for Bermuda of `AA'.

The agency also affirmed its local currency rating of `AAA' and its short-term foreign currency rating of `F1' plus. High ratings are important as it makes borrowing on the international markets cheaper.

The agency said that Bermuda's high rating, which puts it on a par with EU countries such as Spain, Portugal and Sweden, reflects high per-capita income, strong GDP and foreign currency earnings growth, prudent fiscal policy, long-term financial and exchange rate stability and a mature domestic political system.

On a less positive note Fitch said it was concerned about the rapid growth in the liabilities of Bermuda-based companies.

"One concern that Fitch IBCA has is the lack of information about the external assets and liabilities of Bermudian entities,'' the agency stated.

"The only source of information is the Bank for International Settlements (BIS) which indicates that a large net external debt position has emerged in recent years. Neither the BIS nor the Bermudian authorities can explain either the recent rapid growth of external liabilities or the deterioration in the net position.'' The agency noted that most borrowing is done by international firms and financing vehicles, domiciled in Bermuda but which do not interact with the domestic financial system.

Fitch noted that since winning the elections in 1998 the Progressive Labour Party (PLP) had moved to reassure international business of its commitment of ensuring a favourable business environment. Fitch also stated that while the PLP has historically advocated independence, the party has indicated it will make no such proposal during this Parliament.

"While the milieu Bermuda offers could be threatened by reviews of offshore centres currently being conducted by the EU, G7 and the OECD, Bermuda is less vulnerable to these initiatives than other centres thanks to its non-discriminatory tax regime and effective financial supervision,'' Fitch stated in a press release.

Bermuda is therefore likely to maintain its position as a leading provider of off-shore financial services, notably to the insurance industry, the agency added.

"The economy has grown strongly in recent years, despite the stagnation of the tourist industry, hampered by growing competition and high labour costs,'' Fitch stated.