Cox: ‘Further Spending Cuts Will Weaken Economy’

July 1, 2012

“We will continue to press ahead with important investments in infrastructure which will bring jobs, income, and new opportunity to Bermudians,” Premier and Minister of Finance Paula Cox said on Friday [June 28].

“I remain committed to bringing enhanced efficiency to the civil service, and freezing spending at current levels,” said the Premier. “I am confident this is the correct fiscal consolidation strategy, as further spending cuts will only serve to weaken the economy during these tough times, putting more strain on Bermudian families.

On Tuesday [June 26] Fitch Ratings downgraded Bermuda to ‘AA’ from ‘AA+’ citing “deteriorating fiscal and government debt ratios and lack of a credible fiscal consolidation strategy.” Later that day Government raised $475 million in 10-year bonds at 4.13% interest, with almost $180 million representing new debt,

The Premier’s full statement follows below:

Good afternoon,

There has been much discussion in the media about the Fitch Adjustment of Bermuda’s rating from AA+ to AA. I must share with you a comment that was shared with me in a meeting yesterday.

I met with a group of business leaders and one of themstated that, often, we spend a great deal of time being introspective and negative about our country. That is because we as Bermudians set a very high standard for ourselves which is where we should be. However,when we do so, we run the risk of focusing on the negative and not on the positive.

Today I mean to change that outlook and, notwithstanding the prophets of doom and gloom, put these two matters into a positive perspective.There is so much good news to share and I would like to start with the two matters which have featured heavily in the media over the last few days.

The Fitch Adjustment to Bermuda’s Rating to AA which is the same level that Bermuda had from 1994 – 2006 and is 3rd highest rating.

The Government of Bermuda capital raise of USD475 million in 10-year bonds at an all-in yield of just 4.13%; the lowest fixed rate bond yield ever for the Government of Bermuda

As you are aware on Tuesday, Fitch Ratings adjusted Bermuda’s sovereign bond rating downwards by one notch to AA. The Ministry of Finance anticipated that the continued turmoil in the global economic environment and tough conditions at home could put Bermuda’s sovereign rating at risk of an adjustment.

While the ratings adjustment was not positive, it sees Bermuda return to an AA rating, which Bermuda held from 1994 to 2006. In 2006, Fitch raised Bermuda’s rating to AA+, Tuesday’s adjustment returns us to pre-2006 ratings.

It is important to note that Bermuda continues to receive high Ratings from all 3 major Ratings Agencies, and currently holds credit ratings of ‘Aa2’ from Moody’s (third highest rating) and ‘AA-’ from Standard and Poor’s (fourth highest rating).

Let me quote another businessman who sent the following email to me today:

“Dear Madame Premier:

We have watched the news on the Fitch Report closely. Moving from a AA+ rating to a AA rating still puts Bermuda in a very strong position. The world is enmeshed in a sovereign debt crisis, and rating agencies like Fitch and others have become more cautious and conservative as a result.

No one should feel badly about this ever so modest downgrade. The accompany document from Fitch’s website reflects their sovereign debt rating history. As you will see, there are very few nations that can measure up to Bermuda’s AA rating. ”

In general, we have maintained our credit ratings since the global financial crisis,when other countries have been downgraded significantly, for example on January 13, 2012 Standard and Poors downgraded nine Eurozone nations – Austria, France, Italy, Spain, Portugal, Malta, Cyprus, Slovenia and Slovakia. Another example shows Irelands ratings cut form AAA, which is the highest credit quality to BBB+. These facts clearly show the severity that the financial crisis has had on Government’s finances worldwide.

The Government will continue to balance the needs of all citizens during these tough times. We will continue to press ahead with important investments in infrastructure which will bring jobs, income, and new opportunity to Bermudians.

As the Premier & Minister of Finance, I remain committed to bringing enhanced efficiency to the civil service, and freezing spending at current levels. I am confident this is the correct fiscal consolidation strategy, as further spending cuts will only serve to weaken the economy during these tough times, putting more strain on Bermudian families.

The Government is pleased that Fitch has maintained a stable outlook to the AA rating.

Not all is as gloomy as some would have us to believe, the Ministry of Finance noted that, according to Fitch, Bermuda ratings are supported by Bermudians wealth, the fourth highest GDP per capita among Fitch-rated sovereigns, and the high savings rate relative to its peers in the ‘AA’ rating category.

Bermuda’s competitive advantage as a domicile of choice for insurance, reinsurance and financial services companies remains intact due to its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US market and highly-skilled human Capital.

I will now speak on the highly successful bond issue on Tuesday, the same day that Fitch lowered our rating.

The low pricing and very large orderbook confirmed that the markets continue to have a very favorable view of the Bermuda credit story despite ongoing economic challenges and the general volatile backdrop stemming from the European debt crisis.

As announced on Friday June 15th, 2012, the Bermuda Government conducted meetings with domestic and international investors to provide an update on economic/fiscal developments in the country, and also as part of its process of evaluating market conditions and potential funding opportunities to address its borrowing requirement as announced in the National Budget Statement for fiscal year 2012/2013.

An effective, focused and well-timed roadshow by the Government across Europe and the United States successfully educated a variety of accounts on the credit, and despite a large degree of competing supply in the market (9 other Investment Grade deals launched in the morning) the transaction attracted healthy demand and the attention of the world’s top investors.

Also it should be noted that the use of proceeds included the refinancing of more expensive and shorter term debt with $172 million representing new debt. The refinancing of a $200m 4.95% loan facility due 2014 will result in savings for the country over the next 2 years.

Highlights of the transaction follow:

On Tuesday, June 26, 2012, the Government of Bermuda raised USD475 million in 10-year bonds at an all-in yield of just 4.13%;

The transaction achieved the lowest fixed rate bond yield ever for the Government of Bermuda, thereby substantially lowering the Government’s debt cost burden as well as its cost of funds moving forward;

The deal was announced at 9:55am in New York, and had attracted international demand of almost $500 million within one hour

Final orderbook of $1.3 billion (4x oversubscription) enabled the Government to both tighten initial price guidance and upsize the transaction

Distribution went to the US (67%), Europe (30%) and Asia (3%); and by investor type to Fund Managers (75%), Insurance/Pension Funds (12%) and Private Banks/Banks (10%)

Further expands Bermuda’s international investor base, with over 106 investors placing orders including from Austria, Belgium, Bermuda, Brazil, Chile, France, Germany, Hong Kong, Israel, Italy, Luxembourg, the Netherlands, Singapore, Switzerland, the United Kingdom and United States.

As a disclaimer, I want to reiterate: “This release does not constitute an offer of securities for sale in the United States. Securities may not be sold in the United States absent registration or an exemption from registration.”


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Comments (23)

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  1. M.P.Mountbatten JP says:

    Not if you cut the useless spending on the Bermudian consultants living large overseas …

    • swing voter says:

      so many questions unanswered. so little time to score points before the next election. so few benefited from the spend thrift days of Brown. I think there are more swing voters that are pissed off than Madam Premier can persuade.

    • SHOWANAX says:

      Are we still wasting money on the bright idea, Washington office that was unoccupied forever?

  2. Austerity now ! says:

    This government hasn’t got enough cash to finance it’s everyday running expenses much less the $300,000 per day interest payments on the debt.

    Just when do they really think that our economy will turn around to the point that they will be able to run a surplus ? I’ll tell you this much , it won’t be for many years. Long after those lenders come knocking for repayment.

    Far too many people have no clue how really bad things are for us , most because they do not understand these matters.

    But this PLP government is petrified of the austerity measures that MUST come because it’s going to hit a very large part of their support base.

    Well too f**’n bad .. We ,the tax payers, are not here to pay for a bloated civil service that thinks ‘Government’ is some sort of nanny . A large part of why this ISLAND is so incredibly expensive is because of our high tax structure.

    • street wise says:

      … and low productivity.

    • The nitty gritty says:

      Don’t forget to add the $38 million (which will balloon to $50 million) we the taxpayers are being told we must pay for the cleanup at Morgan’s Point.
      They are putting what they think is positive spin on something that is actually the precursor to financial ruin.
      Watch the roadside vendors turn into fulltime markets after this election, if it’s status quo.

  3. ay b#mb@cl@t mi seh says:

    further shootin yaself ina di foot will weaken economy

    dun buy Bermuda, sell Bermuda mi seh!!

    welcome dem expats wit all a dey money dat lets us all eat well

    ya r@scl*ts cyant see di bigger picture?!?!!

    or ya too stinkin greedy and racist?!?!

    which is it mi seh?!

    ya kno!

  4. The Truth (Most Imitated) says:

    All do respect Miss Premier Cox “talk is cheap” especially during election time.

  5. Liars! says:

    ahh cuhh….bullsh@t

  6. Fab! says:

    How can we trust anything from the person who let the money flood threw her hands ,? The fact is anyone over 30 will never see the heydays of Bermuda again in their Lifetimes so work hard hard save your pennies and put your shoulder behind the wheel for a hard graft life ,
    Don’t complain it is what we voted for ……. Pure cogology!

    • SHOWANAX says:

      I am no longer a fan of most PLP members or the way they govern anymore. However, I do feel much better about Bermuda since she took control of the party. We all know she wasn’t in control back then. She was a victim of the shut up or ship out group that abandoned ship when the first leak was spotted on board. I have the utmost respect for her and know that SHE (unlike many others before her) has the countries best interests at heart.

      Unfortunately for me and many others, to little to late. I also can’t take the chance the the PLP sharks lurking quietly in the deeper waters for now , might decieve us again if the party is re-elected. Once bitten , twice shy.

      • street wise says:

        Isn’t it great having a Premier who claims she was a ‘victim’ under Dr Evil. It’s almost as if the whole goddamn PLP Party thinks it is the victim of some obscure 40 Thieves plot to overthrow them.

        Cox had better control our money!! At the rate we are going, in the foreseeable future, our dollar may need to be devalued as a result of probable IMF interference in our financial affairs. That will happen when (not if, when!) THE PLP Government defaults on its loan payments. And when that happens we are toast!

        We cannot survive with the size oF Government that we have now! We are a small town! With huge egos! It must be cut back; the Civil Service is not a make-work program, or a feed-trough, as many in Government view it to be.

        How the hell can Bermuda survive with a PLP Government that is bankrupt both fiscally and morally… and uses one credit card to pay back the other credit card. Cuz that – in essence – is what the PLP are doing….

        We desperately need a change in Government!! OBA all the way.

  7. Fab! says:

    How can we trust who let the money flood through their hands the truth is anyone in their 30s or over with not see the past hay days of Bermuda again in their lifetime ,so save your pennies put Ur shoulder the work wheel and suck it’s what we voted for ….. Pure cogology!

  8. Mad Dawg says:

    “Further spending cuts…” ?

    Doesn’t the word ‘further’ imply that we’ve seen some spending cuts?

    That’s nonsense. They been spending more and more every year for years. They ‘re on the same road as Greece. That ‘s the direction we’re headed. 25% unemployment and a government with no ability to raise or borrow money.

  9. Noel Ashford says:

    Only the PLP will weaken the economy and people as full of it as this cog is….

    Honey – wake up. Your gov screwed us and you shoudl have had what it took to stop your predecessor – you didnt and in fact you keep borowwing more. Please lay out a plan where you THINK you can repay this… You cant and you know it.


  10. Moojun says:

    To quote our Premier in this article: “There is so much good news to share and I would like to start with the two matters which have featured heavily in the media over the last few days”

    Soooo…. from all the good news that you have to share (so much of it apparently), the two items you pick are that 1- we’ve been downgraded and 2- we’ve had do sink further into debt.

    Thanks Madame Premier. That’s great to hear. Sheesh, even the spin is desperate these days!

  11. Hmmmmmmmmm says:

    Dumb duh Dumb Dumb Dummmmmb.

  12. Triangle Drifter says:

    Bermuda cannot afford another PLP government. Could not afford the first one.

  13. Al says:

    Spending has risen every year under Paula Cox – she has never made any cuts or frozen anything, despite all the announcements that they would be frozen.

    Copy and paste this into a browser window to see what has really happened (spending is the red line):

  14. sandgrownan says:

    Were not buying it Coggles. You failed.

  15. The nitty gritty says:

    Let’s not all focus on the negative now children..she says!
    Well guess what, it’s not the positive (which you could not find if you put the Mt.Palomar
    and Mt. Shastsa telescopes together) that needs attention, it is what is wrong and ruinous
    that needs a remedy. The doctor doesn’t spend hours going over all that is right with you each visit.
    But it’s election season and we must not draw attention to the defects.
    Anyone know the monthly pension payout of your last premier?
    How’s it compare to yours after 30 years plus of work?

  16. Bermyman says:

    What she means is ‘Further spending cuts will jeopardize our ability to win the election’. So we would rather borrow now to ensure our own personal power gain in the short term and throw the financial future of Bermuda down the toilet.