‘No quick fix for national debt’

The UK Government and Government House are satisfied that Government will take steps to reduce Bermuda’s ballooning debt, Governor George Fergusson said this week.

Mr Fergusson was speaking after investment service Moody’s put Government’s Aa2 bond rating on review for possible downgrade and ratings agency Standard & Poors downgraded the island’s economic outlook to “negative”.

Mr Fergusson said: “The Government is committed to reducing the deficit and debt over the next few years, but there won’t be any instant fix.

“The Government recognizes, the British Government recognizes that and Standard & Poors recognizes it.”

Moody’s said that the review was prompted by “the steep rise in government debt since the global financial crisis and the prospect of further rises in the coming two years”.

A downgrade could result if the review concludes that debt is likely to continue to rise.

Mr Fergusson said: “Certainly, the British Government would take an interest and I would take an interest in what ratings agencies say.

“They are not perfect indicators, but they are very influential indicators. 

The Standard & Poors rating I don’t think carried any surprises for people, but the definition of a negative rating, as I understand it, is worth looking at.

“It’s that there is a one in three chance they might lower the credit rating in the next two or three years – which means there is a two in three chance they won’t.”

A lower credit rating means Bermuda would find it harder to borrow money — and pay higher interest rates to reflect the greater risk.

Britain has already signalled it would not bail Bermuda out of the red — while the island’s Constitution would preclude the UK stepping in, unlike the situation in other Overseas Territories with different constitutional arrangements. Finance Minister Bob Richards, reacting to the Moody’s announcement, said a downgrade was “certainly not something we wish for Bermuda’s future”.

He added: “I was pleased to read in the report that Moody’s has recognised the OBA is putting various initiatives in place aimed at economic improvement, as did the Standard & Poors report, which was released last week. Government remains optimistic about future prospects for growth and will manage the economy accordingly.”

The Moody’s report on the state of the onion said that, although a downgrade was possible, the island was backed by its “very high per capita income, strong institutions and its moderate level of government debt.”

The report said” “Despite its recent rise, government debt started from a very low level and is still at a level only slightly higher than the median for countries in the same rating range.

“The rating review will focus on the new government’s plans to address the upward debt trajectory and to implement reforms that would boost economic growth.”