Fitch: Bermuda’s Clean Bill Of Fiscal Health
[Updated] Bermuda’s finances received a guardedly clean bill of health from one of the world’s top ratings agencies today [Nov. 17].
Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and Country Ceiling for Bermuda as follows:
- Foreign currency IDR at ‘AA+’;
- Local currency IDR at ‘AAA’;
- Foreign currency short-term IDR at ‘F1+’;
- Country ceiling at ‘AAA’.
The rating outlook is Stable.
US-based Fitch said the ratings reflect the island’s stable macroeconomic and political environment, which, combined with friendly policies towards its international business sector, has made its economy one of the wealthiest in the world.
The ratings are supported by extremely high per capita income, sustained large current account surpluses, strong institutions and a moderate public debt burden.
Bermuda’s sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US market and presence of highly skilled human capital continue to support its reputation as a domicile of choice for (re)insurance and financial services companies.
Although Bermuda’s captive insurance business faces strong competition, new products are being developed while medium-term prospects could benefit from regulatory equivalence with the EU expected in 2012.
The agency said Bermuda’s economy is expected to contract for the third consecutive year in 2011, partly due to weak labor market conditions on the island, and the resulting impact on the property rental market and overall household consumption.
Fitch foresees a mild economic expansion in 2012 and 2013 as initiatives to promote tourism pay off, and international business activity picks-up after a period of contraction.
Fitch notes that Bermuda’s medium-term growth prospects appear to be quite modest.
The increase in fiscal deficits in recent years has been driven by revenue underperformance, increases in capital expenditure and spending pressures, especially in the social sector, related to the difficult economic situation. Debt to GDP has increased in line with fiscal deficits and is estimated to reach 22.7% in 2011, which is below the ‘AA’ median of 41.6%.
However, Fitch believes that a lower debt burden is desirable in the context of Bermuda’s small, open and narrow economy as well as its limited financing flexibility.
“The increased public sector indebtedness reduces Bermuda’s space to respond to future economic shocks and underlines the importance of setting forth a clear medium-term fiscal consolidation plan,” said Santiago Mosquera, a director in Fitch’s Sovereign Group.
There is a very limited room for additional indebtedness under the current debt ceiling — $1.25 billion.
However, the debt ceiling has changed various times since 2005 to accommodate budget deficits, with Fitch not ruling out further increases in the ceiling in the coming years.
“Repeated changes to the debt ceiling undermine the credibility of the fiscal policy anchor,” added Mr. Mosquera.
Fitch will continue to monitor Bermuda’s fiscal consolidation plan which is likely to become clearer next year when the government introduces its medium-term budgetary framework.
Sustained weak economic performance and deterioration in the sovereign’s fiscal metrics could put downward pressure on Bermuda’s ratings.
Regulatory changes that negatively affect international companies operating in Bermuda could also undermine creditworthiness.
On the contrary, a resumption of economic growth and concrete signs of fiscal consolidation and debt stabilization would help sustain Bermuda’s ratings.
Update 6.15pm: Premier and Minister of Finance Paula Cox welcomed the ratings notification on Bermuda.
She said, “It is pleasing that our sovereign rating was affirmed at AA+ especially when ratings agencies have been conservative with respect to ratings given the sustained global financial and economic challenges. It is relevant to note that despite recent increases in debt levels Bermuda’s debt ratios are below the ‘AA” median of 41.6%.
“In their release, Fitch go on to say that the ratings reflect the island’s stable macroeconomic and political environment, which, combined with friendly policies towards its international business sector, has made its economy one of the wealthiest in the world. The ratings are supported by extremely high per capita income, sustained large current account surpluses, strong institutions and a moderate public debt burden.”
Premier Cox concluded, “As alluded to in the Fitch Report, we will continue to have challenges as we navigate through the fallout from the global financial crisis, but this objective ratings update is encouraging news in very difficult conditions.”
Didn’t Fitch also give all those in the investment community a AAA in 2007 before they all collapsed and had to go crying to the Fed for a bailout?
You are spot on mate.
Perhaps Wayne Furbert should consult with Fitch since they seem to think that tourism initiatves will pay off in 2012 and 2013…did they include the recent announcements of Carnival and Holland America in their projections? While the picture they paint is not doom and gloom it is full of what if’s and hardly q
qualifies as painting a clean bill of health…..They have not spoken to any heads of IB if they are forecasting increased IB opportunities in 2012.
“The increased public sector indebtedness reduces Bermuda’s space to respond to future economic shocks and underlines the importance of setting forth a clear medium-term fiscal consolidation plan,” said Santiago Mosquera, a director in Fitch’s Sovereign Group.
There is a very limited room for additional indebtedness under the current debt ceiling — $1.25 billion
AND THIS IS WHAT SHOULD CONCERN EVERYBODY IN BERMUDA
Out of curosity, if Fitch gave Bermuda a B rating and said our economic future was bleak… would you be questioning their outlook?
S Brown, If they gave a B rating there would be immediate and obvious trouble. Let’s hope it never happens. But it could.
Two months ago (prior to downgrades) Italy’s Fitch rating was AA-, and Spain’s was AA+. (Same as Bermuda’s For Currency IDR). Spain has 20% unemployment, the highest in the EC. Does that make you feel any more secure? It shouldn’t.
A debt rating is a very blunt instrument. It tells you something, but not much. Debt rating agencies also sometimes seem to be the “last people to know” about a problem. That’s why you sometimes see companies with investment grade debt, who go bankrupt. A debt rating is just that: a rating. It is no guarantee of anything at all. It’s a one-word answer to a very complicated question.
The real interest is in what they say. You have to read the whole thing. And as ‘Just Curious’ says, Fitch’s report says quite a lot that should concern us.
Or you could just ignore Fitch’s comments, and lump Fitch in as part of the “Combined Opposition”, when it talks about how regulations that adversely affect international companies could impact Bermuda’s creditworthiness.
@S Brown. I don’t need Fitch or any NY suit to tell me how screwed up Bermuda is. Does Fitch think about our future? Fitch couldn’t get their own USA future right!! And I’m suppose to think they know what’s going on in Bermuda??? Keep drinking that koolaid. Fitch are an ignorant bunch of MF’s!!!! If PLP turn things around, I will know about it. And Fitch can all go smoke crack.
no..I’d say they nailed it….B is a little too low but we are hardly AAA..
Fitch vs the media ? Fitch every time. When will you guys get it? So, because Fitch didn’t get on the Royal Commission bandwagon they’re out to lunch? Maybe, just maybe, your frenzy is BS. Propaganda only becomes dangerous when you believe it.
Generally speaking rating agencies are paid by the same entity they are rating. Clear conflict of course. As Rick Rock says, they are the same agency that gave ratings to countries that have sinced been to brink of bankruptcy, retreated but and will very probably go over, and under.
As long as my pockets are empty and my belly is hungry ratings will mean absolutly nothing . Money in my pocket , food on my table is my barometer for the health of this economy , and right now Bermuda is failing .
Bermudians are Bermuda’s own worst enemy…Madame Premier open the flood gates let in right thinking people, but make sure you let Navin Johnson,Yup, and Pepper out for life, and all their friends that will post later…
Fitch would be a great rating Agent if the out look was bad..
Down ‘n’ Dirty is Bermuda failing or you….if you drop down dead from hunger today Bermuda would not notice…so take care….
You are absolutely right in your analysis . Bermuda really hasn’t taken notice of the many born Bermudians who for some reason or another cannot survive , much less live here anymore . At no time in our illustrious existence have so many single mothers and lower to middle class people departed from our shores for the U.K. , Canada , Jamaica , U.S , St.Kitts , Costa Rica or where ever they could afford to live . As for me neither politics or poverty is stong enough for me to believe the lie .
Thanks Same Old Same old….fortunately I have a place to go. To echo Down ‘n’Dirty…we are so broke we are suggesting to single mothers that they should go to the UK to go on the dole…..our wonderful government and its Fitch rating cannot afford to take care of our own so Bermudians are becoming our exports…read the Fitch report for enlightenment…..assume it has been prepared in the last few weeks and note they refer to positive tourism initiatives as reason for modest growth in 2012 and 2013….Hello Fitch….what about Carnival and Holland’s decision to bail out? I want Bermuda to survive as I have considerable investment in the island but there is absolutley ZERO in the way of credibility and honesty and ability to govern that the PLP have shown in 13 years that leads me to believe they deserve to continue…Politics in Bermuda is national pastime and we are on the brink no matter what Fitch says…..they are not infallible…..