Global rating downgrade a ‘wake-up call’ for deputies
GUERNSEY’S credit rating has been downgraded by S&P Global Ratings, leading Policy & Resources to re-emphasise the need for States members to back its proposed tax reforms.
The rating has changed from AA-/A-1+ to A+/A-1, even though S&P has recognised that the island’s economy is performing well.
P&R vice-president Mark Helyar said that the downgrading needed to be taken seriously.
‘There’s a real impact on our reputation as a stable, reliable, well-run jurisdiction and to the competitiveness of our local industry,’ he said.
‘We cannot underestimate what is at stake. If we become unattractive to business and our economy suffers, our financial problems will get even worse.’
He urged States members to see this as a ‘wake-up call’ that something needed to be done.
‘There is no time left to carry on going around in circles hoping a solution will fall into our laps.’
After estimating that the local economy rebounded by 5.6% in 2021, S&P expected it to grow by 1.8% in 2022.
However it highlighted that ‘increasing pressure on health and care services is intensifying the squeeze on public finances, while the shrinking working age population also threatens tax collections.’
And it warned of further negative rating action if the States did not implement tax reforms that stabilise its funding needs.
S&P’s assessment also referred to market turmoil, which it said was a blow for Guernsey’s significant asset buffer.
The agency also warned that the significant capital expenditure in the Government Work Plan, which followed years of under-investment, added to the pressure on public finances. But in order to invest, the States needed sustainable finances, said P&R.
‘We cannot afford to come out of this debate with half-measures, can-kicking or delay,’ Deputy Helyar said.
He added that the fall in the rating did give support to P&R’s tax reform plans.
‘I’d rather people took my word for it then having to test this thing to destruction, which is what we’re going to do, but I would much rather the rating was still where it was yesterday.’
P&R president Deputy Peter Ferbrache said it was clear that the time to act was now.
‘We have got to the point where we’ve run out of runway, we’ve run out of time,’ he said.
‘If we do not make a decision at the end of January, we’ll be doing the Bailiwick of Guernsey a great disservice.’
Jersey and UK ratings
Standard & Poor’s credit rating for Jersey was AA-/A-1+, which was the same as its last one.
S&P’s credit rating for the UK was given in September last year as AA with negative outlook.