‘Island must not ignore its financial challenges’

While keeping Guernsey’s credit rating at AA-/A-1+, S&P has revised its outlook for the island from ‘stable’ to ‘negative’, estimating that the government balance will remain in a ‘structural deficit’ of about 3.2% of Gross Domestic Product on average over the period of 2022-25, ‘well above historic norms’.

P&R treasury lead Deputy Mark Helyar said the committee was pleased that the island’s strong credit rating had been confirmed.

S&P’s comments about the general state of the economy as it emerges from the pandemic was a credit to the strength and resilience of the community and economic factors.

But revising its outlook to negative was a warning that Guernsey must deal with its financial challenges, Deputy Helyar said.

‘This year we must address the shortfall in funding public services that we will face as a result of our changing population.

‘We need to safeguard our future for generations to come and we’ll be talking about that a lot more with islanders in the weeks and months ahead.’

S&P highlighted the island’s largely positive progress through the Covid pandemic, with shrinkage of 3% reflecting the island’s successful virus suppression and the adaptability of the economy.

But it expressed concerns about an ongoing structural deficit, the ongoing debate about new taxes, and whether cuts in government spending could have any significant impact, and the risk all this poses to Guernsey’s reserves. Drawing on reserves would potentially erode a ‘large fiscal buffer'.

Dr Andy Sloan, economist and founder of the International Sustainability Institute of the Channel Islands, described the S&P report as ‘a decent analysis’ which contained no surprises.

‘The main cause for concern on the outlook is unsurprisingly the forecast deficit over the next few years and the proposal to finance through liquidating assets. They make the obvious point that raising taxes or cutting spending are the obvious solutions,' he said.

‘I’m glad to see S&P make the point that labour shortages will act as a drag on growth in the medium term.

‘It’s a point not often explored, but in my opinion “capping” the population clearly contributed to weaker economic performance over the last 10 years and to the fiscal current deficit.

‘It’s all well and good talking about our ageing demographics and the need to raise taxes to fund public services but on its own it’s not a long-term sustainable policy solution, and I made this point over 10 years ago.’

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