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Bermuda's 'Unsustainable' Finances Trigger Credit Rating Review

by Jason Gorringe, Tax-News.com, London

05 April 2013


The Bermuda Government's decision to delay fiscal austerity for a further year in the face of a slow economy may trigger a credit rating downgrade, Moody's Investor Service has warned.

Moody's said that its review of Bermuda's Aa2 government bond rating was "prompted by the steep rise in government debt since the global financial crisis and by the prospect of further rises in the coming two years," given that "the island's economy remains in recession, making efforts to correct the fiscal deterioration more difficult."

Moody's highlighted that government debt to GDP has risen from a low of 5.9% at the end of the 2007-08 fiscal year to an estimated 28.1% by the end of 2012-13. "Furthermore, the newly elected government's first budget, introduced in February, projects a large deficit that will raise this ratio further in the coming year to well over 30%," Moody's pointed out.

Despite acknowledging that Bermuda's budgetary deficits had reached an "unsustainable level", the territory's new Finance Minister Bob Richards released a Budget in February including measures for a fiscal expansion that will increase the deficit by BMD331m (USD331m) to BMD2.06bn in 2013/14.

Key measures in the 2013/14 Budget included a new two-year payroll tax holiday for local hires; a reduction to license fees on non resident purchases of Bermuda property; hikes to duties on tobacco products and alcohol; and increases to land and property taxes. In addition, the Corporate Service Tax Rate was hiked from 4% to 6%.

TAGS: Finance | tax | business | property tax | fiscal policy | law | financial services | insurance | budget | Bermuda | fees | payroll | offshore | services

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