S&P Improves Bermuda’s Outlook To Positive
[Updated] The Government of Bermuda said they “welcome the latest ratings action from S&P Global Ratings, which has improved Bermuda’s outlook to Positive from Stable and affirmed the Island’s A+ long-term sovereign credit rating and A-1 short-term rating.”
“S&P said the positive outlook reflects its expectation that, over the next 12 to 24 months, “corporate income tax collections will remain strong” and that the Government will “pay down its debt and strengthen fiscal balances.”
Premier and Minister of Finance David Burt said, “S&P’s decision to improve Bermuda’s outlook to Positive while affirming our A+ rating is an important signal of growing confidence in Bermuda’s fiscal management. Together with last week’s confirmation from KBRA, Bermuda now holds A+ ratings with Positive outlooks from two independent ratings agencies. This reflects the tangible impact of stronger revenues, disciplined debt reduction, and an economy that continues to perform well in a challenging global environment.”
In its report, S&P said it expects Bermuda’s finances “to continue to strengthen on the back of positive preliminary indications of the first full year of corporate income tax implementation.” The agency added that this, together with Bermuda’s strong economy and the “steady performance” of the Island’s key insurance industry, contributes to “an improving credit story.” S&P also said the new tax will allow the Government “to fully repay an upcoming debt maturity in January 2027,” helping to return Bermuda to “a net government creditor position.”
The agency further highlighted Bermuda’s “effective and predictable” policymaking, the continued strength of the international business sector, and the stability of Bermuda’s key industries as important supports for the country’s economic resilience.
Premier Burt added, “Independent assessments like this matter because they confirm that Bermuda continues to move in the right direction and demonstrate that the Government’s disciplined financial management and a clear long-term strategy are delivering results. These results mean greater confidence in Bermuda’s economy and a stronger position from which to deliver even more for Bermudians.”
S&P said the positive outlook also reflects its expectation of policy continuity and institutional stability over the next two years, alongside continued strength in Bermuda’s key industries.
The Premier concluded, “The Government of Bermuda will remain focused on responsible financial management, reducing debt, strengthening public finances, and building a fairer and more secure future for all Bermudians.”
Update | The statement from S&P is below:
Overview
- We expect the government of Bermuda’s finances to continue to strengthen on the back of positive preliminary indications of the first full year of corporate income tax implementation.
- This, together with a very wealthy economy that is supported by steady performance of Bermuda’s key insurance industry, contributes to an improving credit story.
- Accordingly, we revised our outlook on Bermuda to positive from stable and affirmed our ratings, including our ‘A+’ long-term sovereign credit rating.
- The positive outlook reflects our expectations that, in the next 12 to 24 months, corporate income tax collections will remain strong and that the government will pay down its debt and strengthen fiscal balances.
Rating Action
On May 4, 2026, S&P Global Ratings revised its outlook on Bermuda to positive from stable. At the same time, S&P Global Ratings affirmed its ‘A+’ long-term sovereign credit and senior unsecured debt ratings, as well as its ‘A-1′ short-term rating. The ‘AA+’ transfer and convertibility assessment on Bermuda remains unchanged.Outlook
The positive outlook reflects our expectations that, in the next two years, corporate income tax collections will improve Bermuda’s fiscal performance. The tax will allow the government to fully repay an upcoming debt maturity in January 2027, leading to a return to a net general government creditor position.At the same time, we expect continuity in the government’s policies despite a planned leadership change in the ruling Progressive Labour Party (PLP). We also believe that the domestic economy will remain healthy with steady performance of key industries, supporting the territory’s very high income levels.
Downside scenario
Potential deterioration in Bermuda’s international financial services (IFS) sector due to shifts in the global insurance business, material job losses tied to consolidation, or exogenous shocks could weaken the territory’s economic outlook, external asset position, and public finances. As a result, our fiscal assessment would weaken if the government ran sustained deficits amid a higher interest burden or if Bermuda’s large liquid assets fell to less than 25% of GDP. Under either scenario, we could lower the rating within the next two years.Upside scenario
We could raise the rating over the next two years if the territory:Successfully lowers its debt burden through debt repayment;
Solidifies the performance of its new revenue stream through a track record of collections and payment of credits in line with projections, and in a way that supports strengthened fiscal performance, as well as the continuity of the insurance and reinsurance sectors; and
Maintains institutional stability.
Further improvement in Bermuda’s debt profile beyond those incorporated in our base case, namely substantially lower interest costs, could also support a higher rating.Rationale
Bermuda’s key economic sectors support steady growth, which we expect will continue but moderate, despite shifts in the government’s tax structure and global geopolitical turbulence. This performance reflects continued strength in the international business sector, where Bermuda is a global leader in insurance and reinsurance. Tourism represents an important, although smaller, pillar of the economy.We expect the government’s tax collections will grow substantially, based on early indications that the new revenue stream derived from the corporate income tax (CIT) will surpass previous estimates. Bermuda implemented this tax to meet its commitment to the Organization for Economic Cooperation and Development’s (OECD) global minimum tax rules. Bermuda’s CIT legislation, which came into force on Jan. 1, 2025, introduces a 15% tax rate for those companies in scope of the OECD rules, or those with consolidated revenue of €750 million or more. The first two installments of the tax from 2025 were due in August and December 2025, with final 2025 returns due in October 2026.
While early indications are positive, we believe there is still some uncertainty regarding the impact of the regime. Final information on the first year of collection, including information related to the use of tax credits, will not come until after the first returns are due in October.
We expect the government’s strengthening fiscal performance will also contribute to a decreasing debt burden and lower interest payments. In addition, we believe that policymaking is effective and predictable, and we expect the territory’s GDP per capita will remain among the highest in the world. Bermuda should also benefit from very strong current account surpluses and substantial external asset holdings. The territory’s hard peg exchange rate regime and moderate monetary policy effectiveness limit its monetary flexibility.
Institutional and economic profile: Institutional stability and a wealthy economy support the ratings
- We expect policy continuity through expected leadership changes within the PLP government.
- The government will build on a track record of sustainable public finances and economic stability.
- Bermuda’s prosperity, as indicated by its very high GDP per capita, reflects its prominent role in the global insurance industry, which we expect will continue in the coming years.
- Bermuda’s strong economy is underpinned by its global insurance and reinsurance sector, which we expect will remain competitive, as well as its steady, although smaller, tourism sector. These sectors contribute to our expectation that Bermuda’s GDP per capita will reach around US$141,000 in 2026, which is among the highest in the world.
Following solid growth in the past several years, real GDP will likely rise by 1.6%, on average, over the next four years, representing a return to more normal levels. We estimate that per capita real GDP growth will reach about 0.6% during this period, which is close to the average of peers with similar GDP per capita. Bermuda’s economy is concentrated in the IFS sector, which has supported growth but also increases the territory’s susceptibility to shifts in that business.
The IFS sector is, by far, the largest contributor to the economy, and we expect it will retain its global advantage over the next two to four years. Although recent revisions to the domestic tax system, as well as global economic shifts related to policy implementation in other countries, could affect the operating environment, we believe the territory will continue to attract businesses in the sector.
Our view is supported by industry growth; Bermuda’s reputation for solid regulation, including its full equivalence with the EU’s regulatory regime and its designation as a U.S. reciprocal and qualified jurisdiction; a workforce with specialized experience in insurance and reinsurance; and the stable institutional and economic environment. The sector contributes over US$2 billion annually to the local economy, which represents about 29% of GDP.
At the same time, business incorporations, local employment, and compensation in the sector remain solid. Although the impact of the changes to the domestic tax system, mainly the introduction of the CIT and corresponding tax credit regime, is still unfolding, we believe the tax regime will be managed in a way that ensures the economy and the international business sector remain competitive. Although the sector’s performance has supported the economy, the high reliance on, and concentration in, the industry makes GDP and government revenues more vulnerable to any shifts in the sector. This concentration is more acute with the new tax regime.
Bermuda’s policymaking is largely effective, predictable, and proactive. We consider its political institutions stable and expect its position as a self-governing territory of the U.K. will not change. We do not expect major changes in political direction following an anticipated leadership change within the PLP government in the fall.
The premier and minister of finance has announced his intention to step down as leader of the PLP. We believe that any successor will continue with similar policy priorities and will continue to promote fiscal prudence. There are no major ideological differences between the two main political parties–the PLP and the One Bermuda Alliance. The last general elections were held in 2025, when the PLP was reelected for a third consecutive term.
We believe the territory is willing to implement reforms to ensure the long-term sustainability of public finances. We expect the Westminster-style parliamentary democracy and related institutions will remain stable. The territory’s constitutional law retains significant powers for the U.K., generally exercised effectively through the U.K.-appointed governor, which we believe helps keep executive power in check. Bermudian governments generally emphasize policies that are conducive to strong economic growth and relatively prudent fiscal outcomes.
Flexibility and performance profile: Fiscal and external balance-sheet strength mitigate the absence of monetary policy flexibility
- Improving fiscal performance and sizable government assets will contribute to a return to a net government creditor position with decreasing interest costs.
- Bermuda reports recurring current account surpluses spurred by service and net income balances, underpinned by the insurance sector, and the territory is an external creditor.
- The territory’s currency is pegged to the U.S. dollar, limiting flexibility and the ability to use monetary policy to respond to economic shocks.
- On the back of strengthening CIT collections, we expect the government’s fiscal surplus will grow in the current fiscal year ending March 31, 2027, following its return to surplus in the 2025-2026 fiscal year. We expect the government to collect about 7.8% of GDP in CIT revenues in 2026-2027 following about 3% of GDP in 2025-2026.
We expect CIT collections to moderate afterward, reaching about 6% of GDP in 2027-2028. We expect collections will stay nominally constant thereafter and fall gradually as a share of GDP, given fluctuations in the business cycle of the insurance industry and unknowns related to the full regime implementation, including the use of tax credits.
The government has also focused on keeping taxes low for residents and businesses, and adjusting payroll taxes, customs duties, and energy taxes, among others. We expect it will sustain this focus. Only a fraction of businesses operating in Bermuda are subject to the CIT. While this limits the tax burden for many residents, it exposes the government to greater revenue concentration and potential revenue volatility in the future. We estimate the expected boost from the CIT, the impact of economic growth on revenue collection, and increasing pension assets will lead to a change in net general government debt of negative 2.2% from 2026-2029.
Bermuda’s strengthened fiscal position will lead to debt repayment, which will help lower debt and interest costs over the next few years. We forecast net general government debt as a share of GDP will return to a net creditor position in the current 2026-2027 fiscal year because we expect the government to repay US$605 million of debt due in early 2027, supported by the funds collected by the CIT.
Debt repayment and additional revenues will support a lower interest burden, which we forecast will average 5.7% of general government revenues from 2026-2029. In addition, the government holds significant assets in its civil service superannuation plan and its contributory pension plan, which enhance its credit profile. These assets, together with the government’s sinking fund, represent about US$2.9 billion, or 31% of GDP.
We consider banking sector contingent liabilities limited given the size of the sector. We estimate its assets at about 269% of GDP and place it in group ’5′ on our Banking Industry Country Risk Assessment (BICRA) scale. BICRA scores are on a scale from 1 to 10, with group 1 representing the lowest-risk banking systems and group 10 the highest-risk ones. The sector is adequately capitalized, and regulation and supervision are robust, which further mitigates the risk. Contingent liabilities from nonfinancial public enterprises and guarantees are not substantial enough to affect our debt assessment.
Bermuda’s balance of payments reports very high current account surpluses. We expect they will remain elevated, though moderate, over the next few years. We also expect Bermuda will remain a substantial narrow net external creditor of about 212% of current account payments in 2026-2029 because of the significant external assets held by the government and the banking sector.
Owing in part to banks’ large deposit liabilities, gross external financing needs are high in 2026-2029, at about 157% of capital account receipts and usable reserves. Data inconsistencies reflect an incomplete international investment position and gaps in the balance of payments data, notably related to households and the territory’s large IFS sector.
Bermuda’s longstanding hard-peg exchange rate regime limits monetary flexibility. The Bermudian dollar is pegged to the U.S. dollar 1 to 1, which effectively cedes monetary policy decisions to the U.S. Federal Reserve. Dollarization is high, which weighs further on our monetary risk assessment. The Bermuda Monetary Authority must hold external and local assets of more than 50% of the total currency outstanding; however, in practice, Bermuda holds more than 100%. More than 50% of banks’ assets and deposits are typically denominated in a foreign currency, mainly U.S. dollars. Both circumstances mean that external factors beyond the control of the Bermuda Monetary Authority mostly determine Bermudian monetary conditions.
We expect the annual inflation rate will average 2.4% in 2026-2029. Although inflation might tick up this year due to geopolitical developments and their impact on goods and energy imports, we expect it to moderate thereafter.
