Fitch Downgrades Bermuda, Outlook Negative
[Updated with videos] Fitch Ratings announced today [June 7] that they have downgraded Bermuda’s AA government bond rating to AA-, and changed the outlook to Negative from Stable.
This follows after last month’s revision by Moody’s, who also downgraded Bermuda’s rating and changed the outlook to Negative.
Fitch said, “The downgrade of Bermuda’s sovereign ratings reflects four years of economic contraction, sustained high fiscal deficits, and increased government debt burden.
“The sovereign’s ability to sustain higher levels of debt is constrained by its narrow revenue base and its underdeveloped domestic public debt markets.
“Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects. The Negative Outlook reflects continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy.”
Fitch said Bermuda’s ‘AA-’ ratings are supported by “Bermuda’s wealth (the fourth-highest GDP per capita among Fitch-rated sovereigns) and its high savings rate relative to its peers in the ‘AA’ category.”
They also noted that, “Bermuda maintains its competitive advantage as a domicile for reinsurance and financial services companies because of its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the U.S. and highly skilled human capital.
Fitch said it expects that the “new administration will continue to implement business-friendly policies, and that economic growth will be restored in 2014.
The Bermuda Ministry of Finance said they “anticipated that the tough conditions at home could put Bermuda’s sovereign rating at risk of a downgrade.”
“While the ratings adjustment is disappointing news, the Minister of Finance noted that the adjusted rating remains in the top tier of the ratings matrix. At AA-, our sovereign bond rating is only three notches below the highest rating of AAA. This rating action now brings Fitch’s Ratings on Bermuda in line with the other major Ratings Agencies.”
Minister of Finance Bob Richards said, “Fitch continues to endorse, our competitive advantage as a domicile for reinsurance and financial services companies due to our sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US and highly-skilled human capital.
“The report also noted that “Bermuda’s ‘AA-’ ratings are supported by Bermuda’s wealth (the fourth-highest GDP per capita among Fitch-rated sovereigns) and its high savings rate relative to its peers in the ‘AA’ category.
In closing Minister Richards said, “The Government will continue to balance the needs of all citizens during these tough times. We will continue to press ahead with our Jobs and Economic Turnaround Plan that strikes a balance between responsible growth and disciplined financial management.
“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”.
The full statement from Fitch is below:
Fitch Ratings has downgraded Bermuda’s ratings as follows:
- Long-term foreign currency (FC) Issuer Default Rating (IDR) to ‘AA-’ from ‘AA’;
- Long-term local currency (LC) IDR to ‘AA-’ from ‘AA+’;
- Country Ceiling to ‘AA+’ from ‘AAA’
In addition, the Short-term FC IDR is affirmed at ‘F1+’
The Rating Outlook is Negative.
The downgrade of Bermuda’s sovereign ratings reflects four years of economic contraction, sustained high fiscal deficits, and increased government debt burden. The sovereign’s ability to sustain higher levels of debt is constrained by its narrow revenue base and its underdeveloped domestic public debt markets. Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects. The Negative Outlook reflects continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy.
KEY RATING DRIVERS
Bermuda’s economic recession continued for the fourth consecutive year in 2012 due to a combination of cyclical and structural factors affecting employment creation, household consumption, public finances, and the real estate market. Prospects for 2013 and beyond are weak as tourism and the international business sector, Bermuda’s two main industries, have reached a mature stage of business and face increasing competition from other jurisdictions.
Multiple changes in the debt ceiling have undermined the credibility of this fiscal policy anchor. The public debt burden started from a low base of 6% in 2007 but increased rapidly, reaching 28.5% of GDP in 2012. In Fitch’s baseline scenario, public debt could continue to climb and approach 40% of GDP by FY2014/15. Bermuda’s government debt-to-revenue ratio is high and is forecasted to deteriorate faster than its peers. This fiscal solvency ratio gains importance because of the sovereign’s limited tax-raising capacity.
Weak economic performance and absence of fiscal adjustment measures weigh on public finances and debt dynamics. Fiscal deficit (excluding the use of 0.9% of GDP from the Sinking Fund to cover interest payments) reached 4.4% of GDP in FY2012/13. Revenue underperformance and higher expenditures are expected to keep the fiscal deficit elevated at 6.0% of GDP in FY2013/14, well above the median in the ‘AA’ rating category. The FY2013/14 budget did not incorporate fiscal consolidation measures, postponing the fiscal adjustment until FY2014/15.
A new government was inaugurated in late 2012. Its economic program to put Bermuda on the road to recovery includes measures to facilitate business on the island, create jobs, stimulate investment, and reduce wasteful government spending and public debt. Progress on various initiatives could result in higher investment and economic growth, but only in the medium term.
Bermuda’s ‘AA-’ ratings are supported by Bermuda’s wealth (the fourth-highest GDP per capita among Fitch-rated sovereigns) and its high savings rate relative to its peers in the ‘AA’ category. Bermuda maintains its competitive advantage as a domicile for reinsurance and financial services companies because of its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the U.S. and highly skilled human capital.
Bermuda has the strongest external creditor position among sovereigns rated by Fitch thanks to large external assets held by its re-insurance, fund/fund administrator, and trust management industries. Current account surpluses are larger and less volatile than those of its peers, underpinning the stability of the foreign exchange peg.
RATING SENSITIVITIES
The Negative Outlook on the Long-term FC IDR reflects the following risk factors that may, individually or collectively, result in further pressure on the ratings:
- Lack of a credible plan to consolidate public finances and continued deterioration in the sovereign’s fiscal metrics;
- Weaker than expected economic growth that negatively affects employment creation, the real estate market, stability of the financial system, and fiscal prospects;
- Regulatory changes that adversely affect international companies operating in Bermuda.
Fitch’s sensitivity analysis does not anticipate developments with a material likelihood of leading to a rating upgrade in the short term. In the future, resumption of economic growth and concrete signs of fiscal consolidation and debt stabilization could stabilize the rating.
KEY ASSUMPTIONS:
- That economic growth in the U.S. will pick up in 2014. In addition, Fitch assumes that the eurozone remains intact and that no severe tail risks to global financial stability materialize that could trigger a sudden increase in investor risk aversion and financial market stress.
- That no significant change in international regulation will affect Bermuda’s re-insurance industry during the forecasting period.
- That the new administration will continue to implement business-friendly policies, and that economic growth will be restored in 2014.
In addition, the recommendations of the SAGE Commission, an entity created to advise government on public sector reform and expenditure reduction, are expected to be incorporated in the FY2014/15 budget, with prospects for moderate success in cutting wasteful public expenditure.
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Finance Minister Bob Richards on the Fitch downgrade:
Shadow Finance Minister David Burt on the Fitch downgrade:
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Articles that link to this one:
- Moody’s Downgrades Bermuda’s Rating To A1 | Bernews.com | May 19, 2014
- Fitch Downgrades Bermuda’s Ratings to ‘A+’ | Bernews.com | May 30, 2014
“Fitch said it expects that the “new administration will continue to implement business-friendly policies, and that economic growth will be restored in 2014.”
My, my, now what does that tell you about the views on the PLP?
It appears as if Bloomberg paid off Fitch!
I do not trust Bloomberg….we need to pay attention.
EWART BROWN, stand up and take a bow. You did this, you caused a lot of pain, and your legacy is horrible. I hope you have a rotten nights sleep tonight.
Paula helped Ewart a lot
She not only helped him but she continued on the same track.
Zackly
“Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects. The Negative Outlook reflects continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy.”
My, my, now what does that tell you about the views on the OBA?
“Fitch said it expects that the “new administration will continue to implement business-friendly policies, and that economic growth will be restored in 2014.”
That’s their views on the OBA.
Rhonda Neil. You are quite a tool to believe that OBA has any responsibility on this issue.
It is your beloved PLP who allowed our debt to reach where it is, and allowed for our Civil Service to balloon to the size it is now.
Get your head out of your a** and realize that PLP had 14 years to “diversify” (pun-intended), but yet maintained the same tac the entire time, blaming everyone but themselves for their failure at GOVERNING.
Help you Rhonda, help, help you Rhonda.
Rhonda…I appreciate you have to spin it out for the PLP Kool Aid Drinking Zombies that hang on your every word to try and justify their dogmatic belief in the Green Machine but even you cannot expect that those idiots are going to buy in to your attempt to put this on the OBA! I know YOU know better and even the hard core zealots with a lick of sense surely cannot buy that nonsense! Stop the Kool Aid Drinking Madness Please!
Seriously need to diversify the economy.
Up first…gaming
According to Fitch
“As we noted in June, when Bermuda’s long-term Issuer Default Rating (IDR) was downgraded to ‘AA’, we will remain focused on the government’s commitment to a credible fiscal consolidation plan and steps to restore economic growth in assessing the sovereign’s credit profile. A failure of the NEW government to deliver on either of these priorities could lead to further negative rating actions. Alternatively, resumption of economic growth and concrete signs of fiscal consolidation and debt stabilisation would sustain Bermuda’s ratings.”
Rhonda, do you honestly believe that the former Government had no part to play in teh four years of negative GDP growth and the piling on of unsustainable debt?
If you’re going to blame the PLP for the world wide financial downturn. Then you must then also give them the credit of raising the GDP to Bermudas highest in our history also for lowering the unemployment to it’s lowest point in Bermuda’s history.
Proper stats please, this is nonsense, you can’t just make stuff up.
Lowering the unemployment ? What planet are you dwelling on? Created unemployment yes but lower it? Crazy
Youainkf@ckinserz?…
Absolute myths. Re-writing history. Nonsense.
Translation: The PLP is to blame for the mess we’re in, the OBA can save us, and Rhonda Neil is a stupid fool!
“The public debt burden started from a low base of 6% in 2007 but increased rapidly, reaching 28.5% of GDP in 2012.”
Great stuff!
The question is “would you lend the Bermuda Government your own money and expect to get it back in full in say 10 to 15 years”. I know I wouldn’t.
And, clearly, the ratings agencies are starting to have their doubts as well.
Only when the Government start producing up to date, publicly available, audited accounts that show that the debt is being reduced would I consider changing my mind.
How about you?
If, I was guaranteed the PLP/BIU would NEVER again run this island, I would lend them my money. But as long as the hardcore PLP/BIU supporters are still breathing, I wouldn’t take that gamble.
Now that’s deep. As long as we are breathing. I owe a debt of gratitude to the PLP supporters who stayed away from the polls. We would have never had the opportunity to see just how much PLP, BIU and pretty much anything that has a black support base is hated by these Bermudian, but mainly none Bermudian OBA bloggers
Red card for the race card!
Spot on, moooove on. This is 2013 people.
So true…Sad but true.
Opressed, you are so right.
If anyone, for even one moment doesn’t understand and believe that the way they are in life contributes to the overall state of this country. It’s commonly heard that suggests that it is only about the actions and inactions of the Government that accounts for things like the state of the economy, of race relations, of how the rating agencies view us, etc. No. We each play a part in the success or failure that we experience so it is ridiculous for you lot to be pointing at each other with your sniping comments. With each of those snipes you are contributing to the state of our country.
Thank you for being the voice of reason.
Note this for the next election. Thanks PLP for digging such a deep hole for the OBA to fill in.
Damn how I h..e you internet tuff guys and gals.
ubp/oba sucks
Look mate,most of the comments offer interesting opinions, some I agree with, and some I don’t. But yours, it’s just hatred, and so tough that you can’t say your own name. It’s Friday night, have a glass and learn to love. You’ll be a happier person I promise.
I noticed you conveniently breezed past the comment posted by Oppressed who needs PLP/BIU supporters to cease breathing before they would have anything to do with Bermuda financially. I guess you’ll be a happier person now wouldn’t you MR. …have a glass and learn to love. What hypocrisy!!! Smh
Retard….
“Great” comment reflecting the depth of PLP followers intellect!
Here is an idea, let’s just keep hiring consultants to fix our problems, you know, the ones that could not even tell you where Court Street is located…
this Goverment is making the same mistakes and digging further. I know this is not their doing but some of the decisions made, make me wonder!
Ronda is now here posting her lies smdh
Reduce cost of living on the island by reducing import duty.
Reduce size of government
Obtain a new revenue stream….like gaming
Whether you agree with the idea of gaming or not, it’s not going to be a major contributor – you can stay in top Vegas hotels for less than $100 a night.
The revenue stream will not just include the hospitality tax on hotel room rent, but should also include some type of a service tax on the revenues generated by the casino.
The point is, just how many people will come if room rates remain at their current levels? And, if room rates were reduced to match those in places like Vegas how would the hotel in question survive?
Yeah after plp sucked Bermuda dry there won’t be anything for anybody to suck for a very long time.Plp destroyed our country thanks.
The ratings of Bermuda now reflect the delayed and incomplete financial data of the former Government…rating agencies prefer cooperation not stonewalling which is what they received for years with Paula mismanaging finances ….