International credit rating agency Moody’s has maintained an Aa3 rating for bonds issued by the Cayman Islands government in a foreign currency, and an Aa2 rating for long-term foreign currency ceiling bonds and notes.
In its credit opinion, Moody’s noted government’s “fiscal and debt positions are comparatively robust given fiscal surpluses, low levels of debt, and high debt affordability.”
The rating agency expects budget surpluses of 2 percent to 3 percent of gross domestic product both this year and next, which will result a falling government debt burden.
“The debt-to-GDP ratio is slated to decline to approximately 18.5 percent of GDP in 2015 compared to a peak of 24.4 percent in 2011. We forecast that debt-to-GDP will continue to trend down, declining to around 17.5 percent of GDP in 2016,” Moody’s said.
Despite comparatively lower economic growth rates than equally rated peers, Cayman’s per capita GDP is higher than the median for Aa-rated sovereigns and a key support factor of its high credit rating.
Of the 16 sovereigns rated Aa by Moody’s, only four have a higher per-capita GDP and two of them are Middle Eastern oil-producing countries.
“Cayman’s high GDP per capita supports its resiliency in the face of economic and natural disaster shocks, of particular importance given the country’s vulnerability to hurricanes,” the rating agency said.
Finance Minister Marco Archer said, “Government is pleased with the high ratings for the Cayman Islands being maintained and that the credit ratings’ outlook, remains stable.”
The minister added, “Moody’s concludes that there is a very low risk of government imposing limits on its foreign currency debt repayments. Government’s repayment obligations will continue to be met which, undoubtedly, maintains investors’ confidence in these Islands. The sustained excellent ratings by Moody’s signify that public finances in the Cayman Islands have been managed prudently.”
The rating outlook is stable. Moody’s noted a positive outlook could be considered in the event of a significant reduction of government debt levels coupled with a policy framework that makes it unlikely debt will increase significantly again.
A negative outlook could result if the debt burden begins to rise, either due to policy reasons or a slower economic recovery.
Long-term economic risks related to loss of competitiveness in tourism and financial services could affect government finances and put pressure on the country’s external accounts.
A particular potential economic risk noted by Moody’s is the shrinking of the financial services sector as a result of tighter regulations from G-20/OECD initiatives involving offshore financial centers. This would lead to lower economic growth and negatively impact fiscal revenues, but it is a risk that would play out over a longer term of five to seven years.
Meanwhile, the likelihood of a major shock remains low, Moody’s stated.