Economy of the British Virgin Islands

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Economy of British Virgin Islands

Road Town, Tortola

Currency U.S. dollar (USD)

Fiscal year 1 Apr - 31 Mar

Trade CARICOM (Associate
organisations
member)

Statistics

GDP $1.027 billion (2017 est.)

[1]

GDP rank 177th (nominal) / 190th (P

PP)

GDP growth 3.2% (2017 est.)[1]

GDP per capita $34,246 (2017 est.)[1]

GDP by sector agriculture: 1.8%,

industry: 6.2%, services:

92% (2005 est.)

Inflation (CPI) 0.85% (2015 est.)[1]

Population NA% (2004)
below poverty line

Labour force 12,770 (2004)

Labour force by agriculture: 0.6%,

occupation
industry: 40%, services:

59.4% (2005 est.)

Unemployment 8.7% (2010 est.)

Main industries tourism, financial services

External

Exports $38.5 million (2011 est.)

Export goods rum, fresh fish, fruits,

animals; gravel, sand

Main export United States Virgin

partners
Islands, Puerto Rico, US

(2004)

Imports $275.1 million (2011 est.)

Import goods building materials,

automobiles, foodstuffs,

machinery

Main import United States Virgin

partners
Islands, Puerto Rico, US

(2004)

Public finances

Public debt $173.3 million (2017 est.)

[1]

Revenues $310,470,000 (2016 est.)[1]

 Expenses $288,640,000 (2016 est.)[1]

Economic aid recipient: $NA (2004)

Main data source: CIA World Fact Book

All values, unless otherwise stated, are in US
dollars.

The economy of the British Virgin Islands is one of the most prosperous in

the Caribbean. Although tiny in absolute terms, because of the very small population of
the British Virgin Islands, in 2010 the Territory had the 19th highest GDP per capita in
the world according to the CIA World factbook.[2] In global terms the size of the
Territory's GDP measured in terms of purchasing power is ranked as 215th out of a total
of 229 countries.[3] The economy of the Territory is based upon the "twin pillars"
of financial services, which generates approximately 60% of government revenues,
[4]
 and tourism, which generates nearly all of the rest.
Historically the British Virgin Islands has normally produced a Government budget
surplus, but during the financial crisis of 2007–2008 the Territory began to run at a
deficit, which continued after the global recession receded. In 2011 the Territory had its
largest ever budget deficit, of US$29 million (approximately 2.6% of GDP). [5] By 2012
public debt had quadrupled from pre-crisis levels to approximately US$113 million
(approximately 10.3% of GDP).[6] Nearly 84% of that public debt was attributable to
a new public hospital built in Road Town between 2003 and 2014.[7] The
Economist argued that deteriorating economic conditions in the British Virgin Islands
were caused "not [by] sagging revenues but public-sector profligacy". [8] By 2014 public
debt had been reduced to US$106 million and the annual deficit reduced to US$25
million (including budgeted capital expenditure). [9]
By 2016, the Government had returned to a primary budget surplus,[10] but public debt
had increased to approximately US$141 million [11] and debt service accounted for over
US$12 million of the primary surplus. However, because of an ongoing aggressive
capital investment programme, and budget overruns on key public projects, [12] the
Government ran dangerously low on available cash. Cash in the consolidated fund fell
below US$7 million (with average monthly expenditure at nearly US$30 million), and
Government accrued over US$13 million in due but unpaid invoices. [13]

Contents

 1Business environment
 22017 Government Budget
 3Tourism
 4Financial services
o 4.1History of financial services
 5Agriculture
 6Dollarisation
 7Footnotes
 8See also

Business environment[edit]
In 2015, British Virgin Islands has been assessed as the 34th in terms of global financial
centres.[14] This was the highest ranking of any offshore financial centre, and of any Latin
American country. The Territory scored strongly in areas such as local taxation, rule of
law, regulatory environment and quality of law for human resources. It scored less
highly on infrastructure, access to capital and access to labour. The G-20 considers it
a tax haven[15] and its banking system is described as 'opaque'.[16]

2017 Government Budget[edit]

The most recent national budget to be delivered was the 2017 budget (the Territory's
fiscal year runs from 1 April to 31 March). [1] That budget presented a picture of declining
revenues and increasing costs. It was also delivered prior to the devastating effects
of Hurricane Irma later in the year, which is likely to have a deleterious effect on the
economy and on Government revenues.[17]
The 2017 budget predicted that 2016 final revenue figures of $310,470,000 which was a
decrease of 6.2% from the year before. It also predicted recurrent expenditure for 2016
at $288,640,000 which was an increase of 3.6% on the preceding year. That would
mean a primary budget surplus of $21,830,000 which would be a decrease of 56.6%
from the preceding year.[1]
In addition there was an estimated $21,000,000 of capital expenditure in 2016 (down
38.3% from the previous year), and debt service of $20,200,000 leaving a primary
deficit of $19,370,000. In 2017, after accounting for transfers to reserves, there is
budgeted to be a structural deficit of $31,674,000. This was to be financed by new
borrowing and transfers from the consolidated fund. [1]
The Government's total borrowings were $106.5 million, but the Government has also
underwritten significant loans made to the BVI Electricity Corporation and the BVI Ports
Authority, meaning that the Government's total loan exposure is $178.3 million. [1]
Much of the Government's increased expenditure arose from staffing costs. Staffing
consumes 37.7% of Government expenditure, and increased in 2016 by 10.2% from the
year before. The budget calls for it to increase again, but only by 2.6% in 2017. [1]
The bulk of Government revenues (60%) comes from taxes on goods and services. The
next largest segment is payroll taxes, which account for a further 16%. Property taxes
account for less than 1% of revenue.[1]

Tourism[edit]
In 2015, a total of 922,372 people visited the islands (of whom 529,354 were cruise ship
passengers and 393,018 were overnight visitors), mainly from the United States. [1] The
bulk of the tourism income in the British Virgin Islands is generated by
the yacht chartering industry. The Territory has relatively few large hotels compared to
other tourism centres in the Caribbean. The British Virgin Islands also entertain cruise
ships, although these generate relatively little revenue. However, cruise ship
passengers are an important source of revenue for taxi drivers, who represent a
politically important voice in the Territory.
Between 2007 and 2011, tourist visitors to be the British Virgin Islands declined by
approximately 12.4%, largely due to the global recession which particularly affected
North America, a key source of visitors for the Territory. [5] However, by November 2013
tourist numbers had begun to recover.[18]
According to the World Travel and Tourism Council:[19]

 In 2013, the direct contribution of travel and tourism to the Territory's GDP was

US$274 million (accounting for 27.0% of total GDP), and was forecast to rise by
2.8% in 2014, and to rise by 2.7% per annum for the period 2014–2024.
 The total contribution of travel and tourism to GDP was US$780.8 million (76.9% of
GDP) in 2013, and is forecast to rise by 3.2% in 2014, and to rise by 2.6% per
annum for the period 2014–2024.
 In 2013, travel and tourism directly supported 3,300 jobs in the Territory (33.2% of
total employment). This was expected to remain unchanged in 2014 and fall by
0.3% per annum to 3,000 jobs (29.6% of total employment) by 2024.
 The total contribution to employment in 2013 (which includes jobs indirectly
supported by the industry), was 90.1% of total employment (8,850 jobs). This was
expected to rise by 1.9% in 2014 to 9,050 jobs, but fall by 0.2% per annum to 9,000
jobs in 2024 (80.9% of total).
 Travel and tourism investment in 2013 was US$35.8 million, or 14.8% of total
investment. This was expected to rise by 10.1% in 2014, and rise by 2.0% per
annum over the next ten years to a total of US$48.2 million in 2024.
However, these statistics include travel as well as tourism, and so non-tourist related
travel (i.e. travel relating to domestic consumption and other industries and services)
are included and inflate the figures.

Financial services[edit]
In the mid-1980s, the government began offering offshore registration to companies
wishing to incorporate in the islands, and incorporation fees now generate an estimated
51.4% of Government revenues. As of 2019, it costs $450 to form a company with fewer
than 50,000 shares and another $450 a year to maintain registration. [20]
According to official statistics 447,801 BVI companies were 'active' (i.e. incorporated
and not yet struck-off, liquidated or dissolved) as at 30 June 2012. [21] There are no recent
official statistics on total numbers of incorporations (including struck, liquidated and
dissolved companies) but these are estimated at approximately 950,000. Many of these
companies were originally formed under the International Business Companies Act,
1984, but have now been consolidated into the BVI Business Companies Act, 2004.
In 2000, KPMG were commissioned by the British Government to produce a report on
the offshore financial industry generally, and the report indicated that nearly 45% of the
offshore companies in the world were formed in the British Virgin Islands. [22] The British
Virgin Islands is now one of the world's leading offshore financial centres, and boasts
one of the highest incomes per capita in the Caribbean.
In addition to basic company incorporations, the British Virgin Islands also forms limited
partnerships and trusts (including signature "VISTA" trusts) but these have not proved
to be as popular as companies.
On 12 April 2007, the Financial Times reported that the British Virgin Islands was the
second largest source of foreign direct investment in the world (behind Hong Kong) with
over US$123,000,000,000.[23] Almost all of these sums are directly attributable to
investment through the Territory's offshore finance industry.
The British Virgin Islands also promotes a number of regulated financial services
products. The most important of these is the formation and regulation of offshore
investment funds. The Territory is also the second largest domicile for formation of
offshore investment funds (behind the Cayman Islands) with 2,422 licensed open-ended
funds as at 30 June 2012[21] (there is no official statistics for closed-ended funds which
are not regulated in the British Virgin Islands).
The British Virgin Islands also operates as a domicile for captive insurance services, but
a prolonged period of overzealous Government regulation combined with the
Government's increasing pressure to hire only locals ("belongers") in the insurance
industry decimated the industry. Official reports from the Financial Services Commission
reflect as of 30 June 2012 only 161 captives remain registered in the jurisdiction. [21]
History of financial services[edit]
Former president of the BVI's Financial Services Commission, Michael Riegels, recites
the anecdote that the offshore finance industry commenced on an unknown date in the
1970s when a lawyer from a firm in New York telephoned him with a proposal to
incorporate a company in the British Virgin Islands to take advantage of a double
taxation relief treaty with the United States.[24] Within the space of a few years, hundreds
of such companies had been incorporated. [25]
This eventually came to the attention of the United States government, who unilaterally
revoked the Treaty in 1981.[26]
In 1984, the British Virgin Islands, trying to recapture some of the lost offshore business,
enacted a new form of companies legislation, the International Business Companies
Act, under which an offshore company which was exempt from local taxes could be
formed. The development was only a limited success until 1991, when the United States
invaded Panama to oust General Manuel Noriega. At the time Panama was one of the
largest providers of offshore financial services in the world, but the business fled
subsequent the invasion, and the British Virgin Islands was one of the main
beneficiaries.

Agriculture[edit]
Livestock raising is the most important agricultural activity; poor soils limit the islands'
ability to meet domestic food requirements. Fewer than 0.6% are estimated to work in
agriculture.[27] Despite its tiny economic impact, agriculture has its own dedicated
Government minister (unlike financial services).

Dollarisation[edit]
Further information: Dollarisation
Because of traditionally close links with the U.S. Virgin Islands, the British Virgin Islands
has used the US dollar as its currency since 1959. [28]