DBRS Morningstar issues positive rating on Bermuda
The world’s fourth-largest credit ratings agency has assigned to Bermuda Long-Term Foreign and Local Currency — Issuer Ratings of “A”.
At the same time, Toronto-headquartered Morningstar DBRS assigned to Bermuda Short-Term Foreign and Local Currency — Issuer Ratings of R-1 (low).
The trend on all credit ratings is positive.
The organisation said the positive trend reflects Morningstar DBRS's view that Bermuda's steady improvement in public finances and robust growth outlook will likely reduce credit risk.
It said: “The Government has run prudent fiscal policy over the last decade, including expectations for a balanced budget in FY 2024-25 and a small surplus in FY 2025-26.
“The government debt-to-GDP ratio appears to be on a downward trajectory. At the same time, Bermuda's economy has performed well over the last few years, supported by a robust expansion in the international business sector and a steady recovery in the tourism sector.
“The Government forecasts the economy to grow between 4.3-4.5 per cent for 2024. Achieving growth and fiscal targets could warrant an upgrade of the credit ratings.
“Furthermore, Bermuda may reduce its debt burden more rapidly than expected.
“In December 2023, the Government enacted the Bermuda Corporate Income Tax Act of 2023, which establishes a 15 per cent corporate income tax on business entities in Bermuda linked to multinational enterprises. Early estimates suggest that the new corporate income tax law could provide a boost to government revenues.
“The upper range of total corporate income tax receipts is estimated at around 10 per cent of GDP annually, although receipts will be moderated after incorporating offsetting tax measures.
“However, there is uncertainty about how the new tax will be implemented. The Government has indicated that part of the excess generated revenue, if any, could be used for early repayment of government debt, which would be positive for the credit rating.”
Morningstar DBRS added: “Bermuda's `A' credit ratings are supported by the country's high GDP per capita, strong fiscal track record and stable political environment.
“Per capita income in Bermuda is among the highest in the world, in part due to its outsized role in the global insurance/reinsurance sector.
“Effective public institutions, stable domestic politics and a legal system based on English common law all promote Bermuda's attractiveness as an international financial centre.
“In Morningstar DBRS's view, these strengths counterbalance the credit challenges associated with the country's very small and relatively concentrated economy, as well as its limited monetary flexibility due to the pegged exchange rate.”
•To view the full report, see “Related Media”
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