Bermuda’s credit rating took a hit yesterday after analysts lowered the Island’s ratings.

Ratings agency Standard & Poors (S&P) reduced Bermuda’s long term issuer credit and senior unsecured debt ratings to A+ from AA-, and said continued weak economic performance, persistent Government deficits and increased debt burden were to blame.

The short term rating of Bermuda also decreased — from A-1+ to A-1 and S&P predicted that weakness in the economy and public finances would continue through its two year outlook window.

But the outlook of “stable” is up from the “negative” view previously expressed by the ratings agency.

S&P’s report said: “Bermuda’s six-year recession has resulted in declining revenues which has led in turn to fiscal deficits of five per cent of GDP in fiscal years 2013 and 2014.

“The debt financing of deficits will increase gross interest costs to more than 11 per cent of Government revenues for fiscal years 2015-17.”

The report, however, added: “The stable outlook reflects our expectations that positive economic growth will return in the next two years, fiscal deficits will get smaller as revenue growth returns and Government debt will stabilise at slightly more than ten per cent of projected GDP.”

And it said: “The Ministry of Finance believes that the contraction in real GDP could be as much as 1.5 per cent in 2014. Real GDP fell 18 per cent by 2014 from the 2008 peak and nominal GDP declined eight per cent.

“Labour market results were also weak in 2014. Bermuda’s unemployment rate rose to nine per cent in 2014 from seven per cent in 2013, compared with eight per cent in 2012.

“Employment fell in both 2013 and 2014, as it has each year since 2009. By 2014, employment had fallen 16 per cent from its 2008 peak.

“Despite the poor economic performance of recent years, GDP per capita remains what we consider very strong, at about $88,000. We believe that real GDP growth will be flat in 2015 but increasing to about one per cent growth in 2016.”

The report added: “The current governing party and its predecessors have made some progress toward reducing expenditures in the past five years.

“However, declining revenues have undone efforts to achieve balance.”

And the report warned: “Should the economy continue to contract and Government revenues in tandem, downward pressure on the ratings could emerge.

“On the other hand, should Government measures, including holding hosting of the America’s Cup, place Bermuda back on a higher plane that resulted in a steady decline in the Government debt burden, we could consider a positive outlook revision or upgrade.”

Between 2009 and 2014, Government revenue dropped by seven per cent. The 2015 budget imposed small increases in payroll, air passenger, commercial property, corporate services and fuel taxes.

Government predicts its fiscal deficit will improve to 3.9 per cent of projected GDP in this financial year and to 2.1 per cent by 2017-18, while the annual change in Government debt should be 1.8 per cent of GDP between 2015 and 2017.

And the S&P report said the America’s Cup competition would “help increase growth in the latter years of the forecast horizon.”

It added: “However our forecasters do not incorporate a direct boost to Government net revenue from the race.”

Finance Minister Bob Richards yesterday put a brave face on the downgrade news — and said that the ratings drop was “not surprising” given problems in the economy and public sector finances.

“We are pleased, however, that S&P has attached a stable outlook to the rating,” he said.

Mr Richards added that the lower rating was still in the upper medium investment grade with a stable outlook.

“S&P continues to endorse the Government’s effective policymaking and political stability.”

And he said it was good news that S&P recognised that America’s Cup would boost the Island’s profile as an upscale tourism spot and kick-start investment in the hospitality sector.

Mr Richards added: “The Government will continue to press ahead with our two track strategy that strikes a balance between responsible growth and disciplined financial management.

“We will continue work to restore investor confidence to attract foreign dollars back to our shores, opening the Island to job and revenue-creating activities, creating new possibilities for Bermudians to make a living.

“As the Minister of Finance, I remain committed to creating an economy that works for everyone and returning our public finances to a sustainable position.”