating.
In the report on Cayman’s macroeconomic performance, Moody’s noted the devastation caused by Hurricane Ivan in 2004 and observed that it is this ability to bounce back from disaster that keeps the Islands’ at this rating – the highest in the Caribbean and second only to Bermuda.
Moody’s Bond Ratings, or risk assessments, in part determine the interest that the entity issuing the bonds must pay. Covering the 2007 performance, the report stated that economic growth has stabilized to around four percent over the previous two years after posting a phenomenal rate of 6.5 percent in 2005 during the hurricane reconstruction period.
It added that while there are signs of deceleration in the construction sector, growth drivers - tourism and financial services - that comprise around 70 per cent of GDP, performed well.
“Despite the ongoing global financial crisis, the Cayman Islands continues in its role as a leader in the offshore industry, accounting for around 80 per cent of the world’s mutual fund registrations. In 2007, new mutual fund and company registrations remained in the double digits, and data for January 2008 shows the same trend continuing,” the report said.
“Tourism consolidated its quick rebound from [the] hurricane in the past two years, particularly for stay-over (as opposed to cruise) arrivals, which returned to pre-hurricane levels in 2007.”
It was further noted that compared to arrival numbers before the 11 September terrorist attack on the US, 2007s tourism numbers reflect a reduction, but there was still good news.
“Despite a decline in tourist arrivals, tourism-related inflows are posting robust growth, suggesting that tourists are spending more, even after adjusting for inflation, as the Cayman Islands increasingly attracts high-income visitors,” the report also stated.