Political Risks In Cayman Islands Contained For Now

• Fitch Solutions sees limited threats to political stability in the Cayman Islands over the coming quarters as pandemic risks fade and the country's economic recovery accelerates. The successful COVID-19 vaccination rollout should help pandemic risks to fade. As of May 23 91.4% of the population were fully vaccinated and 36.0% had received a booster dose. This strong inoculation rate will positively impact the rebound in tourism activity which will help economic recovery to gain momentum. 
• Against this backdrop, the Cayman Islands' Short-Term Political Risk Index (STPRI) score was revised to 68.8 out of 100, from a previous 68.1. This primarily reflects an increase in the 'policy continuity' sub-component score from 70.0 to 75.0 (out of 100), given the lower risk that the government will face political gridlock, and the policy direction is likely to remain broadly pro-business. However, the overall increase in the STPRI score reflects moderately higher risks of public protests in the face of rising inflationary pressures.
• Consumer price inflation rose to 7.6% y-o-y in Q4 2021, and this figure is expected to rise further during H1 2022. This comes as a result of the economy’s heavy dependence on imports, which leaves it exposed to elevated global commodity prices and supply chain disruptions caused by Covid-19 lockdowns and the war in Ukraine. 
• Although price pressures are expected to ease in H2 2022 on the back of an ease of the lockdown restrictions in Shanghai, Fitch forecasts average inflation of 6.9% in 2022, up from 3.3% in 2021. This will erode household purchasing power and weigh on domestic demand, putting pressure on the government to take action to soften the impact on living standards.

(Sources: Fitch Solutions & NCBCM Research)