Moody's says that its rating takes into account the rapid pace of growth recorded by the local economy, which has enabled the region to partially catch up with EU and domestic GDP per capita and achieve very low unemployment rates. However, says the agency, the island owes part of its economic performances to significant public investments, largely funded by EU and domestic transfers - an economic model that is likely to reach a peak in the medium term. Thus Moody's regards any further economic growth as somewhat constrained.

Underlying Moody's willingness to give this first rating to Madeira is presumably the increase in the island's financial autonomy which has resulted from the recent change in the Portuguese Government: the new administration is supported by Madeiran MPs, and the quid pro quo is a transfer of various governmental functions to Madeira. The most important of these is the transfer of the Madeiran tax office to Madeira, which in the eyes of Lisbon will increase surveillance of tax collection, and in the eyes of the MIBC will allow favourable tax decisions to be taken locally. Other transfers of some of the bureaucratic apparatus in Lisbon will take place, including judicial and regulatory functions.

Madeira said earlier this year that it was hoping to be able to achieve its own independent debt rating from Moody's, which it estimates will allow it to improve considerably its current debt profile and reduce servicing costs. Moody's says that the region's extensive capital expenditure programme should only incur moderate annual borrowing requirements.