Credit rating agency Moody’s has welcomed Government’s progress in cutting its deficit.

Moody’s said Government had reduced its target for current expenditure cuts from 5 per cent to 3.5 per cent after it was unable to renew its cost-cutting furlough day deal with public service unions.

But it added that it was expected Government would meet the reduced target, narrowing the deficit to about $220 million, 3.8 per cent of gross domestic product, for 2015-16.

Government also increased some taxes and cut back tax concessions to increase receipts by 3.5 per cent.

Moody’s said: “The resulting drop in the fiscal deficit may exceed 1.5 per cent percentage points, making it the most significant fiscal consolidation for Bermuda in more than 20 years.”

The agency gave its views after the Ministry of Finance published its fiscal performance update for the nine months to the end of the last year.

Moody’s said: “The report showed that the Government remains on track to meet its fiscal consolidation goals, a credit positive.”

Moody’s — which rates Bermuda at A1 stable — said that the $686 million Government revenues during the first nine months of financial year 2015-16 were 5.6 per cent up on the same period the previous year.

And total expenditures, excluding debt service payments, went down 1.4 per cent year on year.

Current expenditures, 80 per cent of total spending, was 74.5 per cent during the nine-month period.

The Moody’s report said: “The government is unlikely to exceed budgeted spending for the fiscal year because authorities have proactively identified savings to offset above-budget expenditures at some government departments.

It added: “The Government’s success in reducing the budget deficit reflects its increased efforts to maintain fiscal discipline and a moderate economic rebound that took hold in 2015 following a six-year recession.”

Moody’s said the economic activity indicators suggested that the recovery from recession started last year, with GDP on an expenditure basis going up 2.5 per cent year on year during the first three quarters of financial year 2015-16.

The agency estimated that the economy expanded by 1.5 to 2 per cent under a production GDP approach over the nine-month period, up from its forecast of 0.5 per cent — with further growth anticipated into 2016.

Moody’s said that new hotels and the rebuilding of the island’s airport in the run to 2017’s Americas Cup would boost the economy.

The report added: “The latest labour statistics also suggest that the international business sector has resumed growth.

“Sustained growth in that sector, in addition to infrastructure investment, will likely help create new jobs, supporting growth in average wages in the economy and payroll tax receipts for the government.”