TUESDAY, JUNE 26: Finance Minister and Premier Paula Cox said Bermuda’s rating downgrade from Fitch only returns it to the level it was from 1994 to 2006.
She also added Government spending cuts would only hurt the Bermuda economy and that the correct path would be to make investments in infrastructure, which will bring jobs, income and new opportunities to Bermudians.
The Premier said the world economic crises coupled with “tough economic conditions” could put Bermuda’s sovereign rating at risk and face an adjustment.
She said: “While today’s ratings adjustment is not positive, it sees Bermuda return to an AA rating, which Bermuda held from 1994 to 2006.
“In 2006, Fitch raised Bermuda’s rating to AA+. Today’s adjustment returns us to pre-2006 ratings. It is important to note that Bermuda continues to receive high Ratings from all 3 major Ratings Agencies.”
“The Government will continue to balance the needs of all citizens during these tough times.
“We will continue press ahead with important investments in infrastructure which will bring jobs, income, and new opportunity to Bermudians.
“As the Premier and Minister of Finance, I remain committed to bringing enhanced efficiency to the Civil Service, and freezing spending at current levels.
“I am confident this is the correct fiscal consolidation strategy, as further spending cuts will only serve to weaken the economy during these tough times, putting more strain on Bermudian families.
“The Government is pleased that the adjusted rating remains in the top tier of the ratings. At AA, Bermuda’s sovereign bond rating is only two notches below the highest rating of AAA. I am also pleased that Fitch has maintained a stable outlook to the AA rating.”
A spokesperson for the Ministry of Finance quoted Fitch: “Bermuda ratings are supported by Bermudians wealth, the fourth highest GDP per capita among Fitch-rated sovereigns, and the high savings rate relative to its peers in the ‘AA’ rating category.
“Bermuda’s competitive advantage as a domicile of choice for insurance, reinsurance and financial services companies remains intact due to its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US market and highly-skilled human Capital.”
In the Fitch release, the ratings agency added that while these are positives, the “credit strengths, however, are counterbalanced by Bermuda's lack of economic diversification, weaker growth prospects and limited policy flexibility”
It added: “Bermuda's debt/revenue ratio at 150 per cent in 2011 is above the AA' median, and is deteriorating faster than its peers. Moreover, recurrent changes to the debt ceiling, withdrawals from the sinking fund to meet interest payments and the inability to implement a multi-year budget programme have undermined the credibility of the fiscal policy anchor and the commitment to fiscal consolidation.”
Fitch also said: “The weak economic performance has accelerated the deterioration in public finances observed since 2007. Fuelled by a still-contracting economy and higher expenditures, the government deficit for the 2011/12 fiscal year could be equivalent to 4.5 per cent of GDP.
“This figure is twice what was originally estimated and above the median in the 'AA' rating category.”