dependency on international business, Finance Minister Eugene Cox said yesterday.

In his Budget speech he emphasised how well the international sector was doing, with an increase in the number of companies registered here and a rise in the number of people employed in this sector.

Foreign currency earnings from international business showed a moderate increase of 2.2 percent in 1998, but there was a decline in reported capital expenditure by the sector from $55 million in 1997 to $36.9 million in 1998 -- a 33 percent drop.

Mr. Cox said: "The effect on Bermuda's GDP of this capital spending retrenchment adds further urgency to the need to reinvigorate the tourism industry and reduce the Island's growing reliance on the success of international business.

"While it is abundantly clear that the economic well being of Bermudians is linked to the economic health of the international business sector, we must keep in mind that this is an incredibly competitive global industry and we must be constantly vigilant to ensure that we remain a leading competitor.'' Expenditures by international business grew by less than 1 percent to $757.4 million in 1989/99. This compares to annual growth rates of approximately 16 percent in recent years. While tourism continued to struggle in 1999 with visitor expenditure increasing by only 1.9 percent to $481.2 million.

The contributions to growth in GDP by both tourism and international business were negative on expenditure growth adjusted for inflation.

International company expenditure at constant prices -- indexed and without taking inflation into account -- stood at $173.8 million in 1996/97, rising to $194.8 million the year after, dipping slightly to $193.2 last year and rising again to $206.0 million for 1999/2000.

Before inflation the indexed income from tourists spending has gone from $124.9 million in 1996/97 to $121.5 million the following year, falling further to $121.4 in 1998/99 and finally resting at $121.0 million for 1999/2000.

Mr. Cox said: "While it is encouraging to hear the positive news from the international companies we must be fully cognizant of the challenges facing the tourism industry. Despite positive developments and initiatives pioneered by the industry and the Ministry of Tourism, the number of tourists arrivals fell last year.'' Overall Bermuda's economic growth is projected to have slowed down in 1999 after the rapid expansion experienced since 1995.

Estimates of Bermuda's Gross Domestic Product for 1999 show the economy grew 3.7 percent or 1.5 percent after inflation to reach $2.45 billion.

Growing demand in the local economy was responsible for almost all the growth in GDP.

Consumer expenditures rose to $1.58 billion an increase on the year before of 6 percent.

Gross fixed capital formation soared by 19 percent to $370 million reflecting very high rates of investment and construction in Bermuda.

Export earnings were not as strong a factor of economic growth as it has been in previous years.

There was a strong increase in imports during the year 199 8/9 with numbers rising 8.8 percent to $1.24 billion caused partly by the strong growth in the construction industry and the related imports of machinery and materials.

After several years of low and stable rates of inflation prices began to rise more quickly in 1999.

The rate of inflation began to pick up in April with the sharp increase in oil and petroleum products. The higher price in health and personal care sectors added to the increase.

The slower economic growth of the year 1998/99 was also apparent in the employment survey in 1998 that recorded an increase of only 27 filed jobs over the survey results in 1997. Hotels, retail and restaurants lost 523 positions because of the slack in the tourism industry. New jobs created in the international business, business services and construction offset those sectors with job losses.

Preliminary figures from the 1999 employment survey indicate that the job rate creation last year improved dramatically with the number of filled positions increasing by 1,721 to reach 37,044.

The Government's debt plus interest payments continues to rise and the legislated debt ceiling is being raised.

The Government has said it will limit its borrowing to a maximum of ten percent of GDP and there is currently a statutory limit on public debt of $185 million.

With an outstanding long-term gross debt of $171 million anticipated for the end of the fiscal year 1999/2000, borrowing after taking account of the sinking fund will represent 5.8 percent of the GDP. The Government has said in order to finance the construction of the new Berkeley Institute, there will be a need to raise the legislated debt ceiling.