HAMILTON, Bermuda, Thursday April 30, 2015, CMC – International ratings agency Standard & Poor’s (S&P) has lowered Bermuda’s credit rating, but Finance Minister Bob Richards has put a brave face on the downgrade.
S&P reduced Bermuda’s long-term issuer credit and senior unsecured debt ratings to A+ from AA-, and said continued weak economic performance, persistent government deficits and increased debt burden were to blame.
Reacting to news of the downgrade, Richards said the drop was “not surprising” given problems in the economy and public sector finances.
“We are pleased, however, that S&P has attached a stable outlook to the rating,” he said.
Richards added that the lower rating was still in the upper medium investment grade with a stable outlook.
“S&P continues to endorse the government’s effective policy-making and political stability.”
Richards added: “The government will continue to press ahead with our two-track strategy that strikes a balance between responsible growth and disciplined financial management.
“We will continue work to restore investor confidence to attract foreign dollars back to our shores, opening the Island to job and revenue-creating activities, creating new possibilities for Bermudians to make a living.
“As the Minister of Finance, I remain committed to creating an economy that works for everyone and returning our public finances to a sustainable position.”
Shadow Finance Minister David Burt said in a news release that the S&P downgrade “should come as no surprise”.
The short-term rating of Bermuda also decreased from A-1+ to A-1 and S&P predicted that weakness in the economy and public finances would continue through its two-year outlook window.
But the outlook of “stable” is up from the “negative” view previously expressed by the ratings agency.
Bermuda has been in recession for more than six years with the national debt now topping US$2 billion,up from the $1.4 billion level the One Bermuda Alliance inherited when it ousted the Progressive Labour Party amid rising unemployment in the December 2012 general election.
S&P’s report said: “Bermuda’s six-year recession has resulted in declining revenues which has led in turn to fiscal deficits of five per cent of GDP (gross domestic product) in fiscal years 2013 and 2014.
The debt financing of deficits will increase gross interest costs to more than 11 per cent of government revenues for fiscal years 2015-17.”
The report, however, added: “The stable outlook reflects our expectations that positive economic growth will return in the next two years, fiscal deficits will get smaller as revenue growth returns and government debt will stabilise at slightly more than 10 per cent of projected GDP.”
And it said: “The Ministry of Finance believes that the contraction in real GDP could be as much as 1.5 per cent in 2014. Real GDP fell 18 per cent by 2014 from the 2008 peak and nominal GDP declined eight per cent.
“Labour market results were also weak in 2014. Bermuda’s unemployment rate rose to nine per cent in 2014 from seven per cent in 2013, compared with eight per cent in 2012.
However, over the last 30 months Richards has been warned by the Progressive Labour Party and by ratings agencies that failure to diversify our economy would impact future ratings.
He said the downgrade represents “ … a further sign that 30 months of austerity, 30 months of failing to diversify, and 30 months without a credible growth plan lead to what we have seen under the One Bermuda Alliance; a record number of Bermudians out of work, continued rising costs for Bermudian families and seniors, the lowest tourist air arrivals in 48 years, and an increasing exodus of Bermudians leaving Bermuda in order to survive.”
He said: “This cycle cannot continue, we must put an end to this six-year recession and modernise our economy so that it can provide the jobs required to sustain Bermudians.”