Moody’s Investors Service has issued its annual report on Bermuda, discussing the island’s Aa1 foreign currency country ceilings, Aaa domestic currency rating, and stable outlook, which the rating agency indicated reflect its prudent macroeconomic policies, favorable external position, and low debt and debt-service ratios.
“Bermuda has established itself as a premier offshore business center as tourism has steadily declined over the last 20 years.” stated Moody’s analyst Steven Hess, author of the report. “International business and tourism account for about 50 percent of GDP and 85 percent of foreign exchange earnings.” Visitors’ arrivals were up 1.9 percent in the first nine months of 2003 and the insurance sector received a 10 percent rise in new incorporations.
Moody’s sees real GDP growth in 2003/04 as modest – between 1.0 and 1.5 percent, and it “expects the government fiscal accounts to remain in a relatively good position with a deficit substantially below the 2 percent envisioned in the 2003/04 budget. The Popular Labor Party government, which was re-elected in 2003, expects increases in receipts from customs duty and the payroll tax for post-Hurricane Fabian reconstruction expenses. A majority of reconstruction expenses following the 2003 hurricane will likely be covered by insurance. ”
Hess commented that the “government’s policies have demonstrated continued commitment to sound fiscal policies and low government debt levels. For example, it has maintained the policy of keeping government debt at less than 10 percent of GDP. The island’s close proximity to the United States has led to many economic links, both in tourism – approximately 80 percent of all visitors arrive from the US – and offshore business, making Bermuda particularly sensitive to events in the US.”
The report noted that Bermuda’s offshore business is led by the insurance sector, which continues to drive economic activity. “Bermuda’s strong reputation among offshore centers should help keep the sector growing,” Hess continued. “Though unlikely from today’s vantage point, changes in tax legislation could have a significant impact on Bermuda’s insurance sector. Moody’s is closely monitoring for changes in US tax legislation that would be damaging to Bermuda.”
The rating agency noted that the report, “Bermuda: Global Credit Research,” is a yearly update to the markets and “is not a formal action to alter the credit rating of the issuer.”
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