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Moody’s further downgrades Bermuda; Outlook negative amid debt, weak economic trends

Moody's Investors Services has downgraded Bermuda's rating by another notch as it reiterated its concerns about Government's mounting debt and lack of an economic recovery.Moody's lowered Bermuda to Aa3, three notches below the top triple-A level, and said the outlook is negative, reflecting uncertainty about Government's debt trajectory over the medium term.The move ends a review for a potential cut that began April 3 when Moody’s put Bermuda on a downgrade watch. The ratings agency said then that the review was prompted by the Island’s steep rise in Government debt and its ongoing recession since the global financial crisis.That review came about a week after Standard & Poor's Ratings Services lowered its outlook on Bermuda to negative from stable, citing its prolonged economic downturn and weakened financial performance. S&P had Bermuda at double-A-minus, also three notches below the top rating.Moody's expects Bermuda's weaker economic trends will continue through this year, with moderate growth returning next year. Moody's also expects a long-term decline in the tourism industry and says less dynamic growth in the insurance sector may limit future growth.The outlook could return to stable if the economy begins to grow and the government can contain its rising debt. However, a further potential downgrade could be prompted by continued economic weakening or a lack of significant Government spending policy measures.In response to Moody’s rating action, the Ministry of Finance said it recognised that continuing government deficits and weak economic growth could put Bermuda’s sovereign rating at risk of a downgrade by one notch.“We note however, that in so doing, Moody’s affirmed that our rating is supported by very high per capita income, strong institutions, and our still moderate level of Government debt in relation to similarly rated sovereigns,” the Ministry of Finance said in a statement.While the ratings adjustment was not positive, the Ministry of Finance also noted that the adjusted rating remains in the top tier of the ratings matrix.“At Aa3, our sovereign bond rating is only three notches below the highest rating of Aaa,” the statement read.“Moody’s continues to endorse the Island’s institutional strength and the Island’s very high per capita income. Government remains optimistic about future prospects for growth and will continue to press ahead with our Jobs and Economic Turnaround Plan which involves providing balance between responsible economic growth and disciplined financial management.”The downgrade and negative outlook by Moodys should “serve as a wake up call to the OBA”, and the new negative outlook is a “likely result of the OBA’s lack of a credible plan of action to address Bermuda’s deficit,” Shadow Minister of Finance David Burt said yesterday afternoon.“Despite the local media praise for the OBA Budget, the PLP and independent international observers are concerned with the increase in spending and the record deficit contained in the first OBA Budget. This spending increase followed two consecutive years of disciplined spending reductions under the PLP,” Mr Burt added.“Moody’s new negative outlook is a vote of no confidence in the new OBA government and is a likely result of the OBA’s lack of a credible plan of action to address Bermuda’s deficit.”With the House of Assembly is back in session today, Mr Burt says he expects the Minister of Finance to address this downgrade and “tell the people’s representatives exactly what he plans to do to reverse this trend."