A downgrade of the Government's debt rating would cost Bermuda taxpayers millions of dollars and Shadow Finance Minister Bob Richards does not want to see it happen.

After Moody's' announcement on Monday that it was putting the Island's bond ratings on review for possible downgrade, Mr. Richards said the Government could not blame the situation entirely on the economic downturn.

"The downgrade has not happened yet and if it does, it will not be a good thing for any Bermudian," the United Bermuda Party MP said. "It would cost the taxpayer millions of dollars in interest payments and we in the UBP are hopeful that this will not happen.

"But Government has not really helped itself with the rating agencies, by running current account deficits, doing fancy footwork with the Sinking Fund and increasing debt, as well as the fact that the Auditor General could not give a clean audit.

"All of these things are negatives that the rating agencies will be looking at."

Moody's on Monday placed the Island's Aa1 foreign debt rating and Aaa local debt rating on review. The Aaa grade is the highest investment grade given by Moody's and Aa1 is the second highest.

Moody's said that the mainstays of the Bermuda economy — international business and tourism — were feeling the effects of the global downturn and could weigh on the Island's ratings. Mr. Richards pointed out that while there was never a good time to be downgraded, now it would be more damaging than normal.

Having a lower debt rating means paying higher interest rates to borrow money. And the differential between interest rates paid by borrowers with varying credit ratings — known as the risk premium — is much greater than normal.

In his reply to the Budget statement last month, Mr. Richards pointed out that a BAA-rated borrower was likely to pay three percent more to borrow money that a AAA-rated borrower — a risk premium that was about eight times what it was in mid-2007, before the credit crunch started to bite.

"A downgrade would mean that much of the Government's debt would have to be recalculated," Mr. Richards said. "In some cases the rating of the Government may be a condition for getting a specific rate of interest."

Government expects its interest payments on debt to total $20.3 million for the 2008/09 financial year.

Finance Minister Paula Cox told The Royal Gazette on Monday night that representatives from Moody's will come to the Island within the next three weeks to talk to officials from Government, regulator the Bermuda Monetary Authority and leading business figures.

Mr. Richards hopes the talks are successful in averting a downgrade.

"They have to accentuate the positive," Mr. Richards said. "They have to talk about what we are doing, as a country, to make sure that our primary industry of insurance and reinsurance continues to hold up well in this difficult period.

"If I were the Minister, I would be going on the offensive to show all of the positive things we are doing."

The Island also carries a sovereign debt rating from Standard & Poor's, which has a AA rating for the Island with a stable outlook.