Fitch Ratings has affirmed its high ratings on Bermuda's creditworthiness and said the Island is "in a strong starting position for facing the global economic crisis".

The American credit rating agency yesterday maintained Bermuda's foreign currency Issuer Default Rating (IDR) at AA+ and its local currency IDR at AAA. The outlook on both ratings is stable.

Fitch said a high per-capita income of more than $97,000, a low public-debt burden and effective management of the business and economic environment supported the Island's ratings.

"A long-standing commitment to prudent fiscal policy underpins Bermuda's creditworthiness and provides a strong starting position for facing the global economic crisis," said Casey Reckman, associate director in Fitch's Sovereign group.

However, Fitch added that it expected gross domestic product (GDP) — the sum of goods and services produced — to fall by two percent in 2009 and recover only modestly next year.

"Bermuda's key credit weakness is the economy's lack of economic diversification and small size, which curbs the capacity to absorb extreme shocks relative to other high-grade sovereigns," Fitch's commentary said.

"As a small island economy, Bermuda is vulnerable to external dynamics, such as commodity price shocks and economic downturn in trading partners."

The agency also expects Government debt to rise to 11.6 percent of GDP. Although this figure was low comparative to many other countries, Fitch said it was prudent to keep it low, as Government has a smaller revenue base and more limited financing options than highly rated peers.

"Fitch will monitor Bermuda's fiscal situation, as policy flexibility is hindered by the lack of 'reserve currency' status and a lender of last resort to the financial sector, as well as a limited scope to incur and fund large fiscal deficits," Mr. Reckman said.

Bermuda has a strong track record of economic stability, Fitch said and "large current account surpluses bolster the island in the face of global economic and financial turbulence".

Fitch added: "Bermuda has not been exposed to global and local financial market distress to the same degree as other high-grade peers. Financial system supervision continues to improve and uphold high international regulatory standards. Bermuda's well-established reputation as a domicile of choice for (re) insurance and financial services companies provides a basis for sustainable economic growth."

Fitch expressed concern about the limited information on non-bank private-sector external assets and liabilities, given the size of Bermuda's international financial sector. However, Fitch said Government appeared unlikely to provide support to international firms owned by non-residents.

"Fitch also believes that these liabilities pose little risk to the stability of Bermuda's exchange rate or the domestic financial system, as most related transactions take place entirely offshore," added the commentary.

In May, Standard & Poor's affirmed Bermuda's long-term debt rating of AA, but lowered the outlook from stable to negative, citing risks stemming from the Island's banking sector. That came two weeks after Moody's downgraded Bermuda Government bonds, owing to the Island's small size and lack of economic diversity in the face of "global shocks".

Fitch said: "Sizeable fiscal slippage which results in a sustained increase in the sovereign's public debt burden could put downward pressure on Bermuda's ratings in light of limited financing flexibility."

Changes to Bermuda's tax regime, originating domestically or from abroad, which make the Island less attractive as a business domicile, could be negative for creditworthiness. But "fulfillment of the Government's expressed commitment to fiscal consolidation and debt reduction when the economy recovers would help uphold Bermuda's ratings", Fitch added.