S&P Maintains Bermuda’s Favourable Ratings

by Amanda Banks, Tax-News.com, London

13 October 2005

Standard & Poor's Ratings Services has affirmed its 'AA' long-term and 'A-1+' short-term sovereign credit ratings on Bermuda, reflecting the country's record of prudent economic management. The outlook on the ratings remains stable.

"Bermuda benefits from many years of good economic management, based upon policies consistent with its fixed exchange rate," observed Standard & Poor's credit analyst Lisa M. Schineller.

"The fixed exchange rate, favorable macroeconomic policy mix, and well regarded tax and regulatory regimes will continue to attract the international business sector — particularly insurance — thus ensuring its continuance as the main engine of economic growth in Bermuda," she added.

According to Ms. Schineller, the government has the fiscal and external flexibility to absorb a budgeted expansion in spending.

"As a net general government creditor, Bermuda can afford to increase spending in a cautious and prudent manner," she explained.

The general government deficit is projected to rise to 2.5% of GDP in 2005-2006 from less than 1% of GDP in recent years.

According to S&P, Bermuda remains a global leader in the reinsurance segment and this has helped offset a secular decline in tourism. GDP growth is projected at 2.5-3% in 2005 and 2006, after registering 3% growth in 2004.

"Sound policy and a favorable, stable investment climate are expected to support growth despite increased discussion about establishing independence from the UK," noted Ms. Schineller.

"The politically controversial debate that has already begun is expected to intensify in the run-up to the next general election due by 2008," she concluded.

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