HAMILTON, Bermuda – International ratings agency Moody’s Investors Services has downgraded Bermuda’s rating by another notch, reiterating its concerns about government’s mounting debt and lack of an economic recovery.

Moody’s lowered Bermuda to Aa3, three notches below the top triple-A level stating that the outlook is negative, reflecting uncertainty about government’s debt trajectory over the medium term.

The move ends a review for a potential cut that began on April 3 when Moody’s put Bermuda on a downgrade watch.

The ratings agency said then, that the review was prompted by the island’s steep rise in government debt and its ongoing recession since the global financial crisis.

That review came a week after Standard & Poor’s Ratings Services lowered its outlook on Bermuda to negative from stable, citing its prolonged economic downturn and weakened financial performance. S&P had Bermuda at double-A-minus, also three notches below the top rating.

Moody’s expects Bermuda’s weaker economic trends will continue through this year, with moderate growth returning next year. Moody’s also expects a long-term decline in the tourism industry and says less dynamic growth in the insurance sector may limit future growth.

The outlook could return to stable if the economy begins to grow and the government can contain its rising debt. However, a further potential downgrade could be prompted by continued economic weakening or a lack of significant government spending policy measures.

In response to Moody’s rating action, the Ministry of Finance said it recognised that continuing government deficits and weak economic growth could put Bermuda’s sovereign rating at risk of a downgrade by one notch.

“We note, however, that in so doing, Moody’s affirmed that our rating is supported by very high per capita income, strong institutions, and our still moderate level of government debt in relation to similarly rated sovereigns,” the Ministry of Finance said in a statement.

While the ratings adjustment was not positive, the Ministry of Finance also noted that the adjusted rating remains in the top tier of the ratings matrix.

“At Aa3, our sovereign bond rating is only three notches below the highest rating of Aaa,” the statement said.

The One Bermuda Alliance inherited a national debt of US$1.4 billion when it replaced the Progressive Labour Party in last December’s general election. Local unemployment has been running at around 10 per cent.

CMC