Bermuda’s $22 million revenue loss in aircraft registry receipts as a result of the withdrawal of Russian aircraft certification business, can be covered by better than expected tourism receipts, a rating agency has declared.

It was a position taken by Kroll Bond Rating Agency on Friday as it affirmed Bermuda’s stable long-term issuer ratings of A+ and short-term issuer ratings of K1+ which were assigned on, and have been affirmed since October 2018.

Bermuda’s long-term ratings stable outlook reflects the commitment to fiscal restraint, the recovery of tourism and KBRA’s expectations for durability in the island’s status as a financial hub.

David Burt, Premier and Minister of Finance, commented last night on the net effect of the rating affirmation.

He said: “Overall, Bermuda received a positive report from KBRA. The rating affirmation and continuation of the stable outlook demonstrates that the agency believes that the country is on a steady path under the stewardship of this government.

“This rating affirmation from KBRA, who is an independent, well-respected rating agency, will allow Bermuda to continue to have access to capital at relative low interest rates as borrowers will have confidence in Bermuda’s ability to honour our debts in the near and long term. It also helps to support Bermuda’s attractiveness as a good place to conduct quality business.”

KBRA says it expects Bermuda to be largely resilient to moves towards global corporate tax reform and Brexit, although risks exist.

The stable outlook is provided even though there are heightened geopolitical uncertainties, risks of a recession in Bermuda’s most important tourism market (the US), risks around inflation and its impact on economic growth and public finances, but also takes into account Bermuda’s resilience to the energy shock.

KBRA’s economic snapshot of the island reflected a per capita income of more than $85,000, real GDP growth of 3.4 per cent and included a budget imbalance of 1.1 per cent.

Rating sensitivities included this statement: “Positive rating momentum could arise should economic growth and employment creation strengthen, likely through new industries or successful immigration liberalisation.”

Bermuda’s key credit considerations include “large external assets in the government’s Public Service Superannuation Plan and Contributory Pension Fund as mitigation against the ”the burden of a large government gross debt and financing costs [relative to revenues].“

They also include relative wealth, strong regulation, high quality financial services industries including re/insurance.

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KBRA Bermuda Surveillance Report.pdf

But the report also states: “While thus far Bermuda has been (resilient) to international tax reform, progress on the global minimum corporate tax rate could be a challenge, although one that is expected to be manageable.

“Brexit could create legal and regulatory risks, although these are expected to be muted given the European Union negotiates directly with Bermuda on many matters.”

The report stated: “Risks appear from inflation – 3.7 per cent in May – and rising yield environment, although they appear manageable given Bermuda’s fixed-rate debt structure and no meaningful refinancing needs until 2027.“

The Premier said: “The report also mentions the country’s economic and government financial strength, stating that the economy is characterised by very high per capita GDP, strong and stable institutions and a flexible, well-managed and innovative investment environment.

“It is stated that Bermuda’s success in generating a high per capita income relates to its expertise in international financial services, especially (re)insurance, but increasingly in alternative capital alongside new opportunities in fintech, digital assets and other services.

“KBRA also proclaims that the Government of Bermuda has a track record of responsible fiscal policy, including the establishment of a sinking fund to finance debt payments due, multiyear budget planning and reliance on debt ceiling caps.”

In reference to the report, Mr Burt also said: “Bermuda scored very well in traditional areas such as the economy and fiscal performance.

“Further, over the last few years rating agencies are giving more credence to Environmental, Social and Governance management. In this regard, the report speaks favourably about Bermuda’s management of extreme weather event risks through our advanced infrastructure, building codes that ensure hurricane resilient structures, insurance on government buildings and responsible planning codes.

“We also received praise on our efforts to improve sustainability which include reducing our carbon footprint and preserving the marine ecosystem. Special mention was also given regarding the government’s establishment of a Climate Action Task Force in 2021 that includes stakeholders across the spectrum.”

The Premier added: “Although there were many positive factors contained in the report, there were also a few risks that were discussed. The report stated that Bermuda has been resilient to international tax reform thus far, however the minimum corporate tax rate could be a challenge in the future and Brexit could create legal and regulatory risks in the future. However, it also stated that both of these risks are expected to be manageable.”

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