Searching for economic growth

Moody’s Investors Service says Bermuda’s international business sector has “positive prospects” in the next few years.

But the prospects for tourism are not as bright unless structural problems are overcome. 

This comes after the ratings agency downgraded Bermuda last week to Aa2.

Steven Hess, who is Moody’s Investor Service lead analyst for Bermuda, said the current Budget projects the largest deficit in Bermuda’s history. 

He told the Bermuda Sun: “Going forward, that’s of some concern because it results in a continued rise in the debt ratio. We believe that the new Government, which came into office at the beginning of the year, basically, is concerned about this and that they will try to take measures that will reduce the debt trajectory going forward.”

Declines

He said the OBA being a new Government, Moody’s will watch to see what measures it takes to turn around Bermuda’s fortunes.

Mr Hess said: “Underlying all of this, is the poor performance of the economy over the last several years. In fact, you’ve had declines in GDP for some time. This is something makes it much more difficult for any government, whether it’s the previous one or this one, to improve its finances.”

He added: “As a result we did put a negative outlook on the Aa2 rating after the downgrade to see what the outcome might be in terms of both economic growth and any measures the Government might take to improve its finances and reduce the upward trajectory of the debt.

“We’re looking for developments in the next year or so before deciding what to do with the rating again.”

He said the key question is how the economy performs over the next 12 months. 

Mr Hess said: “The insurance industry has not been contributing in a big positive way to growth in the past few years but our analysis is that it’s going to turn around at some point, we don’t know exactly when. 

Positive

“Over the next few years there are positive prospects for the international business sector, but it will turn around and that there will be positive growth. We’re not sure how strong that will be, but that is something that could improve the (Bermuda’s) situation.”

He said the tourism plans, first articulated by the PLP, and currently followed through by the OBA is a good thing.

Mr Hess said: “We believe that any Government in Bermuda would be trying to be doing something positive on the tourism front… but that’s been a declining industry for a long time. We have to wait and see what the outcome of any Government’s efforts to turn that around might be. 

“It (tourism) has some structural problems that has last for a long time. It would be very good if they can turn that around. We’re not yet sure that will happen.”

He said part of tourism’s structural problems can be linked to the high cost of the product in Bermuda. 

“But there’s also the lack of investment in new facilities for a long time.”

Mr Hess concluded: “We’re going to be watching trends in those industries but the international business sector is the most important because it’s the biggest part of the statistics on the GDP in Bermuda.”