Bermuda has retained its A (high) sovereign credit rating with a stable outlook from Morningstar DBRS off steady economic growth and improving public finances, despite more external risks.

The ratings agency said the stability shows that risks to the island’s credit profile are broadly balanced, with solid fiscal performance expected through 2026 even as global conditions stay uncertain.

Bermuda’s economy is estimated to have expanded by between 2.5 per cent and 3 per cent in 2025, driven largely by the international business sector, with more modest gains in tourism. That growth, combined with restrained government spending, has helped to strengthen the public balance sheet.

The Government is projected to record a budget surplus of about 1.6 per cent of GDP for the 2025-26 fiscal year, with further surpluses expected in the coming years. Public debt is forecast to decline greatly, falling from about 35 per cent of GDP to below 25 per cent by 2028-29.

Morningstar DBRS said the introduction of corporate income tax was a key factor in the improved fiscal outlook. The levy, expected to generate about $753 million in its first full year, is being channelled towards debt reduction and reserves under a structured fiscal framework.

The agency described Bermuda’s track record of prudent fiscal management as a core credit strength, noting that successive governments have kept their discipline while navigating economic shocks.

However, it cautioned that government revenues are becoming more and more concentrated in high-income earners in the international business sector, leaving public finances exposed to any downturn in that industry.

“The risks to the credit ratings are balanced,” the agency said, pointing to the economy’s reliance on a narrow base of activity.

International business is still the dominant driver of growth, accounting for roughly 29 per cent of GDP, but that also represents a vulnerability, since Bermuda’s small size and limited diversification weigh on its long-term credit profile.

Morningstar DBRS also warned about external risks, including a rise in global energy prices linked to tensions in the Middle East, could push up inflation and lessen tourism demand, both of which would weigh on growth.

Structural challenges, including an ageing and shrinking population and skilled workers leaving the island, could also place pressure on public finances over time, particularly in areas like healthcare and pensions.

At the same time, the agency said Bermuda’s strong institutional framework, stable political environment and high per capita income support it as a leading international financial centre. In addition, regulatory strength and market expertise can help offset the risk that the jurisdiction will become less competitive due to the new corporate income tax.

Looking ahead, Morningstar DBRS said an upgrade would depend on more reductions in public debt or meaningful progress in diversifying the economy. Conversely, a deterioration in fiscal performance or a shock to the international business sector could put downward pressure on the ratings.