S&P Effusive Over IOM's Financial Position

Tax-News.com, London

20 May 2002

Standard & Poor's said on Friday that it affirmed its triple-'A' long-term sovereign credit and senior unsecured debt ratings and 'A-1'-plus short-term sovereign credit rating on the Isle of Man, reflecting the Isle's substantial fiscal flexibility, very strong government balance sheet, and open, export-oriented, and increasingly flexible economy. The outlook is stable, said the agency.

Isle of Man Treasury Minister Allan Bell welcomed Standard & Poor's statement, saying it provided a 'ringing endorsement' of the Government's economic policies, saying: "S&P's statement was effusive in its praise of the Isle of Man's economic position and is a ringing endorsement of its economic policies. Investors will be reassured to see that this is no flash in the pan review. The outlook over both the medium and long term is stable and the Island's financial position is described as 'robust'.

"Many years of hard work and prudent fiscal policies have led to budget surpluses for the past five years. As the S&P statement recognised, this has allowed us to build up substantial reserves and a strong balance sheet.

"In the future, we will build on our economic success, bolstered by our reserves and our strong regulation will continue to make us a safe bet for investors. Our dialogue with external forces such as the UK Government, EU and Financial Action Task Force will carry on. The Isle of Man is, and always will be, an outward looking jurisdiction.

"We are proud of our strong and diversified economy which makes the island such a valuable place to do business. And we are delighted that the Isle of Man's economic strength has again been endorsed by an independent third party."

Standard & Poor's credit analyst David Cooling said: "Prudent fiscal policies have sustained general government budget surpluses averaging an estimated 12% of GDP over the past five years, enabling the government to build up substantial reserves. Despite its recent foray into debt markets to finance the renewal of the Isle's infrastructure, the government's balance sheet remains exceptionally strong. Net assets are equivalent to an estimated 58% of GDP."

Standard & Poor's noted that inward investment, a stable business environment, and net immigration have supported robust economic growth over the past decade. Real output growth averaging 9.8% annually over the past five years has increased the Isle's per capita income to an estimated $22,982. Growth has been remarkably broad-based, but most significant in the financial and professional services sectors. Increasingly high value-added activities are being established on the Isle.

Moreover, said the report, the Isle's financial services sector continues to benefit from the government's pragmatic and proactive response to the EU's savings tax directive and to the concerns of the Financial Action Task Force. A strong regulatory environment, modest diversification, and tight integration with the U.K. outweigh the inherent vulnerabilities posed by a very small, highly open economy.

Nevertheless the IOM's monetary and customs union with the UK mean that the ratings on the Isle could be constrained by the credit standing of the UK government (AAA/Stable/A-1+). "Over the medium term," Mr. Cooling concluded, "the Isle of Man's very strong credit standing should remain secure against nearly all foreseeable downside economic, political, and financial risks. The government's robust financial position, coupled with close economic and financial ties with the UK, should enable the Isle to weather external shocks and significant changes to its economic environment without major strain to its factor markets or overall economic stability."

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