April 2, 2014 at 11:02 a.m.

Regulators have merely given us a 12-month breather

Regulators have merely given us a 12-month breather
Regulators have merely given us a 12-month breather

By Larry Burchall- | Comments: 0 | Leave a comment

Standard & Poor’s yesterday affirmed their ‘AA-/A-1+’ sovereign ratings on the Government of Bermuda, and said the outlook remains negative.

For ordinary Bermudians, the ‘meat’ of the just-out S&P Ratings is here: “Nevertheless, we expect Bermuda’s economy to stabilize and begin to modestly grow in 2014-2015, particularly if its major trade and finance partner, the U.S., continues to increase its GDP by 2%-3%, in real terms, as we expect. In addition, the new One Bermuda Alliance governing party is undertaking a variety of measures aimed at economic revitalization.”

S&P’s ‘no downgrade’ decision is what I expected. Why? Because I thought that S&P would be reassured by the plan that Finance Minister Bob Richards put out in February 2014 in which he indicated that he was controlling debt and was planning to get to a balanced Budget in a foreseeable timeframe.

S&P were probably also reassured by the fact that the Opposition had also put out a sound and workable plan that was not markedly different from the governing party’s plan. Clearly, both parties  were seeking control and better management.

However, there is a significant dissonance in this report. 

S&P suggest one per cent year-on-year growth in GDP out to 2017. Minister Richards projected 3% year-on-year. Shadow Minister Burt projected 5% year-on-year. This difference in expectation is significant and has major implications for Government’s forward revenue projections. S&P think  that Government tax revenue will be lower than anticipated by both Richards and Burt.

Given that dissonance, S&P’s negative outlook without a downgrade makes complete sense. At least to me. 

Sadly and importantly, S&P are, for the fourth year [first comment in 2011], commenting on something that is vitally important. That is ‘gaps in official data’. These gaps have left the Bermuda Government and some Senior Policy- makers in the invidious position of still claiming, in March 2014, that there has been straight-line growth in Bermuda’s ResPop. 

The Government still hangs on to this official and public position even while the whole private sector reports that ResPop has fallen significantly. This is something that I’ve been hammering away at since 2012. Essentially, S&P have given us another 12-month breathing spell before, once again, they look at a possible downgrade resulting in a big jump in our interest costs and need to borrow, which, as S&P indicate, they do not expect to end soon.

Quick summary? Heads down, shoulders to the wheel, and let’s get Bermuda’s real economic driver —  ResPop — up and moving higher. 


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