S&P affirms Bermuda’s credit rating
Bermuda’s sovereign credit rating was affirmed at A+ by Standard & Poor’s Rating Services.
The rating is important, as it influences the interest rate the Bermuda Government — which is carrying gross debt of more than $2.2 billion — will have to pay on new borrowings.
In their commentary, Stephen Ogilvie and Paul Judson, the S&P analysts, said they expected the economy to grow, fuelled by the construction and tourism sectors.
They expect real GDP growth — after inflation is taken into account — of about 2 per cent in 2016 and 3 per cent in 2017.
This level of growth would assist the Government “in returning to fiscal balance by fiscal year 2017 or 2018”, S&P’s report stated.
Bob Richards, the Minister of Finance, has set out plans to eliminate the annual budget deficit by 2018/19, predominantly through increasing revenue.
The analysts expressed confidence in the island’s “institutional effectiveness” and added: “The territory’s policymaking is largely effective, predictable, and proactive; and its political institutions stable.
“We believe Bermuda has the ability and willingness to implement reforms to ensure the long-term sustainability of public finances.”
S&P also affirmed its A-1 short-term rating on Bermuda with a stable outlook.
It lowered its transfer and convertibility assessment on Bermuda to AA+ from AAA, but added that this had no impact on the sovereign credit rating.
“The ratings reflect Bermuda’s status as a net external creditor, its moderate and improving fiscal deficits and low debt burden, effective and predictable policy-making, high GDP per capita, and lack of monetary flexibility,” the S&P commentary stated.
“According to our estimates, real GDP increased about 0.4 per cent in 2015 and nominal GDP 3.5 per cent, the highest annual nominal growth rate since 2008. The return of positive real GDP growth ends six years of consecutive annual declines: from 2008 to 2014, real GDP declined 19 per cent and nominal GDP 8 per cent.
“Nevertheless, until a positive trend is established, our view that economic trend growth is below-average still tempers our assessment.”
A year ago, S&P downgraded the island’s long-term issuer credit rating from AA- to A+.
In its commentary, S&P said government was making progress with improving the fiscal situation, citing a 3 per cent reduction in general government (GG) spending in the past fiscal year, as well as an increase in payroll tax and a broadening of the tax base with the introduction of a general services tax.
“The government target is to increase revenues by $150 million in the 2016-2018 fiscal period,” S&P stated.
“Despite these measures, we still view the government’s ability to raise GG revenue is limited by both pressure from competing jurisdictions and domestic political preferences and the need to retain and attract employers and jobs.”
S&P was not unduly concerned by the scale of Bermuda’s national debt, stating: “Gross GG debt stood at 40 per cent of GDP at the end of fiscal 2015, a level we consider low.”
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