Moody’s Ratings expects the Government of Bermuda will reach a balanced budget in 2024 and start generating positive financial balances in the following years.

That view was expressed in a periodic review of the ratings of Bermuda and other ratings that are associated with it.

The agency said the review was conducted through a rating committee held on November 14 in which it reassessed the appropriateness of the ratings in the context of the relevant principal methodologies and recent developments.

Moody’s said: “Bermuda's ratings, including its A2 long-term issuer ratings, reflect its very high per capita income, moderate and stable government debt ratios, strong offshore financial services sector — mainly insurance — with a high-quality regulator.

“Bermuda’s credit profile also reflects the challenges presented by its small and open service-oriented economy, which is exposed to exogenous shocks, weak economic growth for an extended period and higher interest burden than that of its peers.”

The agency added: “Recent developments, including progress on fiscal consolidation efforts and moderating growth performance, have been in line with our expectations.

“We expect the Government will reach a balanced budget in 2024 and start generating positive financial balances in the following years.

“This is due to reduced expenditure and the expected increase in revenues related to tax reform implementation, approved at the end of 2023.

“We expect the debt burden to stabilise at around 40 per cent of [gross domestic product] in the next two-three years.”

Moody’s said Bermuda's “ba1” economic strength score reflects the economy’s small scale and moderating growth performance, balanced against very high wealth levels compared with those of peers and a competitive international business sector.

It added: “We assess institutions and governance strength at ‘a1’, reflecting Bermuda’s strong institutional framework, government effectiveness, rule of law and regulatory quality.

“Overall, the strength of regulatory institutions and the legal system has allowed the island to become one of the world's leading insurance and reinsurance industry centres. Policy execution is also strong.

“We assess Bermuda's fiscal strength at ‘baa1,’ reflecting a moderate and broadly stable debt burden; however, the interest payments to revenue ratio is relatively elevated around 9 per cent.

“Our assessment of susceptibility to event risk is ‘a’ driven by the contingent liability risk posed by the island's large banking sector.”

Moody’s said: “The stable outlook reflects our expectation of a gradually declining debt burden and broadly stable interest burden, balanced against moderating growth performance in line with its pre-pandemic trend, which reflects Bermuda’s mature economy and the long-term impact of its ageing population on growth potential.

“The outlook also captures 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.”

The agency said it would change the outlook to positive if debt affordability improves significantly with evidence that Bermuda’s interest-to-revenue ratio is converging with the level observed in similarly rated peers.

Additionally, upward pressure would arise if the government debt burden was increasingly likely to decline markedly, in line with the authorities’ fiscal targets, supported by solid economic growth and tax measures that reinforce government revenue, helping to achieve fiscal surpluses on a sustained basis.

The agency said it would change the outlook to negative if, over the next two to three years, fiscal trends deteriorated, leading to an upward trend in Bermuda's debt metrics.

“Prospects of weaker-than-expected growth due to a material reduction in the dynamism of the international business sector would undermine Bermuda’s economic strength and its sovereign credit profile.”