Fitch Ratings yesterday downgraded Bermuda’s credit rating, citing the Island’s continuing recession, sustained high fiscal deficits and increased Government debt burden.Downgrading Bermuda’s Government bond rating to ‘AA-’ and changing the rating outlook from stable to negative, Fitch said the Island’s prospects for 2013 and beyond were “weak”.The ratings agency also warned that public debt could approach 40 percent of Gross Domestic Product (GDP) by 2014-15. That would equate to a $2.2 billion debt when measured against 2011 GDP, the most recent number available. Government had more than $1.5 billion of debt outstanding at the end of March this year.The negative outlook is a signal that Fitch may downgrade Bermuda’s ratings again if it sees a worsening of the fiscal situation. The outlook reflects “continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy”.The downgrade means that Bermuda is likely to have to pay more to borrow money, as investors in future Government bond issuances would seek a higher rate of interest. The ‘AA-’ rating is in line with countries including Saudi Arabia and South Korea.Public debt had soared from six percent of GDP in 2007 to 28.5 percent in 2012, Fitch noted, adding that “multiple changes in the debt ceiling have undermined the credibility of this fiscal policy anchor”.The agency said the 2013-14 Budget had effectively postponed fiscal adjustment for a year. But it added that Government’s business-friendly policies and efforts to cut wasteful public spending, spearheaded by the SAGE Commission, could result in higher economic growth, “but only in the medium term”.Finance Minister Bob Richards said yesterday: “The Ministry of Finance anticipated that the tough conditions at home could put Bermuda’s sovereign rating at risk of a downgrade.”While the ratings adjustment is “disappointing news”, Mr Richards noted that the adjusted rating remains in the top tier of the ratings matrix.“At AA-, our sovereign bond rating is only three notches below the highest rating of AAA,” he said. “This rating action now brings Fitch’s Ratings on Bermuda in line with the other major ratings agencies.“Fitch continues to endorse our competitive advantage as a domicile for reinsurance and financial services companies due to our sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US and highly-skilled human capital. The report also noted that “Bermuda’s ‘AA-’ ratings are supported by Bermuda’s wealth (the fourth-highest GDP per capita among Fitch-rated sovereigns) and its high savings rate relative to its peers in the ‘AA’ category.“The Government will continue to balance the needs of all citizens during these tough times. We will continue to press ahead with our Jobs and Economic Turnaround Plan that strikes a balance between responsible growth and disciplined financial management. As the Minister of Finance, I remain committed to creating an economy that works for everyone and returning our public finances to a sustainable position.”Fitch’s downgrade follows Moody’s downgrade of Bermuda’s rating last month by another notch as it reiterated its concerns about Government’s mounting debt and lack of an economic recovery. That review came about a week after Standard & Poor's Ratings Services lowered its outlook on Bermuda to negative from stable, citing its prolonged economic downturn and weakened financial performance.Fitch said its downgrade of Bermuda’s sovereign ratings “reflects four years of economic contraction, sustained high fiscal deficits, and increased government debt burden”.“The sovereign’s ability to sustain higher levels of debt is constrained by its narrow revenue base and its underdeveloped domestic public debt markets.“Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects.”Commenting on the key rating drivers, Fitch said: “Bermuda’s economic recession continued for the fourth consecutive year in 2012 due to a combination of cyclical and structural factors affecting employment creation, household consumption, public finances, and the real estate market. Prospects for 2013 and beyond are weak as tourism and the international business sector, Bermuda's two main industries, have reached a mature stage of business and face increasing competition from other jurisdictions.”Fitch added: “Bermuda's government debt-to-revenue ratio is high and is forecasted to deteriorate faster than its peers. This fiscal solvency ratio gains importance because of the sovereign’s limited tax-raising capacity.”The agency noted that Bermuda has the strongest external creditor position among sovereigns rated by it, thanks to large external assets held by its international business sector.