The Premier has called in an international expert to cool down the nation's economy.

It is thought the "internationally-renowned" economist will draw up priorities and a timeline to slow down the rate of growth. And this could mean higher interest rates, less Government public spending and a slowdown in the property market, according to a local economist.

Craig Simmons, a lecturer in economics at Bermuda College, said the level of foreign currency borrowing has increased by more than 240 percent since 2001, resulting in a surplus of cash liquidity.

There has been no official statement from the Premier yet on who will help to steer Bermuda's economy, but Arthur Hodgson, chairman of the Sustainable Development Roundtable, said: "The Premier has indicated to me that he's getting an internationally-renowned person to deal with the rate of development on the Island.

"The Government will be retaining an international consultant on reducing general development. There is a general consensus that the economy is overheating and the Premier wants to make sure that we will be working at optimum development."

Premier Dr. Ewart Brown's Press Secretary Glenn Jones said: "The Government has sought the services of an expert who will help the country achieve controlled phased growth. This is a calculated approach to ensure Bermuda's infrastructure will not be overwhelmed."

Mr. Jones said he could offer no more information "at this time".

However, Mr. Simmons said: "It is widely accepted that the economy is already overheated. The big issue is how to cool it off."

Mr. Simmons told : "There is no doubt that the economy is operating beyond the point at which inflation is stable and which provides price convergence with our major trading partners. Inflation has increased to 3.6 percent, up from 3.1 percent a year ago, and is accelerating away from US (2 percent), UK (2.9 percent) and EU (2.7 percent) rates. It would not be unreasonable to expect inflation to reach 3.8 percent by the year's end.

"Relative to other off-shore financial centres, Bermuda's competitive position is mixed: Cayman (7 percent); Isle of Man (3 percent); Singapore (2.9 percent); Ireland (3.4 percent); Gibraltar (2.6 percent); and Hong Kong (1.6 percent).

"A primary source of inflation is too much money chasing too few goods and services. Low US interest rates make it more attractive to keep Bermuda dollar savings on Island and for banks to engage in the 'carry trade'.

"In the 'carry trade' a bank will borrow currency in a low interest market and lend or buy financial instruments in a higher interest market. For example, whilst interest rates in Japan were near zero, banks would borrow yen to buy Australian securities. There was always a risk that the yen would appreciate against the Australian dollar and wipe out any interest rate gains. There is no such exchange risk between the US and Bermuda dollars. The local 'carry trade' would have a local bank borrow in US dollars and lend in the higher interest Bermuda dollar consumer and real estate markets.

"Foreign currency borrowing has increased by over 240 percent since 2001. As of the fourth quarter of 2006, foreign currency borrowing by residents exceeded $1 billion. We should not forget the injection of additional liquidity following the sale of Bank of Bermuda to HSBC. The impact of that injection on real estate prices and prices in general is not known."

Mr. Simmons said: "A former Bermuda Monetary Authority (BMA) head once lamented in an annual report on the destabilising influence of Bermuda's banks on the economy. Indeed that same BMA report attributed the recession of 1989 to the banks' choking off of liquidity 'after an uncontrolled expansion of the money supply'.

"Over the long run, growth of the money supply determines inflation. Since 2000, broad money (which includes cash plus checking and savings deposits as well as short-term certificates of deposit) has grown at an annual average of 5.8 percent. This unappreciated growth in the money supply has created a demand for housing and the associated construction services that is beyond what economists call the natural level — a level consistent with stable prices.

"Slowing monetary growth can slow spending. Downside risks follow from the effect of higher interest and mortgage rates on business investment and home ownership. Higher mortgage rates would lead to a slower rate of home ownership, especially for first-time buyers, as well as higher start-up and expansion costs for small and medium-sized businesses.

"In the real economy, high levels of per capita income ($76,400 in 2005) facilitate strong spending by Bermudian households and businesses. Output in the principal export sector is booming: since 1997 average nominal income growth in international business (IB) has been 16 percent. It is not difficult to see the connection between growth in IB and full capacity utilisation in construction, transport and communication sectors."

He added: "Government spending is approximately 20 to 25 percent of gross domestic product (GDP), the value of final goods and services produced or consumed in a year. Decreases in Government spending are overdue. Discretionary and capital spending are obvious candidates for the largest budget cuts. The purpose of cutting capital spending is two-fold. Capital spending puts additional demand on an already overstretched construction industry. Postponing capital projects will free plumbers, electricians and masons to work in the private sector. In addition, money not spent becomes part of a surplus that can be used either against existing debt or applied to the building of an external reserve.

"The case for the Government to follow a counter-cyclical fiscal policy is clear. In periods of high growth, the private sector is able to provide enough employment opportunities. When the economy slows, it is argued, Government spending can then be used to take up some of the slack left by the private sector. The role of the Government is to provide an infrastructure as well as price and employment stability for the private sector to thrive, and to not 'crowd out' private sector spending. When the economy is near or at the full employment level, macroeconomic prudence dictates not injecting additional liquidity through a low interest rate monetary policy or additional Government spending."