Saturday 14 January 2023
S&P Global has downgraded the States of Guernsey's credit rating from 'AA-/A-1 +' to 'A+/A- 1'.
The Policy & Resources Committee is highlighting some of the reasons cited by S&P ahead of this month's Tax Review debate, urging States Members not to leave the growing deficit in public finances unaddressed as a failure to stabilise the financial position, or any further delay could see the credit rating downgraded further.
S&P's assessment recognises that Guernsey's economy is faring well despite the external impacts of the COVID-19 pandemic and the war in Ukraine. They have estimated that the local economy rebounded by 5.6% in 2021, well ahead of expectations, and S&P expect to see growth of 1.8% in 2022.
However it highlights 'increasing pressure on health and care services is intensifying the squeeze on public finances, while the shrinking working age population also threatens tax collections.' It warns of further 'negative rating action... if the government failed to implement tax reforms that stabilise its funding needs.'
S&P's assessment also points to market turmoil which has been 'a blow' for Guernsey's significant asset buffer. This has been a concern for the Committee as highlighted during the 2023 Budget debate last year, and it shows the vulnerability of Guernsey's current financial situation which has been to a degree masked by strong market performances in earlier years.
S&P also warns the States that significant capital expenditure included in the Government Work Plan, which follows 'years of under-investment', adds to the pressure on public finances. Because of that under-investment, the Committee recognises there is a real need to invest in some areas of key infrastructure but the States must have sustainable finances in order to so.
Deputy Mark Helyar, Vice-President of the Policy & Resources Committee said:
"A downgrading in our credit rating is something we need to take very seriously, and there's a real impact on our reputation as a stable, reliable, well-run jurisdiction and to the competitiveness of our local industry. We cannot underestimate what is at stake, and if we become unattractive to business and our economy suffers, our financial problems will get even worse.
While the announcement from S&P Global is disappointing, I hope it serves as a wake-up call to States Members that there is no time left to carry on going around in circles hoping a solution will fall into our laps. We cannot afford to come out of this debate with half-measures, can-kicking or delay. We need to do what we were elected to do and make some difficult but important decisions for the future generations of this Island."