Ratings downgrade shows Island is ‘drifting towards the rocks’, warns Richards
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Shadow Finance Minister Bob Richards has said that Bermuda’s sovereign credit rating downgrade was inevitable given the deteriorating fiscal state of Government.
Bermuda’s foreign-currency long-term sovereign credit rating was lowered by Standard & Poor’s Ratings Services (S&P) as reported in The Royal Gazette yesterday
The ratings agency on Wednesday cut Bermuda’s local and foreign currency long-term sovereign credit ratings to ‘AA-’ from AA and affirmed its short-term ratings at ‘A-1+’ with a stable outlook.
Mr Richards had previously said in response to the Throne Speech last month that the risks of a rating downgrade had significantly increased since last year.
“No amount of Government spin doctoring can change the fact that this was fairly inevitable in view of the deteriorating fiscal conditions of the Government,” he said.
“A downgrade is a downgrade.”
He also labelled Premier and Finance Minister Paula Cox’s reference to S&P’s downgrade of the US effectively creating a “new normal” for sovereign ratings as a “vain attempt” to gloss over the meaning of the downgrade.
“The S&P downgrade of the United States resulted in lower borrowing costs for that government,” he said. “In other words, the markets rejected S&P’s downgrade. It will be interesting to see whether that happens to Bermuda.
“We think it very unlikely; indeed, we believe it is highly likely that our future borrowing costs on the Government’s debt will increase because of this downgrade.”
Mr Richards raised further concerns over the issue of the Island’s mounting public debt which he claimed had risen by about $1 million for each business day of the year.
“The interest payments on our debt are already costing us about $200,000 a day,” he said. “The ‘we’re alright Jack’ attitude of this Government towards public debt is a big difference between the PLP and the OBA.”
He said that the severity of the situation was highlighted by the fact that this was the first time Bermuda’s rating has been changed since receiving its AA rating in the early 1990s.
“For the Government to blow it off as the ‘new normal’ says they still don’t get it,” he said. “All Bermuda should be concerned about that.
“We are drifting toward the rocks and need to change course. Bermuda needs steadier hands on the wheel.”
A spokesman from the Ministry of Finance said that Government remained committed to fiscal consolidation to bolster business confidence and continued legislative action in order to support economic growth.
“There are a number of initiatives in progress as outlined in the Pre-Budget Report to increase budget transparency to ensure Bermuda meets international standards in this area,” he said.
“Additionally, the Government plans to begin releasing quarterly GDP statistics next year; this will bring us into line with other similarly rated jurisdictions. It is not anticipated that this ratings revision by Standard & Poor’s will have any material effect on the Government’s ability to finance future capital expenditure.”
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Published Dec 31, 2011 at 6:34 am (Updated Dec 31, 2011 at 6:31 am)