Kowalski Outlines Bermuda’s Economic Outlook

Nathan Kowalski outlined the challenges and opportunities facing Bermuda in a presentation at the Association of Bermuda International Companies’ [ABIC] annual general meeting, highlighting the “implications of a shrinking and aging population, the growth of international business, advances in artificial intelligence, and the ongoing housing shortage.”

Mr Kowalski, chief financial officer and chief economist at Anchor Investment Management, said revenue from the new Corporate Income Tax offers a “significant opportunity to strengthen Bermuda’s long-term future, while underscoring the need for continued focus on reducing the national debt.”

Speaking to an audience of ABIC members, Mr Kowalski highlighted the growing importance of IB to Bermuda.

“In 1997, IB was 15% of employment income — it’s now over 40%,” he said. “IB is critical for Bermuda and without IB, the recovery from the pandemic would have been very choppy and the economy would probably have been significantly weaker. So, this group of businesses has done phenomenally for the country.”

Citing government statistics, Mr Kowalski laid out how demographics are creating challenges for the economy. More than 54% of workers are over 45 years old, including 75% of physicians, 73% of painters, and 95% of taxi drivers and chauffeurs. And the number of younger workers to replace them is dwindling.”

“Approximately 9% of the workforce is over 65, a number that’s 1.5 times higher than the number of 18 to 26-year-olds employed,” Mr Kowalski said. “This ageing will dramatically ramp up healthcare costs as the dependency ratio ramps up.

“It’s also very concerning to me that since 2017 the number of deaths has outstripped the number of births. The latest number from 2023 shows there were 622 deaths and 330 births of children with at least one Bermudian parent. The difference is expanding quite rapidly. It’s clear that immigration, or a reversal of emigration, will be a necessary component to stop the rapid population decline.”

A related challenge is Bermuda’s struggle with housing affordability and supply, he added, for several reasons, including reduced inventory, influenced by the “Airbnb effect” and hesitancy on tackling rent control issues, slow increases in supply and escalating building costs.”

“We will never solve the population challenges and the housing challenge at the same time,” Mr Kowalski said. “The two are difficult to reconcile simultaneously in an effective fashion.”

Without an expansion of the workforce growth, Bermuda would need to rely on increases in productivity to support economic growth, he said. Productivity growth has picked up to 2.7% over the past five years.

“Gross value added from the peak in 2007 has fallen about 12%, but actually the number of total employed people has fallen by 18%,” Mr Kowalski said. “So, as the economy continues to recover and grow, it appears fewer workers are capable of doing more.” He added that he expects this trend to continue, driven by IB’s growing share of the economy and the influence of AI.

Citing a report by business consultancy McKinsey, Mr Kowalski said generative AI was expected to have the biggest impact on higher-wage knowledge workers, including areas that had previously been regarded as immune to automation.

“In some sense, Bermuda’s higher level of jobs retained on island may limit the scope of automation, but I don’t think it’s immune. In fact, according to my calculations, about half of the jobs are likely in scope. It’s too early to determine exactly how this will end up. The trade-off here is productivity might accelerate, but it may come at the expense of less job growth.”

However, productivity gains often fail to deliver wage gains for many workers — a phenomenon known as the “productivity gap”, Mr Kowalski said. “This has been the case in Bermuda to some degree, unfortunately, as the real income growth has been non-existent in various categories.” Over the past 15 years, most job categories had seen income decline after inflation, he added.

On revenue from the Corporate Income Tax, Mr Kowalski favoured the approach of the Fiscal Responsibility Panel, “ensuring that CIT revenue should be accounted for separately, with strong guardrails in place, and an emphasis on using the proceeds to pay down Bermuda’s $3.2 billion debt.”

“I see it as a great chance to set the island up for the future and for the youth,” Mr Kowalski said. “Unfortunately, I don’t we think about the next generation enough. They didn’t accrue the $3.2 billion debt. They didn’t underfund the pensions. It’s now time for us to set them up for the future.”

Also addressing the AGM, Christian Dunleavy, chairman of ABIC and CEO, Aspen Bermuda Ltd., stressed that global competition was rising in a time of rapid and unpredictable change.”

“We are in a perpetual race to enhance our value proposition and competitiveness while safeguarding our reputation, particularly with a diminished tax advantage,” Mr Dunleavy said. “In today’s world, capital and people are incredibly mobile. Standing still is falling behind. As the saying goes, it’s OK to look backwards, just don’t stare. We need to continue to move Bermuda to the future.”

Mr Dunleavy highlighted some of Bermuda’s key strengths and challenges. “Our unique relationship between industry, Government and the BMA remains strong,” he said. “This open and constructive dialogue, which ABIC remains committed to, is a key differentiator. Our size is an advantage over larger, slower-moving competitor countries and we should continue to leverage it.

“It is increasingly clear, however, that housing availability and affordability is at the core of Bermuda’s challenges for locals and businesses alike. This housing challenge is compounded by our demographic challenge. Bermuda’s aging population means that immigration will be key to continuing to drive economic and job growth while maintaining our standard of living.

“CIT credits designed to reward on-island employment are welcome and the right approach, but we must also solve the housing challenge to support that further economic growth.”

The spokesperson said, “Mr Dunleavy also highlighted the amazing transformation of Bermuda from the tourism-focused economy of 40 years ago to the IB powerhouse of today, and the associated career success stories for Bermudians.”

“The success of Bermudians in IB should be judged not solely by how many senior IB roles in Bermuda are filled by Bermudians, but importantly by what proportion of IB jobs Bermudians fill globally,” he said. “And the answer to that question, per capita, is a lot.

“Bermudians are very well represented, if not one of the most well represented demographics in global financial services, particularly insurance and reinsurance at all levels with more taking on ever more senior roles every year, which I hope and expect to continue unabated.

“As I travel around the world my colleagues and customers are often surprised when they ask me where I’m from, and I say I’m Bermudian. They’re even more shocked when I start pointing out to them their peers in Bermuda, London, and New York who are also Bermudian.

“This, coupled with the drive and quality of our young Bermudians studying and working overseas in IB, who will look to return home in the coming years, is a great story yet to be told. Bermudians are doing well in IB – let’s acknowledge and build on that foundation and continue to welcome those coming to Bermuda to live and work.

“This is not a zero-sum game but a mutually beneficial relationship.”

For 2026, ABIC welcomes four new board members: Andy DeGregorio from Deloitte, Judy Gonsavles from Chubb, Matthew Furr from Orbis and Peta White from Vantage Risk.

Mr Dunleavy also thanked four directors who are stepping down: Laura Taylor, Susan Pateras, Sylvia Oliveira and Roy Fellowes. Mr Fellowes, who has led ABIC’s tax working group for the past five years, has served on the board for more than 30 years.

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