Bermuda has been given a thumbs up by ratings agency Moody's in a report saying the Island's high ratings were reflective of its prudent macro-economic policies, favourable external position, and low debt and debt-service ratios.

But the report, released yesterday, warned that proposed changes to US tax legislation could be detrimental to Bermuda's economy.

The ratings for the Island were reported as Aa1 on foreign currency country ceilings and Aaa for domestic currency ratings. The outlook for the ratings was said to be stable or unlikely to change.

Moody's report follows another sovereign ratings report last week from Standard & Poors. S&P assigned Bermuda an AA long-term credit rating and an A-1+ short-term credit rating, and also gave the ratings a stable outlook.

Credit ratings affect an organisation's (in this case, the Bermuda Government) ability to borrow and the interest rate it pays.

Moody's analyst and report author Steven Hess, said: "Bermuda has established itself as a premier offshore business centre as tourism has steadily declined over the last 20 years.

"International business and tourism account for about 50 percent of GDP and 85 percent of foreign exchange earnings.

"Visitors arrivals were up 1.9 percent in the first nine months of 2003 and the insurance sector received a ten percent rise in new incorporations," he said.

While the report predicted that Bermuda's real GDP growth in 2003 and 2004 was likely be "modest" at one to 1.5 percent, it said that Moody's expected Government's fiscal accounts to remain in "a relatively good position with a deficit substantially below the two percent envisioned in the 2003/04 Budget".

It continued: "The Popular (sic) Labour Party government, which was re-elected in 2003, expects increases in receipts from customs duty and the payroll tax for post-Hurricane Fabian reconstruction expenses. A majority of reconstruction expenses following the 2003 hurricane will likely be covered by insurance.

"The Government's policies have demonstrated continued commitment to sound fiscal policies and low Government debt levels. For example, it has maintained the policy of keeping Government debt at less than ten percent of GDP.

"The Island's close proximity to the United States has led to many economic links, both in tourism - approximately 80 percent of all visitors arrive from the US - and offshore business, making Bermuda particularly sensitive to events in the US. Led by the insurance sector, offshore business continues to drive economic activity.

"Bermuda's strong reputation among offshore centres should help keep the sector growing. Though unlikely from today's vantage point, changes in tax legislation could have a significant impact on Bermuda's insurance sector. Moody's is closely monitoring for changes in US tax legislation that would be damaging to Bermuda."