Moody’s confirms Bermuda’s A2 rating – The Royal Gazette

Even without the biggest hotel on the island for perhaps the next 24 months and lingering concerns over “national” debt, a major rating agency has endorsed Bermuda as our future prospects.

In fact, Moody’s Investors Service cited the strength of international trade, “the return of tourism” and a history of fiscal responsibility as key drivers in affirming Bermuda’s government long-term issuer A2 ratings and debenture ratings. first-class. The outlook was kept stable.

Moody’s said a track record of fiscal consolidation will support debt stabilization, with the debt burden remaining in line with similarly rated peers.

The agency added that a buoyant international business sector and a rebound in tourism should support medium-term growth, despite poor performance in recent years.

“The stable outlook reflects Moody’s expectation that fiscal consolidation efforts will stabilize debt around current levels, supported by moderate (economic) growth due to the rebound in tourism activity and growth in the business sector. international,” Moody’s said.

“Bermuda’s country caps remain unchanged. The country cap in local currency is positioned five notches above the sovereign rating at Aaa, reflecting economic fundamentals, institutional strength and limited government intervention. in economic activity.

“Also at Aaa, the countries’ ceiling in foreign currencies reflects a strong external position and a large stock of foreign assets, indicating that the risk of transfer and convertibility restrictions in times of crisis remains very limited.”

David Burt, Premier and Minister of Finance, said, “Bermuda’s economy is moving in the right direction and the government will deliver on its promise to deliver even more relief to workers while maintaining fiscal discipline.

The Prime Minister added: “I welcome another independent validation of Bermuda’s economic strategy. Moody’s positive assessment of the government’s management of Bermuda’s economy reflects this government’s ability to manage the economic storms while caring for the most vulnerable in our community.

“It is important to note that these ratings were achieved, despite the fact that the government had to raise the debt ceiling to borrow $200 million due to the guarantee on the failed Morgan’s Point project and the $44 million dollars that taxpayers had to pay. pay Skyport, both projects inherited from the previous administration.”

Moody’s said: “From 2021, the government made progress towards fiscal consolidation as the pandemic shock subsided, reducing spending and the fiscal deficit. The budget for fiscal year 2023 incorporates a fiscal deficit of around 0.9% of GDP, a significant improvement from a deficit of over 1.6% in 2020.

“Moody’s expects the public debt burden to decline slightly and stabilize around 46% of GDP over the next two to three years. The government aims to achieve a balanced budget by fiscal year 2025 and a budget surplus of $50 million by fiscal year 2027.

“At this level of debt, Bermuda’s debt burden remains in line with the current median of A-rated peers of 49%. Given the context of the crisis, Bermuda’s recent track record of fiscal consolidation and our assessment of very strong institutions are key. to our expectations of debt stabilization around the current level and gradual reduction.

“However, Bermuda’s interest burden will remain relatively high. The ratio of interest payments to government revenue will remain above 12%, compared to less than 6% for comparable countries.

“Over the next two to three years, Moody’s expects fiscal performance to be supported by the recovery in economic activity. Moody’s expects growth performance to regain momentum, relative to years previous years, supporting a trajectory of gradual decline in public debt.The tourism sector and investment in new hotels on the island are important drivers to improve growth prospects.

“While Bermuda’s direct exposure to the tourism industry as a source of tax revenue is very limited, the sector still plays an important role in direct and indirect economic activity.

“Tourism’s direct and indirect contribution to GDP is around 17.3% of GDP, while the sector also employs around 21% of the workforce, including tourism-related sectors.

“The international business sector, which includes the insurance and reinsurance sector, accounts for about 25% of GDP, which has cushioned some of the impact of the pandemic shock on Bermuda’s economy compared to other economies dependent on tourism.”

Moody’s also noted: “Bermuda is a global center for the insurance and reinsurance industry and the sector remains attractive to new business.

“In the medium term, Bermuda will be able to take advantage of new opportunities in the insurance and reinsurance sectors, such as cyber and climate risk underwriting, which Moody’s plans to expand in the coming years, noting the strong growth potential of this sector. emerging sector in Bermuda.

“The recovery of the tourism sector and investments in new hotel developments will drive growth performance in the years to come.

“In 2021, the tourism sector has started to recover from the pandemic shock, and activity in the sector is likely to approach its pre-pandemic level in 2022.

“Moody’s expects tourist arrivals to be stronger in 2022 as the first quarter of the year showed improvements.

“In the first quarter of 2022, the total number of leisure arrivals increased to over 7,000 compared to only 1,734 in the first quarter of 2021.

“Externally, Bermuda’s highly competitive international insurance and reinsurance industries provide the island with steady and large flows of current account surpluses, which leaves Bermuda with a very strong external position.

“Over the past decade, the current account surplus has averaged almost 10.8% of GDP, supported mainly by compensation paid by international companies (primary income credits).

“Other important sources of balance of payments revenue include investment income earned by residents and local financial institutions on their overseas investments, and income related to tourism.

“In the fourth quarter of 2021, Bermuda’s current account recorded a surplus of $217 million. This represents a year-over-year increase of $6 million.

“At the end of the year in 2021, Bermuda’s net external position stood at $4.6 trillion, or nearly 64% of GDP. The sustainability of the economy’s external position will continue to depend primarily the performance of the IB sector and the attractiveness of Bermuda as a hub for international insurance and other financial services.”

Moody’s also provided a breakdown relating to ESG considerations.

He cited environmental risk exposure as moderately negative (issuer profile score E-3) due to Bermuda’s exposure to the tourism sector and the impact of sea level rise on its natural capital.

Bermuda’s exposure to social risks was rated neutral to low (issuer profile score S-2), due to the island’s exposure to risks related to an aging population, offset by strong results education and very high wealth.

Moody’s also said that Bermuda’s very strong institutions and governance profile support a rating of (G-1 issuer profile score) with strong institutional structure and political effectiveness.

The Prime Minister replied, “Moody’s assigns country ratings for Environment, Social and Governance (ESG) and Bermuda received the highest rating possible for governance.

“The report highlights that the government’s fiscal and economic policies are key to maintaining Bermuda’s resilience during very challenging times globally.

“The strength of Bermuda’s institutions, our solid institutional framework, our strong external position and our vast stock of assets are also themes that have been repeated.

“Overall, this report and the recent S&P report are a positive reflection of this government’s handling of our economy and are positive proof that our economy is moving in the right direction.”

GDP per capita (PPP basis, USD 74,408 (2021) (income per capita)

Real GDP Growth: 4% (2021) (GDP Growth)

Inflation rate (CPI to December 2021): 2.7%

General government fiscal balance/GDP: -1.6% (2021) (also known as fiscal balance)

Current account balance/GDP: 3% (2021) (also known as external balance)

External debt/GDP: 135.2% (2021)

Economic resilience: baa1

Default history: No event of default (on bonds or loans) has been recorded since 1983.

On June 16, 2022, a rating committee was convened to discuss the rating of the Government of Bermuda. The main points raised during the discussion were as follows: The issuer’s economic fundamentals, including its economic strength, have increased significantly. The issuer’s institutions and governance strength have not changed significantly. The issuer’s fiscal or financial strength, including its leverage profile, has declined significantly. The issuer’s sensitivity to event-related risks has not changed materially.

Moody’s has also released commentary on factors that could lead to a rating change.

The agency said: “Positive rating pressure could materialize if the government demonstrates its ability to reverse the effects of the pandemic-induced economic shock on its fiscal metrics and implement revenue measures to achieve surpluses. in a sustainable manner in order to meet its budgetary objectives.

“In addition, our assessment will take into account the trajectory of Bermuda’s debt metrics, particularly with respect to debt affordability, and evidence that its interest-to-income ratio is converging towards the level seen for its peers having a similar notation.

“The outlook could turn negative if fiscal trends deteriorate in coming years, causing Bermuda’s debt burden to deviate materially from that of peer countries. Continued weak growth performance would also limit fiscal performance and the credit outlook.

Moody’s report: Bermuda’s exposure to social risks was rated neutral to low (issuer profile score S-2), due to the island’s exposure to risks related to an aging population, offset by good school results and very high wealth.