Standard & Poor’s Downgrades Bermuda

April 28, 2015

Standard & Poor’s [S&P] has lowered Bermuda’s rating to A+ from AA- and changed the outlook to stable, saying “the downgrade reflects our assessment of continuing weak economic performance and weak public finances, which we expect will persist through our two-year outlook horizon.”

“Key drivers stated as the reasons for the downgrade are continuing weak economic performance and weak public finances which is not surprising,” said  Minister of Finance Bob Richards.

“Ministry of Finance recognized that continuing government deficits and weak economic growth could put Bermuda’s sovereign rating at risk of a downgrade by one notch. We are pleased, however, that S&P has attached a stable outlook to the rating.”

“S&P continues to endorse the Government’s effective policy-making and political stability. It is also pleasing to note that S&P recognized that the hosting of the 2017 America’s Cup yachting race will raise the island’s profile as a high-end tourist destination, spurring investment in the hospitality sector, which is exactly what the Government is anticipating,” explained Minister Richards.

In closing the Minister of Finance said, “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”.

A spokesperson added, “The stable outlook reflects S&P’s expectation that Bermuda’s economy will grow in the next two years, which in turn will reduce fiscal deficits and stabilize gross government debt.

“While the ratings adjustment is discouraging news, the Minister of Finance noted that the lower rating remains in the upper medium investment grade, with a stable outlook.”

This is the latest in a series of downgrades for the island; in May 2014 Fitch Ratings downgraded Bermuda’s Country Ceiling to ‘AA’ from ‘AA+’ on May 19, 2014 Moody’s downgraded Bermuda to A1 from Aa3, in June 2013 Fitch downgraded Bermuda to AA-, in May 2013 Moody’s downgraded Bermuda to Aa3, in June 2012 Fitch downgraded Bermuda to AA, and in December 2011 Standard & Poor’s downgraded Bermuda to AA-.

The statement from Standard & Poor’s is below:

We are lowering our long-term issuer credit and senior unsecured debt ratings on Bermuda to ‘A+’ from ‘AA-’. We are also lowering our short-term rating on Bermuda to ‘A-1′ from ‘A-1+’.

The downgrade reflects our assessment of continuing weak economic performance and weak public finances, which we expect will persist through our two-year outlook horizon.

Bermuda’s six-year recession has resulted in declining revenues, which has led in turn to fiscal deficits of 5% of GDP in fiscal years 2013 and 2014.

The debt-financing of deficits will increase gross interest costs to more than 11% of government revenues for fiscal years 2015-2017. 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 stabilize at slightly more than 40% of projected GDP.


On April 28, 2015, Standard & Poor’s Ratings Services lowered its long-term issuer credit and senior unsecured debt ratings on Bermuda to ‘A+’ from ‘AA-’. At the same time, Standard & Poor’s lowered its short-term rating on Bermuda to ‘A-1′ from ‘A-1+’. The outlook is stable.


The downgrade reflects our assessment of Bermuda’s continuing weak economic performance, persistent government deficits, and increases in debt burden, which we expect will continue through our forecast horizon.

The country’s economy remains in recession: Real GDP contracted in 2014 for the sixth consecutive year. The Ministry of Finance believes that the contraction in real GDP could be as much as 1.5% in 2014. Real GDP fell 18% by 2014 from the 2008 peak and nominal GDP declined 8%. Labor market results were also weak in 2014.

Bermuda’s unemployment rate rose to 9% in 2014 from 7% in 2013 (compared with 8% in 2012). Employment fell in both 2013 and 2014, as it has since each year 2009. By 2014, employment had fallen 16% from its 2008 peak. Despite the poor economic performances of recent years, GDP per capita remains what we consider very strong, at about US$88,000. We believe that real GDP growth will be flat in 2015 but increasing to about 1% growth in 2016.

Weak economic performances have resulted in declining revenues and fiscal deficits. Bermuda recorded a general government deficit of 5% of GDP in fiscal 2014 (year ended March 31), which was unchanged from that of the previous fiscal year but much greater than those prerecession. Fiscal results were near balance for most of 2001 through 2006, but fiscal deficits began to widen in 2007. The deficit peaked in 2009 at 6.5% of GDP and then fell to about 4.5% of GDP in 2010 and 2011, only to rise again to about 5.4% for both 2013 and 2014.

The current governing party and its predecessor have made some progress toward reducing expenditures in the past five years. However, declining revenues have undone efforts to achieve balance. From 2009 to 2014, revenues fell 7%. The 2015 budget imposed modest increases in payroll, air passenger, commercial property, corporate services, and fuel taxes. The government forecasts its fiscal deficit to improve to 3.9% of projected GDP in fiscal 2015 and 2.1% by fiscal year 2017. The annual change in government debt should be 1.8% of GDP for 2015-2017.

Bermuda’s gross general government debt stood at 39% of GDP in fiscal 2014. Thanks to substantial fiscal assets, we estimate the government to be a net creditor of about 6% of GDP at fiscal year-end 2014. Despite our expectation of slow and modest economic and fiscal recoveries, respectively, we still expect Bermuda to remain a net creditor through the end of 2017 as gross government debt reaches 41% of GDP. The gross interest burden, however, will represent more than 11% of projected general government revenues from 2015-2017. The interest burden has been on the rise since fiscal 2008 with the debt-financing of deficits.

As with all sovereigns, we consider the local banking sector the principal contingent risk to the government. We place Bermuda’s banking sector in group ’5′, on our Banking Industry Country Risk Assessment scale from ’1′ to ’10′, ’1′ being the best. We believe the sector poses a limited contingent liability to the government as our criteria defines the term. HSBC Holdings PLC owns the largest bank, HSBC Bank Bermuda Ltd., with about a 50% market share. The second-largest bank, Bank of N.T. Butterfield & Son Ltd., with a somewhat smaller market share, is mostly locally owned.

Bermuda operates a currency board arrangement. Deposits at the Bermudian banks are more than 70% denominated in foreign currency, mostly the U.S. dollar, against which the Bermudian dollar is pegged at 1-to-1. Both circumstances mean that external factors beyond the control of Bermudian authorities largely determine monetary conditions, contributing to our view that the island lacks monetary flexibility.

We view Bermuda’s policymaking as largely effective and predictable and its political institutions stable. It is the largest of the U.K.’s 14 overseas territories. The assessment also incorporates our view that public sector transparency (which we measure with indicators such as the timeliness, frequency, and completeness of statistics and public sector financial reporting) trails that of many higher rated governments.

Bermuda’s size and lack of natural resources make it depend almost entirely on imported goods. As a result, the island consistently registers a large trade deficit. However, foreign earnings from financial services and tourism more than offset this, consistently generating a substantial current account surplus. (Bermuda classifies its world-class reinsurance sector as nonresident companies.) We estimate the current account surplus will be close to 15% of GDP range from 2015-2017. By our estimate, the island is a substantial external creditor, with external debt net of public and financial sector assets nearly twice as high as current account receipts. However, because of its large banking sector, its gross external financing needs are very high.

In December 2014, Bermuda was named host for the 2017 America’s Cup yachting race. We believe that this event will raise the island’s profile as a high-end tourist destination, spurring investment in the hospitality sector. The government will spend BM$37 million on race-related infrastructure and BM$15 million in direct sponsorship, as well as provide a BM$25 million sponsorship guarantee. We believe the event will help increase growth in the latter years of the forecast horizon. However, our forecasts do not incorporate a direct boost to government net revenues from the race.


The stable outlook reflects our expectation that Bermuda’s economy will grow in the next two years, which in turn will trim fiscal deficits and stabilize gross government debt at slightly more than 40% of projected GDP.

Should the economy continue to contract and government revenues in tandem, downward pressure on the ratings could emerge. On the other hand, should government measures, including the hosting of America’s Cup, place Bermuda back on a higher growth plane that resulted in a steady decline in the government debt burden, we could consider a positive outlook revision or upgrade.

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Comments (44)

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  1. Mockingjay says:

    Lets see who will be the first to blame P.L.P.

    • CJ says:

      Let’s see if you can submit your first worthwhile post.

      Permanent pause.

      • ya right says:

        This is not good news at all. I know most of you will write comments about OBA vs PLP but that ain’t helping us.

        Our outlook doesn’t look good. I am losing hope in our politicians, our economy and how we do things here. Maybe we are too conservative and stuck in our old-fashioned ways.

        Simply put, our model just isn’t working anymore. We are treading down the path to economic destruction.

        • Jus' Wonderin' says:

          We’ve been heading down that road for 14 straight years!

    • Double D says:

      If you don’t think the PLP has played a massive role in this scenario then read the below:

      Between 2004 and 2013 the PLP increased Government revenue from $706m to $867m which is a 23 per cent increase. Over the same time period the PLP increased Government expenditure from $721m to $1.275b, which is a 77 per cent rise.

      So in the space of ten years the PLP successfully tripled our expenditures when compared to revenue increases, which in turn increased our national budget deficit from $15m to $408m, which is a 2,620 per cent jump. But, of course, the PLP doesn’t have any role in our current financial quagmire.”

      So yes the PLP is the main source of our financial quandary at this point in time. Their mismanagement of the public purse will be felt for decades.

      But either way the PLP aren’t in power anymore and it is time for the OBA to ‘man-up’ and do what is necessary to save the financial future of the island and ignore people like you who have no interest in saving our financial position because of your undying political allegiance.

      Stop placating OBA and get what needs to be done, done.

      • Go Bermuda-Go says:

        I feel like you may be a member of the OBA.

        • Double D says:

          Facts are facts my friend.

          Unless you can prove me wrong them wrong your response was weak and a simple deflection from truths that eat at your conscience.

          Not a member either. Just know how to discern the truth from bull nonsense.

          • Go Bermuda-Go says:

            Did I say I’m trying to prove you wrong?
            The fact is that the country is being run by idiots.

            I still think it’s you.
            But nonetheless.

            If they were not so much up their own behinds trying to “make everything right” or just to look good, then perhaps Bermuda would not be in this mess!

            I’ve seen no reformation that actually invests in Bermuda’s people. how much are you paying for groceries while so many people can not even afford one bag of groceries.

            How much are you budgeting (as in… not spending in Bermuda)?
            If you can say that you would rather save, remember this (you’re decisions) determine also the GDP value. We import so much that GDP is bound to be low! We import so much that we have to spend.

            We import so much that the OBA decided to raise duty? Because it may contribute towards the deficit. Word to mother, brotha!!! IMPORTING COUNTRIES USUALLY ARE INA DEFICIT.

            Who’s hurting, OBA affiliate?! Yes you Mr. D!! We are. And we are the people who determine GDP.

            Think about that as you sit on your high horse and defend the party who do not invest in people.

            • Double D says:

              Can’t decipher half of what you wrote so can’t really form a rebuttal to your points.

              But if you think it is normal for a small country to maintain a $300mn deficit then someone has lied to you. And that deficit has nothing to do with importing stuff by the Government. That is simple operating expenses. And I guess you should tell S&P people that they are wrong in their analysis as it is completely normal to have such a massive deficit because we import stuff and as such our rating should be AAAAAAAAA+.

              And as far as I am aware no duty tax has been raised recently. Actually the most recent duty increase in my memory is when Ms. Paula Cox “harmonized” duty rates at all ports of entry.

              That was after the fact that the PLP raised foreign currency purchase tax by 100% in their 2010 budget (along with payroll tax). As a result all of our imports became that much more expensive making bermuda’s cost of living that much more expensive. Because as you noted we import everything.

              • 3rd Downgrade under OBA says:

                Yeah I think this is our 3rd Downgrade under the great financial Guru of Richards and company OBA. But the OBA will play the Blame Game Now to escape reality of facts…..ooh here they go again

              • Go Bermuda-Go says:

                yeah… I think that maybe you are a bit unaware of the fuel tax that was recently raised.

                Neither did you respond to my questiion about eating.

                How many bags of groceries do you purchase for less than $100? How much do you try to budget so that you do not spend as much?

                That is apart of GDP… social consumerism, government spending, a countries “business spending”, net imports and exports and exports.

                It is not just government spending is what I mean. You can sound as educated as you want, love. Fancy words and numbers mean nothing when you are solely basing your argument on government spending and not referencing additional components of GDP.

                Go ahead. slam me now… again.

                • Zevon says:

                  This is an example of how a lot of this country is. Incapable of having a sensible discussion. Those “fancy numbers” happen to facts, mate. Cox and Ewart and the rest of them obsolutely screwed all of us.

                • Double D says:

                  Actually ‘fancy’ numbers mean everything to S&P and other rating agencies as well as our debt holders.

                  If you don’t care about them it is simply because you don’t understand what they mean as indicated in your so called ‘rebuttals’ thus far.

        • Sickofantz says:

          Dear Go Bermuda Go it doesn’t matter what party or colour you are DO YOU understand what will happen to Bermuda unless we address the government debt and increase foreign investment. We DO Not have anything to sell to the world we HAVE to rely on people to come in and sell what they have and we HAVE to make them welcome and feel SECURE.

          • Go Bermuda-Go says:

            I did not mention anything about race. I’m not racist.

            Party, however… Yes.

            I’m for neither.

            What constitutes one’s capabilities to run a country just because they’re a doctor, business owner… lawyer.

            What we need are politicians who pursue the well-being of this country right and well.

            • Jus' Wonderin' says:

              Funny enough there’s a sprinkle of them on both sides of the House….just not enough!

    • Toodle-oo says:

      If S$P could / were allowed to talk politics in their evaluations you could bet they would be the first to already have done so.

      TIC TOCK …

    • Bounce says:

      How is the PLP not to blame. Bermuda’s credit rating was lowered.

      - Why was it lowered? Because we keep on having to borrow.

      - Why do we have to keep borrowing? Because we are in debt.

      - Who put us in debt? The PLP did.

      Its not that hard to understand.

      • ya right says:

        They look at the current affairs of where we are and our economic outlook going forward.

        Read the article next time. Your logic is flawed dreamer.

    • Van Martin says:

      I’ll be glad to oblige you! This is exactly what the PLP wants.

  2. Double D says:

    I hope all the people who have vehemently opposed every action undertaken to stabilize our finances are happy now.

    The Government warned us over and over again about the need to close the deficit or face international scrutiny.

    During the furlough dispute the Minister noted that without the cost savings which were to be procured via furloughs, which would also save any necessary redundancies being made, the rating agencies and creditors won’t be so kind in the future.

    Well folks this is the end result of your opposition to sensible financial management and the tough decisions that have yet to be made.

    I am utterly disappointed in the OBA as they have cowered to the empty vessels making the most noises despite the fact they know the dire consequences heading our way if they don’t plug the hole. They are kicking the can down the road in the name of politics to appease the uniformed.

    Anyways, continue on with your protesting and marching against the more than necessary austere measures. Your borrow and spend attitudes have just got that much more expensive and your children’s future that much more bleak. But you all want instant gratification and no sacrifice.

    Thanks a lot.

    • Go Bermuda-Go says:

      You sound so educated. Why are you here ranting instead of on a bench??

  3. I believe it’s time for our Government to cease “worrying” so much about what the “Opposition” are saying/insinuating and just get on with getting Bermuda back up on an even keel e.g. AA+ or higher A.S.A.P.

    • ya right says:

      The OBA doesn’t worry about the PLP. What fictional news are you reading?

  4. stunned... says:

    all stakeholders need to be “scared straight” with this downgrade; yet we continue with the in-fighting and childish refusal to work together.

  5. rhonda says:

    Oba didn’t tell s& all was well, ac35 is coming.

  6. Jus' Askin' says:

    Again and Again the OBA show they had and have No Clue ;-)

  7. Rhonda says:

    We no longer host Fitch’s will S&P be cut next……cause they are not speaking the OBA positive only language…

  8. Truthhertz says:

    Why is it so difficult for some to understand that if we do not close the $300mn deficit in the near future and produce a budget surplus that our debt mountain will continue to grown until it consumes each and every tax dollar?

    All I hear is people relentlessly complaining about budget cut backs and tax increases.

    It is almost as if they think our perilous financial position is a myth made up by who knows who! It is frightening to hear the disconnect to reality many have in this island.

    On top of the protests against cutbacks there are the some who protest each and every revenue raising/economic stimulus option being put forwarded or implemented.

    It’s like many believe the status quo is acceptable.

    Such downgrades are exactly what happens when you keep on doing the same thing and expecting a different result.

    And this comes about after this Government has knocked off $110mn off of the deficits that existed when they came into power!

    I don’t care who you support as the facts remain indisputable by any political persuasion.

    It is basic mathematics folks and no matter what Party you cheer for it won’t change the scenario one bit.

    Time to face reality and take the licks now.

  9. Go Bermuda-Go says:

    There is so much to be considered here. I’m interested to see how the government will respond to this. More taxes? More foreign direct investment? More movie stars buying hotels (Because that would increase GDP?

    What will it be; less investment in the people?

    I think that I remember the PLP working with Bermuda to set up tax arrangement agreements with other countries. Where did this initiative go?

    • Sickofantz says:

      Where do you suggest the money to invest in the people will come from?

  10. Coffee says:

    We were downgraded because they have no confidence in the current government . There is serious concern and uncertainty after the first premier of the UBP/OBA government was forced to resign in utter disgrace . Adding to that is the questionable decision by the UBP/OBA government to allow Mr.X to continue on as a high ranking government official with a rather large ministry !

    With grey goings on , Bermuda is now facing a serious trust issue that we’ve never had to encounter before , therefore we shall be downgraded again in the future .

    • Double D says:


      You think they downgraded us because of Cannonier?!

      Bet you have no idea how to read audited financial statements.

      You guys are too much sometimes.


    • Christopher Notorius says:

      Coffee you have just shown how ignorant you are. Funny but sad.

      • Sickofantz says:

        it’s like this it doesn’t matter what party or what sort of people they think they represent if they spend way too much and have to borrow we are no longer a country who can naval gaze and spend our time nit picking our opposition because we have effectively sold the country to external international organisations.

        The previous government sold out the people of Bermuda. (That’s why S&P in one sweep have increased our debt payments).

        We must put pressure on the new government to reduce government spending and attract new business (high tax payers here). Without this we will not reduce this debt and the credit agencies will downgrade us further increasing our debt payments.

      • Coffee says:

        Also for the first time in Bermudas long history, businesses are now buying political insurance . Hey the UBP/OBA government thinks it could cancel contracts , and have potentially bad people representing them and the international grading agencies would just turn a blind eye to serious non financial issues . Come on people , your grown and educated , everything I posted has had a detrimental effect on our grading .

  11. Jeremy Deacon says:

    I am concerned about what it means to future borrowing rates: are we going to pay more for future borrowing and thus create an awful viscious cycle …

    • Kangoocar says:

      @jeremy, of course this means our interest rates will increase, until the OBA grow a pair and stop caving into the demands of the illiterate plp/biu workers and supporters we are heading straight into a financial ditch of no return!!! Thankfully I have made my money and already have the vast majority out of here thanks to the plp and can legally move at a moments notice to my choice of the US, Canada or anywhere in Europe!!! I was really hoping the OBA would not cave into the empty vessels nonsense but they have so far??? One of two things are going to happen in the not to distant future, one of the things will be the OBA grow a REAL pair or it will be taken out of all of our hands by the UK and they really will not care what pain is felt by those that put us in this predicament!!! Sadly I think that is what will eventually happen!!!

    • Sickofantz says:

      Yes and that’s not how you spell Vicious. But anyway the people of Bermuda have to understand that if they cannot show how they will reduce the debt we will continue being donwgraded and have to pay higher interest raters on the debt we have.

      Once the credit agencies start reading the opposition vitriol about how they are against the inward movement of foreign companies and people what do you think they DO. ?

      in Ireland the civil service took a 15% reduction in pay and the more highly paid took a drop of between 20 and 25%. This has continued as Ireland has SHOWN THE WILL TO improve their situation. Here in Bermuda the opposition do not understand and the OBA are too scared to show their creditors that they are prepared to take the actions required. Bermuda we have been through the good years we became fat and spoilt. NOW we need to FACE THE FACTS! IT DOESN’T MATTER WHAT COL.OUR YOU ARE OR WHAT PARTY YOUR FAMILY HAVE ALWAYS VOTED FOR THIS IS ABOUT SAVING OUR ISLAND BEFORE IT IS TOO L.ATE.

  12. Starting Point says:

    PLP legacy:

    “Key drivers stated as the reasons for the downgrade are continuing weak economic performance and weak public finances which is not surprising,”

    OBA Legacy:

    “The stable outlook reflects S&P’s expectation that Bermuda’s economy will grow in the next two years, which in turn will reduce fiscal deficits and stabilize gross government debt.

  13. smh says:

    Lol…at least 2 more years of Bull. S&P said it not me.

  14. Alvin Williams says:

    As long as Kangoocar has been threatening to leave Bermuda with all of his money; one wonders why he has not already left after all the causeway remains open and ships are still sailing from the PLP built dock at the West end. But we know why Kangoocar has not left; because he and his money will be taxed to the hilt where ever he set foot on and rightly so.

  15. Keepin' it Real!...4Real! says:

    i’m really lost for words here…you all are going to learn a lesson, but it will be a hard lesson learned…if you think for one minute that someone else can change our path to destruction then you are sadly mistaken…also for those that think that everything will be irie once powers have changed, i’m hear to tell you, YOU are a fool fumbling in the dark…until you wake up turn on the light you will never see what is coming your way.