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Moody’s gives St. Maarten a ‘Baa1 stable’ rating


PHILIPSBURG–Moody’s Investors Services has assigned a first time Sovereign Bond Ratings of Baa1 to St. Maarten and has branded the country’s outlook “stable,” Finance Minister Roland Tuitt announced on Friday.
The Baa1 rating reflects the country’s comparatively high economic development, Moody’s expectation of continued moderate debt level, the untested nature of the country’s institutions and continued nation-building support and fiscal oversight from The Netherlands.

Tuitt said the existence of the Committee for Financial Supervision CFT “has contributed to our positive rating.”
St. Maarten is in the same rating category as Trinidad and Tobago, and Mexico. The country is in a higher category than Barbados, which has a “Baa3 – negative” rating.

Moody’s also has assigned St. Maarten “an A1 local-currency risk ceiling,” the maximum credit rating achievable in local currency for a debt issuer domiciled in that country. An A2 foreign-currency bond ceiling and a Baa1 foreign-currency bank deposit ceiling also have been assigned. These ceilings are lower than the local-currency ceiling, as they also capture foreign-currency transfer and convertibility risks.

Moody’s said in a press statement issued on November 5: “St. Maarten’s 2011 per capita Gross Domestic Product (GDP) of US $22,000 is more than double the Baa category median. As a small Caribbean island, dependent on tourism and susceptible to weather-related shocks, a comparatively strong per capita GDP supports the country’s ability to quickly rebuild and adapt in the aftermath of a major storm.”

The debt to GDP ratio fell to 22 per cent last year from 28 per cent in 2010, a result of debt forgiveness provided by the Dutch government as part of the breakup of the Netherlands Antilles, according to Moody’s.
“If we had made use of the total debt forgiveness, this debt percentage would have been way lower, but we are working on it,” said Tuitt.

This debt percentage “compares favourably” with peers and is less than half the 45 per cent Baa median.
“But, we expect debt will rise this year and next, reaching almost 30 per cent of GDP in 2013, as the new country spends to build its institutional framework. Support from The Netherlands in the form of low-interest long-term financing, fiscal oversight and assistance on security matters, will likely continue for a few more years. We consider this assistance a key ratings support,” said Moody’s.

Tuitt said the country’s debt would increase due to government’s planned projects for this year and next year.
Constraining the rating, said Moody’s, are “a small, undiversified economy that is barely growing and the untested nature of the new country’s institutions.”

St. Maarten’s nominal GDP is less than US $1 billion, one of the smallest among all rated sovereigns. “GDP growth has been lacklustre in recent years, as with most Caribbean nations, showing an average annual decline of 0.2 per cent since 2008. Moody’s expects a return to a moderate 1.5 per cent growth this year, although this is highly contingent on external conditions, as tourism represents more than 80 per cent of the economy.”
Unlike the Bahamas, which has a similar level of economic development, St. Maarten does not have an important offshore financial sector, limiting diversification.

Tuitt said government was working on the “building blocks” for an offshore financial sector.

As the country obtained greater independence only two years ago, concerns remain about the strength of the institutions, particularly over time when assistance from The Netherlands will diminish, said Moody’s.
The stable outlook reflects Moody’s view that fiscal restrictions limiting debt service to no more than five per cent of public revenues and continued support from The Netherlands will limit the financial impact of a rise in the debt burden.
A sustained and permanent improvement to the debt metrics below current levels, together with clear evidence of continued policy continuity, even in the absence of external support, could lead to upwards ratings pressure. Alternatively, a continued increase in debt metrics over currently expected levels or a reduction of external support without an increase in domestic institutional strength could lead to downwards ratings pressure.

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