CREDIT RATING REPORT
The Government of Anguilla
October 2013 INSTRUMENT RATED RATING ASSIGNED USD 25 million Debt Issue (Notional) Cari BBB+
RATING HISTORY Date Foreign Currency Instrument/Remarks September 20, 2013 Cari BBB+ USD 25 million Debt Issue (Notional) September 28 , 2012 Cari A- USD 25 million Debt Issue (Notional) November 7, 2011 Cari A- USD 25 million Debt Issue (Notional) October 25 , 2010 Cari A USD 25 million Debt Issue (Notional) September 30 , 20 09 Cari A+ USD 25 million Debt Issue (Notional) July 29, 2008 Cari AA USD 25 million Debt Issue (Notional) September 21 , 2007* Cari AA USD 25 million Debt Issue (Notional) *Initial Rating Assigned
RATING DRIVERS Analytical Contacts:
Andre Joseph
Strengths Tel: 1-868-627-8879 Ext. 227
E-mail: [email protected] • Support from the British Government as an overseas territory
• Stable political environment with a history of broad policy Kathryn Budhooram Tel: 1-868-627-8879 Ext. 226 stability and very low but increasing levels of crime E-mail: [email protected] • Good financial market infrastructure but limited monetary Website: www.caricris.com policy flexibility Email: [email protected]
Weaknesses • Poor and deteriorating loan portfolio quality Disclaimer: CariCRIS has taken due care • Limited fiscal flexibility on account of a narrow tax base and caution in compilation of data for • Limited access to funding, exacerbated by the breach of the debt this product. Information has been obtained by CariCRIS from sources management benchmarks which it considers reliable. However, • CariCRIS does not guarantee the Small, relatively narrow economic structure accuracy, adequacy or completeness of • External sector characterised by significant deficits on the any information and is not responsible for any errors or omissions or for the current account results obtained from the use of such information. No part of this report may be published / reproduced in any form Rating Sensitivity Factors without CariCRIS’ prior written • Sharp changes in the macroeconomic environment approval. CariCRIS is also not responsible for any errors in • Substantial changes in debt transmission and especially states that it 1 • has no financial liability whatsoever to Successful implementation of revenue increasing measures the subscribers/ users/ transmitters/ • A change in the island’s status as a British overseas territory distributors of this product.
SOVERIGEN BACKGROUND
Anguilla is the most northerly of the Leeward Islands in the Eastern Caribbean. Apart from the main island of Anguilla itself, which is sixteen (16) miles long and a maximum of three (3) miles wide, the territory includes a number of other smaller islands and cays, mostly tiny and uninhabited. The island is noted for its spectacular and ecologically important coral reefs. Anguilla is an internally self-governing Overseas Territory of the United Kingdom (UK) with a ministerial system of government. The 1982 Constitution (amended in 1990) provides for a Governor, an Executive Council and a House of Assembly. The Governor, Her Excellency Ms. Christine Scott, appointed by Her Majesty Queen Elizabeth II, has reserved powers in respect of legislation, and is responsible for external affairs, offshore finance, defence and internal security (including the police force) and the public service.
The main industries in Anguilla are tourism, international financial services and fishing. Construction and tourism are the main sources of economic growth. Construction activity is being driven by private sector investment in hotel development. Anguilla’s economy is highly vulnerable to downturns in the global economy, high international oil prices and unfavourable weather conditions.
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RATIONALE
Caribbean Information and Credit Rating Services Limited (CariCRIS) has lowered the ratings of the USD 25 million notional debt issue of the Government of Anguilla (GoA) by one notch to Cari BBB+ (Foreign and Local Currency Ratings) from Cari A- (Foreign and Local Currency Ratings) on its regional rating scale. These regional scale ratings indicate that the level of creditworthiness of this obligation, adjudged in relation to other obligations in the Caribbean 1 is adequate .
The downgrade of the ratings is being driven by the poor and deteriorating quality of the onshore banking sector loan portfolio which has culminated in the intervention of the Eastern Caribbean Central Bank (ECCB) into the operations of the two indigenous banks on the island. The combined assets of these two banks represent approximately 77% of the total banking sector assets of Anguilla. The prevailing high and growing non-performing loans (NPLs) of these two institutions has had a negative impact on capital adequacy levels and resulted in the ECCB having to intervene to maintain stability in the onshore financial system.
The factors supporting the ratings are:
Support from the British Government as an overseas territory
Given its status as an overseas territory, there is a strong moral and possibly legal incentive for the UK to assist Anguilla in the event of a financial crisis, even though the UK does not have any significant economic interests or expatriate population on the island. To do otherwise could seriously impact Britain’s international and domestic reputation. The debt management framework that the British Government has implemented for its overseas territories is geared towards ensuring that its territories manage their fiscal affairs in a prudent manner. Oversight over all budgetary measures is provided by the British Foreign and Commonwealth Office (FCO) through the representative Governor. On occasion, the FCO has intervened to ensure fiscal prudence is maintained. While Anguilla has no explicitly committed resources from the
1 The term Caribbean as used here covers the following countries: The Bahamas, Barbados, Belize, The Dominican Republic, Guyana, Haiti, Jamaica, Panama, Suriname, Trinidad and Tobago and the following countries in the OECS: Anguilla, Antigua & Barbuda, Dominica, Grenada, Montserrat, St. Kitts & Nevis, Saint Lucia and St. Vincent & the Grenadines. Refer www.caricris.com for a more detailed explanation on CariCRIS ratings and rating definitions. 3
British Government, the latter did earmark EC $12 million to assist the GoA with its budgetary capital expenditure commitments in 2013; however, to date none of these funds have been received. This promised assistance followed a decision taken in 2010 to permit the GoA to access a policy-based loan from the Caribbean Development Bank (CDB), despite being in breach of the debt management framework, to refinance high cost commercial debt and fund the fiscal deficit.
Stable political environment with a history of broad policy stability and very low but increasing levels of crime
Since its separation from the legislative union with St. Kitts and Nevis in 1980, Anguilla has enjoyed a history of political stability with a smooth transition of power following general elections. The present Anguilla United Movement (AUM) government has a simple majority with four of the seven seats in the House of Assembly while the Anguilla United Front (AUF) holds two seats; the remaining seat is held by the Anguilla Progressive Party (APP). This enables the Government to comfortably pass legislation following approval from the Executive Council. The political governance structure in place in Anguilla also lends support to its stable political environment. The Executive Council, chaired by the Governor, is the supreme decision making authority in Anguilla. The Governor 2 and her office are responsible for national security, the offshore financial sector, the public service and overall good governance. All appointments to the office of Permanent Secretary are made by the Governor, and by law a Permanent Secretary cannot be moved following a change in government 3. CariCRIS believes that this has ensured broad economic policy stability over the years. This notwithstanding, there are no major philosophical differences amongst the political parties and CariCRIS does not expect any change in economic policy if there is a change of government.
Relations between the Chief Minister and the UK Government have become increasingly strained with several public exchanges of correspondence taking place over the last 3 years. The most recent disagreement involved the passage of the 2013 budget and the government’s reluctance to agree to the terms of the new Framework for Fiscal Sustainability 4 (Debt
2 In July 2013, Ms. Christina Scott succeeded Mr. Allistair Harrison as Governor of Anguilla. She is the first woman to be appointed to that office. 3 In 2011, the Governor reshuffled the Permanent Secretaries among the various ministries, a move that was publicly opposed by the Chief Minister. 4 In addition to the revision of the debt management benchmarks, the framework incorporates procedures regarding the funding of projects by way of public-private partnership (PPP) agreements, and also the adoption of procurement standards and 4
Management Benchmarks). The delay in signing the new Framework resulted in a postponement by the UK Government in approving the fiscal 2013 budget; the budget was eventually passed following the Chief Minister’s eventual acquiescence of the Framework in April 2013, though with a couple of important concession negotiated in his favour. This latest disagreement follows several press releases and the publication of several letters between the Chief Minister, Governor and representatives of the UK Government regarding the state of the Anguillian economy and passage of the 2011 and 2012 budgets. CariCRIS believes that such disagreements in the public domain contribute to investor uncertainty and undermines the process of policy formulation and administration. Furthermore, despite these public disagreements and the Chief Minister’s assertions of seeking self determination, CariCRIS does not anticipate any fundamental change in the political arrangement between Anguilla and the UK. CariCRIS believes that the arrangement continues to serve the island well and that its status as a British overseas territory provides additional confidence for investors, creditors and tourists. As such, should the political arrangement between the UK and Anguilla change, CariCRIS expects that this will have a significant negative impact on the credit ratings of the GoA.
Anguilla does not have a militant trade union culture; the few registered unions are generally inactive and industrial relations in this country are usually cordial. Relative to its regional peers, the incidence of crime in Anguilla is extremely low. However, the incidence of crime, particularly violent crime, has been rising. The most recent incident occurred in July 2013 and involved a shooting incident at Blowing Point that resulted in 7 people sustaining gunshot wounds. Authorities have indicated that high unemployment, particularly among young people, together with a burgeoning drug trade, are two key factors that are driving the increasing incidence of violent crime in Anguilla. To date, no negative travel advisories have been issued in the main tourism markets.
Good financial market infrastructure but limited monetary policy flexibility
As a member of the Eastern Caribbean Currency Union (ECCU), Anguilla’s financial market infrastructure and legislation are good and compares favourably with the rest of the region. This gives the GoA a critical source of financing that remains virtually untapped. Trading on the Eastern Caribbean Securities Exchange (ECSE) however, occurs only twice weekly and the
procedures. 5
market is very thin with only thirteen securities listed. The Regional Government Securities Market (RGSM), which is the market for the trading of debt instruments of the member states of the ECCU, operates on a fully electronic platform. The GoA has not utilized this facility in the last nine years.
Supervision of the financial sector is jointly provided by the ECCB and the Financial Services Commission (FSC). The ECCB has supervisory oversight of the four domestic banks while the FSC regulates the offshore banks and all other non-bank financial institutions. The UK considers the offshore and non-bank financial sectors as possible sources of contingent liabilities, as such, the FSC reports directly to the Governor of Anguilla and this in CariCRIS’ opinion renders it politically independent. A minimum deposit rate of 3% is set by the ECCB while lending rates are market determined. Generally however, the interest rate environment in Anguilla is stable, like its Organization of Eastern Caribbean States (OECS) peers.
As a member of the ECCU, the GoA has limited recourse to the use of monetary policy tools to manage the economy. The unofficial dollarization of the economy further constrains policy effectiveness as the Central Bank has no control over the money supply; with the EC dollar only being used to pay wages and salaries in the civil service. Inflation, which is mainly imported, remained relatively low, falling to an average of 3.9% in 2012 from 6.2% in the preceding year. The slowdown in the rate of inflation reflected the lower economic activity in Anguilla and the slower increase in international commodity prices during the year. The 3-year average inflation rate of 3.7% compared very favourably with its peers in the OECS and CariCRIS’ sample average of 3%.
These rating strengths are tempered by:
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Poor and deteriorating loan portfolio quality
Chart 1
NPLs vs. Provisions for NPLs
for the period 2008-2012
60
50
40
30 %
20
10
0 2008 2009 2010 2011 2012
Year
NPLs Provisions for NPLs
Source: Eastern Caribbean Central Bank
Anguilla’s financial sector performance, which lags its regional peers, has deteriorated every year for the last four years, as evidenced by the level of NPLs which grew from 9% in 2008 to 36.4% in 2012, reflecting the prevailing difficult economic circumstances in Anguilla; the ratio of NPLs to total loans increased from 34.3% in 2011. CariCRIS expects the loan portfolio quality to deteriorate further in 2013 on account of the continued difficult conditions impacting economic activity in Anguilla. The 3-year average ratio of NPLs to total loans of 30.9% was significantly higher than the OECS average of 10% and CariCRIS’ sample average of 11%. In August 2013, as a result of the high NPLs, the ECCB assumed control of the two indigenous banks. Together these banks accounted for approximately 77% of the assets of the banking sector and as such, the ECCB intervened to maintain stability in the Anguillian financial system. The management of these entities will now be undertaken by teams of professionals from the ECCB, International Monetary Fund (IMF), World Bank and the regional banking industry. CariCRIS expects that
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the two banks would likely be merged into a single recapitalized entity and the bad loans removed and transferred to a separate vehicle. Provisions for NPLs continue to be low and fell to 17.7% in 2012 from 18.6% before. The 3-year average provisioning for NPLs of 17.8% is low compared to the regional average of 33.4%.
Limited fiscal flexibility on account of a narrow tax base
Anguilla’s revenues are underpinned by a very narrow tax base with a very high dependence on international trade taxes which accounted for 39.8% of recurrent revenue in 2012, unchanged from the prior year and averaged 39.3% over the last three years. Other significant sources of revenue include non-tax revenue (13.4%) and taxes on domestic goods and services (36.9%) which include stamp duties (10.2%) and accommodation tax (10.4%). A highly inefficient and inequitable property tax system, specific taxes on a few services, together with numerous fees and licenses characterize the government’s revenue system 5.
The decision to extend the Interim Stabilization Levy 6 (ISL) that was introduced in March 2011 has buffered government’s revenues in 2012; the ISL is an initial step towards an income tax regime. During the year the ISL contributed approximately EC $13.9 million or 7.7% to recurrent revenue, well above the EC $9.7 million budgeted for 2012. The GoA had initially indicated its intention to use the ISL as a temporary fiscal buffer which would terminate in December 2012 and be converted into a National Health Fund. The decision to extend the ISL for another year was taken to facilitate the implementation of a Goods and Services Tax (GST) in 2014; the GST is essentially a Value Added Tax (VAT). Moreover, the GoA is also seeking to reform and modernize its property tax regime. Efforts in this regard include the adoption of a market based approach to property valuation; the valuations of all properties on the island have been updated based on the new methodology. Nevertheless, the new rates at which the tax will be applied have not been determined and as such the 2013 implementation date has been delayed. In CariCRIS’ view, the Government’s revenues would benefit from the speedy implementation of the new property tax regime and, even more importantly, from the introduction of a personal income tax such as the ISL to be supplemented by the GST. The
5 Consultants hired by the FCO have described the revenue system as relatively narrow with a high reliance on a complex structure of customs duties, surcharges and import fees with very few options for quickly raising additional revenues. 6 The ISL requires all employees earning above the floor of EC $2,000 per month to pay 3% of their gross income. This 3% payment would be matched by employers. Self employed persons are required to pay the full 6%. 8
introduction of these tax measures would likely improve fiscal flexibility by enhancing revenue collection overall, reducing the level of volatility and simplifying the existing tax structure 7.
High non-discretionary expenditure severely limits fiscal flexibility. Personal emoluments and transfers and subsidies accounted for 46.8% and 25.7% of recurrent expenditure respectively in 2012. Personal emoluments however, fell slightly (0.7%) to EC $79.9 million and have been described as ‘’unsustainable’’ by the UK 8. As such, with the need for more significant reductions and very limited scope for further adjustments, CariCRIS expects more drastic cuts by way of retrenchment of public sector workers over the medium term. Capital expenditure, which was virtually unchanged from 2011 at EC $9.5 million, was well below the EC $28.2 million budgeted and still much too low to provide a stimulus in 2012.
Chart 2
Overall Fiscal Balance vs. Total Public Sector Debt
for the period 2008-2012
35
30
25
20
15 % of GDP 10 5
0 2008 2009 2010 2011 2012 -5
-10
-15
Year
Overall Fiscal Balance Total Public Sector Debt
Source: CariCRIS Sovereign Spreads
7 Both the FCO consultants and officials from the IMF have called for comprehensive tax reform to improve the efficiency and equity of the tax system and to simplify the tax structure. 8 The IMF cited the need for fiscal rebalancing and expressed concerns regarding the low level of capital expenditure. 9
For 2012 the GoA reported an overall fiscal deficit before grants of EC $0.8 million or 0.1% of GDP, down from the fiscal surplus of EC $21.7 million or 2.7% of GDP in the earlier year. Including grants of EC $11.6 million, the GoA reported a fiscal surplus of EC $10.9 million or 1.4% of GDP. The 2011 fiscal outturn included EC $38.4 million of stamp duty from the sale of the Viceroy Hotel development. Adjusting for this one-off item, the overall balance in 2012 improved from an overall fiscal deficit of EC $16.8 million or 2.1% of GDP in 2011. A surplus of EC $8.8 million or 1.2% of GDP was also reported on the current account, relative to the deficit 9 of EC $7.2 million or 0.9% of GDP in the prior year. Tax revenue, the largest component of recurrent revenue (86.6%) grew by 9% to EC $155.1 million from the adjusted 2011 position due in part to the higher (8.8%) international trade taxes earned during the year, as well as the strong growth (69.5%) in taxes on income and profits which largely reflected almost 9 months of ISL collections as opposed to just 4 months in the prior year. The current account surplus and general improvement in the fiscal position also reflected the 2% decline in recurrent expenditure to EC $170.4 million in 2012.
For the half year ended June 2013, the GoA reported an overall fiscal surplus of EC $0.5 million, down 81.3% from the 2012 half-year outturn, and a current account surplus of EC $3.8 million, down 47.9% from the prior year. Total revenue and grants of EC $88.3 million was 46.9% of the 2013 budget. Recurrent expenditure of EC $84.5 million was 45.6% of budget for the year while capital expenditure of EC $3.3 million was 11.4% of budget for 2013.
Limited access to funding, exacerbated by the breach of the debt management benchmarks
Anguilla’s fiscal policy is managed within a debt management framework designed by the British FCO. Among other things, there is a moral and possibly a legal obligation by the UK to provide financial support to Anguilla in a financial crisis and it is therefore in the interest of the UK to ensure that this territory operates in a financially prudent manner. As a result, all budgetary measures must be approved by the Executive Council which is headed by the Governor of the island who reports to the FCO. In CariCRIS’ opinion the performance benchmarks that Anguilla is required to satisfy has imposed a level of fiscal responsibility. However, following the onset of the global financial and economic crisis in 2008, the fiscal operations of the GoA have come under significant pressure and resulted in the GoA breaching
9 On an adjusted basis. Including the windfall from the Viceroy sale, a surplus of EC $31.2 million or 3.9% of GDP was recorded on the current account. 10
the performance benchmarks. In 2012, the GoA was in breach of all three benchmarks 10 . The breach of the debt management benchmarks means that the GoA cannot incur any additional debt without the expressed approval of the British Government. As a British Overseas Territory, with the exception of the Caribbean Development Bank (CDB), the GoA cannot access funding from the multilateral lending agencies such as the World Bank or the IMF since the UK is a voting member of these institutions. Historically, the ECSE has not been used to issue debt on the regional capital markets. The GoA also has very few liquid assets, evidenced by the unfavourable, although improving, ratio of liquid assets to recurrent expenditure.
Debt levels have been relatively low with total public sector debt at 31% of GDP in 2012, up slightly from 28.9% of GDP in 2011 following a slight increase (1.6%) in total public debt to EC $234 million. Debt/GDP levels were the second (2 nd ) lowest in the OECS (behind Montserrat) and in CariCRIS’ sample. With the exception of the ratio of liquid assets to recurrent expenditure, the 2012 debt management ratios deteriorated slightly from the previous year. The ratio of public sector debt to recurrent revenue slipped to 106.5% from 100% in 2011 (still above the 80% maximum), due in part to the small increase in total public sector debt. The ratio of debt service payments to recurrent revenue climbed to 8.3% from 5.1% in the prior year and was just above the 8% ceiling, while the ratio of liquid assets to recurrent expenditure improved to 17.5% from 9.5% in 2011 (still below the 25% minimum). Under the terms of the new debt management guidelines, the GoA is required to report a maximum net debt ratio of 90%, a maximum debt service ratio of 12% and a minimum liquid assets ratio of 18% by 2015 and to be in full compliance with all benchmarks by 2017. CariCRIS believes that the targets are achievable although efforts to achieve compliance will continue to hamper capital expenditure and government’s ability to stimulate economic activity. Moreover, CariCRIS does not expect the FCO to approve additional borrowing in 2013, given the continued breaches of the benchmarks. Nor does CariCRIS expect Anguilla’s access to funding to significantly improve in the short-term, given the government’s fiscal constraints and significantly limited fiscal flexibility.
10 Two of the three debt management benchmarks incorporated in the new Framework for Fiscal Sustainability, which includes new procurement standards and procedures and also procedures governing the funding of projects by way of public-private partnership arrangements, were unchanged. However, the maximum ratio of debt service to recurrent revenue was increased to 10% from 8% previously. 11
Small, relatively narrow economic structure
At EC $756.2 million (US $280.1 million) for 2012, Anguilla has the second (2 nd ) smallest economy, in nominal terms, in the OECS and in CariCRIS’ sample. In addition to its small size, Anguilla’s economy is narrow with very little economic diversification. Soil and climatic conditions give very little scope for traditional agriculture. The Manufacturing sector on the island is very small and hence there are virtually no goods exports. As the main pillar of the economy, the Hotels and Restaurants (Tourism) sector significantly influences activity in several other sectors such as Transportation, Construction, Real Estate, Renting and Business Activities. The GoA continues to be the largest employer on the island. While there are small shops and a few small shopping centres, Anguilla does not have a strong Retail and Distribution sector; its close proximity to St. Maarten also allows many Anguillians to take advantage of the shopping opportunities available there. In CariCRIS’ opinion the very limited level of economic diversification in this highly open, import-dependent economy and the especially high reliance on tourism which pervades almost every other sector of the economy, leaves Anguilla extremely susceptible to the vagaries of the external environment.
Real GDP contracted by 2.9% in 2012, the fifth consecutive annual contraction. The decline in real GDP was broad based with almost all sectors declining. Tourism, the largest contributor to real GDP (23.2%), fell by 1.7%. Despite an overall increase in total arrivals, Tourism was negatively affected by the 1.6% fall in stay-over arrivals to 64,698 in 2012 with the main markets, the USA and the Caribbean, falling by 2.4% and 11.4% respectively; reduced airlift capacity, the high cost of intra-regional travel and the low level of expenditure on marketing compared to competitors such as Barbados adversely affected stay-over arrivals. Activity in the Real Estate, Renting and Business Activities sector, which contributed 14.8% to real GDP fell by 2% while the third largest sector, Financial Intermediation (11.5%), contracted by 2.8%. While it continued to contract for a fifth consecutive year, the rate of contraction in the Construction sector slowed to 8% compared to 15.2% in the prior year, due largely to the ongoing refurbishment work at the CuisineArt Resort, as well as ongoing construction work on the Zemi Beach Resort and Manoah Hotel.
CariCRIS expects real GDP to contract marginally in 2013 on account of the continued low activity in the Construction and Real Estate, Renting and Business Activities sectors. Tourism activity is expected to benefit from healthy growth in total visitor arrivals, up 13.8% for the first half of 2013, although stay-over arrivals are still being negatively affected by the reduced airlift. 12
Going forward, the GoA is considering its options to diversify the economy and reduce its heavy dependence on tourism and Foreign Direct Investment (FDI) related construction activity; options include education tourism, similar to the products offered by Grenada and Dominica, exploitation of its marine resources and deepening its presence in offshore financial services. All of these options are at a very preliminary stage of deliberation.
External sector characterised by significant deficits on the current account
Anguilla’s current account deficit for 2012 widened to 16% of GDP from 12.3% in the prior year following three years of improvement. The 3-year average current account deficit of 15.8% was among the highest in the OECS and in CariCRIS’ sample. The deterioration in the current account deficit was driven by activity on the current transfers account which recorded a net outflow of 0.3% of GDP in 2012, as opposed to the net inflow of 3.5% of GDP reported in the prior year. The visible trade deficit deteriorated slightly to 43.6% of GDP in 2012 from 41.3% in the year before, reflecting a small increase in imports, while the surplus on the trade in services account improved to 28.2% of GDP from 25.3% in 2011. Anguilla reported a balance of payments (BOP) surplus of 0.8% of GDP in 2012, relative to a deficit of 0.8% in 2011. The main contributing factor to the improvement in the overall BOP was the 36.8% increase in the surplus on the capital and financial account to EC $127 million or 16.8% of GDP in 2012 from 11.7% in the earlier year. The improvement in the surplus on the capital and financial account reflected net inflows from other investments 11 of EC $444.3 million or 5.9% of GDP, as opposed to net outflows of 4% in 2011, as well as a 48.6% increase in net inflows of capital transfers to EC $36.9 million or 4.9% GDP from EC $24.8 million or 3.1% of GDP previously. During 2012 net FDI inflows fell by 52.2% to EC $49.2 million from EC $102.9 million previously as no new FDI related projects have been undertaken; net FDI inflows have declined every year for the last six years. Anguilla’s gross international reserves stood at US $122.4 million in 2012, representing approximately eight months of import cover.
Anguilla’s external debt stock stood at US $64.3 million or 22.9% of GDP, down slightly from US $64.8 million or 22% of GDP in 2011. External public debt has continued to be relatively low, averaging 23.1% of GDP for the last three years, among the lowest in the OECS. The
11 Other investments typically includes all financial transactions not covered in direct investment, portfolio investment or reserve assets. Examples include, trade credits, loans, currency and deposits. 13
external public sector debt service ratio has also been relatively low, averaging approximately 2.5% of exports of goods and non-factor services over the last three years.
Rating Sensitivity Factors
‹ Sharp changes in the macroeconomic environment ‹ Substantial changes in debt ‹ Successful implementation of revenue increasing measures ‹ A change in the island’s status as a British overseas territory
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Annex 1 Selected Economic Indicators Average 2012 2011 2010 2012-2010 Income & Economic Structure Nominal GDP (US $ Mn) 280.07 294.88 268.37 281.11 Nominal GDP per capita (US $) 18,159.38 18,010.16 17,057.75 17,742.43 Real GDP Growth (%) (2.93) (1.98) (5.59) (3.50)
Average 2012 2011 2010 2012-2010 Fiscal Accounts (% of GDP) Central Gov't Current Revenue 23.69 25.75 21.52 23.65 Central Gov't Current Expenditure 22.53 21.84 25.71 23.36 Central Gov't Current Balance 1.16 3.92 (4.19) 0.30 Central Gov't Capital Expenditure 1.26 1.20 0.43 0.96 Central Gov't Primary Balance (after grants) 2.54 3.86 1.56 2.66 Central Gov't Overall Balance 1.44 2.72 0.05 1.40 Central Gov't Gross Debt 28.74 26.77 29.94 28.48 General Gov't Gross Debt 30.95 28.92 32.44 30.77 Average 2012 2011 2010 2012-2010 Monetary, Financial & Exchange Rate Indicators Consumer Price (end of period) 3.58 8.62 0.85 4.35 Consumer Price (annual average) 3.90 6.19 1.03 3.71 Credit to the private sector & NFPE (% GDP) 182.53 180.05 197.51 186.70 Credit to the private sector & NFPE (YOY change %) (3.72) 0.17 1.38 (0.72) Non-Performing Loans/Total Loans (%) 36.36 34.28 22.07 30.90 Provision for NPL (% of NPL) 17.73 18.62 17.19 17.84 Banking Sector Capital Adequacy Ratio (%) 14.08 17.11 16.22 Base money (YOY change) 12.98 (8.51) (6.87) (0.80) Broad money or money supply (YOY change %) (0.69) (4.50) (1.14) (2.11) Average bank deposit rate (%) 3.49 2.87 3.40 3.25 Average bank lending rate (%) 9.19 10.14 10.46 9.93 Interest Rate Spread 7.27 7.06 6.96 Nominal Exchange Rates (lc per US$) 2.70 2.70 2.70 2.70 Real Effective ExchangeRates (YOY change %) 3.12 2.29 (1.59) 1.27 Average 2012 2011 2010 2012-2010 External Sector Indicators Current Account Balance (% GDP) (15.98) (12.46) (18.87) (15.77) Capital & Financial Account Balance (% GDP) 16.42 12.37 19.98 16.25 Overall External Balance (% GDP) 0.81 (0.80) 0.91 0.30 External Public Debt (% GDP) 22.95 21.96 24.33 23.08 Gross International reserves (US$ Mn) 122.37 118.58 145.68 128.87 Net International reserves (US$ Mn) 60.01 61.72 71.75 64.49 Gross International reserves ( in months of imports) 8 8 9 8.40 External Debt Service (incl. STD) (% of exports of GNFS) 2.54 2.50 2.44 2.49 Total External Debt Service (% of GDP) 1.25 1.16 1.16 1.19 Gross Financing Requirements / Reserves (%) 36.11 36.90 31.32 40.11 15