Moody’s affirms island’s ratings, maintains stable outlook
Moody's Ratings has affirmed the Government of Bermuda's long-term issuer and senior unsecured bond ratings at A2 and maintained the stable outlook.
The ratings agency said the affirmation of Bermuda's A2 ratings was driven by continued fiscal consolidation that Moody's expected would support a gradual decline in the government's debt burden, while debt affordability would remain relatively stable, at levels above those observed in similarly rated peers.
Even though the pandemic had a lingering impact on the island’s tourism sector, Moody’s said, gross domestic product growth had recovered strongly and economic activity had been supported by public investment and renewable energy projects.
Moody’s said: “The stable outlook reflects Moody's expectation of gradual decline in debt burden and broadly stable interest burden, balanced against moderating growth performance in line with pre-pandemic trend, which reflects Bermuda's mature economy.
“The outlook also considers Bermuda's very strong institutional framework, very high per-capita income, and strong external position, which are underlying credit strengths that bolster Bermuda's capacity to absorb potential future shocks, despite the small size of the economy, limited diversification and the long-term impact of ageing population on potential growth.”
It added: “Bermuda's country ceilings remain unchanged. The local currency country ceiling is positioned five notches above the sovereign rating at Aaa, reflecting the economy's economic fundamentals, strong institutions and limited government intervention in economic activity.
“Also at Aaa, foreign currency country ceiling reflects strong external position and large stock of foreign assets, indicating that the risk of restrictions on transfer and convertibility at times of stress remains very limited.”
Moody’s said Bermuda's government continued on a path of fiscal consolidation that had led to a moderate but steady debt reduction, after increased spending in response to the pandemic led to a higher debt burden.
The agency expects the Government to achieve a balanced budget this fiscal year and to start generating surpluses as of FY2025-26.
“As a result, Moody's projects Bermuda's debt burden to decline gradually over the coming years moving to 38 per cent of GDP by 2025. Debt affordability will remain a constraint on the country's fiscal profile, given a relatively elevated interest-to-revenue ratio of 11 per cent, compared with a median of less than 4 per cent for A-rated peers.
“Moody's expects further improvement in Bermuda's fiscal metrics as revenue collection strengthens with the implementation of a new corporate tax.”
The agency said economic growth would be driven by infrastructure projects and the construction sector, steady growth in the international business sector and tourism.
“Moody's projects GDP growth around 1.5 per cent in 2023-2025, a conservative estimate relative to the post-pandemic recovery, but more in line with the economy's pre-pandemic growth performance. Government investment in renewable energy projects coupled with the agenda for the Blue Economy adds upside potential to Moody's medium-to-longer-term growth forecasts.”
It added: “Bermuda's economy has demonstrated dynamism in its key sectors, namely the international business sector and insurance industry, which continue to expand and attract new firms.
“Still, the small size of the economy, limited economic diversification, and unfavourable demographics could hamper Bermuda's medium-term growth prospects. In this regard, the Government has been taking steps to address constraints on immigration into the island, through the provision of more affordable housing and by expanding residency programmes for guest workers.
“The authorities are implementing a strategy to reduce Bermuda's exposure to climate risks, focused on increasing production of renewable energy and encouraging sustainable use of ocean resources, including sustainable fishing and the creation of a marine spatial plan that will assist in better managing Bermuda's ocean environment.”
For the full Moody’s report, see “Related Media”
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