Bermuda is a stable, wealthy democracy, employees are amongst the best paid and the Island?s international business sector is likely to continue doing well.

But tourism industry woes underpin social issues that bear political pressure, as does the ?politically divisive? subject of Independence, according to a comprehensive report from rating firm Standard & Poor?s.

The New York-based firm, which rates the economic strength of 107 countries, issued its Bermuda report following its affirmation of the Island?s sovereign ratings earlier in the week. Bermuda kept its ?AA? long-term rating and a ?A-1+? short-term sovereign credit rating.

And Government was praised for its prudent economic management, with S&P considering it to have ?very strong capacity to meet its financial obligations?. The outlook on the ratings remains stable.

For the fiscal year, Government debt is expected to track around four percent of Gross Domestic Product. GDP was $4 billion in 2004.

Government?s level of indebtedness was said to be one of the lowest compared to other rated sovereigns. In total, Government is owed five times more than the the debt it is expected to incur. It is a creditor on the order of 20 percent, according to the report.

And Bermuda workers are, per capita, better paid than those in 104 nations around the world. Workers, on average, are forecasted to make $69,788 this year, up from $66,824 in 2004. And fortunes for 2006 are even better, with predictions of per capita income rising to $72,858.

In its 22-page report, S&P said the per capita income in Bermuda was the third highest of the countries it assigns sovereign ratings to.

But the agency warned that while growth in the Island?s leading sector, insurance, was expected, the Bermuda economy was ?highly vulnerable to external factors?.

Government debt is expected to track around four percent of Bermuda?s Gross Domestic Product in 2005 and 2006. GDP was $4 billion in 2004.

Government?s level of indebtedness was said to be one of the lowest compared to other rated sovereigns.

In total, Government is owed five times more than the the debt it is expected to incur.

It is a creditor on the order of 20 percent, according to the report.

Bermuda?s currency being tied to the US dollar means that inflation generally tracks US trends. ?Some divergence reflects high retail prices due to duty rates on imports and the law requiring most companies to be at least 60 percent Bermuda owned.?

Public sector wage increase contributed to greater inflation pressures in 2004, the report said. Inflation is expected to remain around three percent.

In assigning Bermuda a long-term foreign currency rating in the ?AA? category, S&P considers the Island a ?stable democracy of considerable wealth?.

But there were concerns raised over the Island?s declining tourism sector, a development said to underpin social challenges. ?The Island?s small economy has few other labour-intensive employment options to offer unskilled workers, S&P warned.

The decline in visitors puts Bermuda in the position of relying heavily on the continued success of the international business sector. And S&P added that Bermuda, one of the highest-cost island destinations in the hemisphere, was faltering as a tourism destination because cheaper, more temperate Caribbean destinations were winning out.

S&P said it ?assumes that Bermuda?s investment climate will remain favourable as the politically controversial debate over establishing Independence from the UK intensifies in the run-up to the next general election, due by 2008?.

But it said Premier Alex Scott?s pursuit of Independence would generate ?a charged political debate? over the ?politically divisive topic?.

The report said Independence ?lacks widespread popular support?, with whites 92 percent opposed, and blacks 52 percent opposed. ?Further complicating the debate, Mr. Scott advocates pursuing sovereignty without a referendum, based only on the outcome of the next general election (due by 2008). This has generated much mistrust, and will complicate the general election.?

On the business front, the Island has a strong reputation backing it, S&P said.

?Unlike Malta, Cyprus, the Bahamas, and many other Caribbean offshore centre, uncertainties surrounding the Organisation of Economic Cooperation and Development?s (OECD) anti-money laundering campaign actually work to Bermuda?s benefit, thanks to its reputation as a transparent, sound, low-tax haven.?

While Bermuda?s small, export-oriented economy is similar to that of its island peers, S&P said the Island?s economy is less diversified than other ?AA? rated governments, like Taiwan, Japan and the Republic of Italy.

Bermuda?s GDP growth is expected to be between two and three percent, an expectation based on the pace of economic activity from the US.

The Island?s GDP is roughly 55 percent derived from international business spending, and tourism, which includes business-related visitor revenues. S&P said this highlights ?the economy?s relative lack of diversification?.