Standard and Poor's Ratings Services has assigned its 'A-' long-term and 'A-2'
short-term foreign and local currency sovereign credit ratings to Aruba. Standard
and Poor's also said that the outlook on Aruba is stable.
"The ratings on Aruba reflect its prosperous economy, high level of social
development, resilient tourism sector, and record of stable democracy and the
rule of law," explained Standard & Poor's credit analyst, Joydeep Mukherji, who continued:
"Offsetting these positive factors are Aruba's narrow economic base, debt
burden, and limited monetary and external flexibility."
According to S&P, Aruba's per capita GDP exceeded USD25,000 in 2007 compared
with about USD17,000 in 1997.
The tourism sector accounts for about half of
GDP and has demonstrated flexibility and adaptability to external conditions.
The industry remains poised to contribute steadily to GDP growth of about 2%
on average in the next three to five years, the report added.
However, with a population of about 100,000 people living within 180 square
miles, S&P warned that Aruba has limited ability to diversify its productive
base, and it projected Aruba's gross general government debt at about 43% of
GDP in 2008, higher than the 31% median level for 'A' rated peers.
Projections
are for net general government debt and general government debt to reach 31%
of GDP and 123% of revenues, respectively, in 2008, which are higher than the
26% and 109% median levels for rated peers.
S&P also noted that Aruba's
fixed exchange rate- along with a small local financial and capital market- limits
the role for monetary policy.
"The stable outlook is based on our expectation that Aruba will make
modest progress in reducing the central government's fiscal deficit to less
than 1% of GDP in 2008 and in 2009," Mr Mukherji added.
S&P forecast that GDP growth could reach 2% in 2008 but decline in 2009
if the US economy suffers from a prolonged slump.
The ratings agency expects
that Aruba's economic policy will remain stable after the elections (due by
September 2009), regardless of the results.
Steps to tighten public-sector financial
management along the lines that a recent national fiscal commission has suggested
would boost the transparency of public finances, the report suggested.
Mr Mukherji further observed that: "Progress in strengthening the finances of the
public-sector pension plan and the national health care system, and the introduction
of a proposed fiscal responsibility law in the coming years could improve the
sovereign's creditworthiness. Conversely, a reversal of recent fiscal consolidation--combined
with low growth--could increase the government's debt burden over the medium
term, weakening creditworthiness."
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