Guernsey dips below Jersey in international credit ratings

Saturday 14 January 2023

Guernsey was pre-warned that it had to deal with its fiscal problems, and the States financial lead said it has failed to do that, leading to the downgrading of our credit rating announced today.

Deputy Mark Helyar - Vice President of Policy and Resources - has said today's news that Guernsey's S&P rating has been dropped to A+/A- 1 which is 'negative' - is even more stark as Jersey has maintained its 'stable' rating of AA-/A-1+.

Last summer he said we had a warning things had to change.

"They changed the outlook to negative which is a pre-warning you're heading in the wrong direction and now we've been downgraded."

Deputy Helyar said this is as bad as it sounds for Guernsey's economic reputation and outlook, especially as our rating is now below Jersey's - one of our closest competitors in many ways.

Pictured: Deputy Mark Helyar.

"They examine public finances and the money we have coming in and the plans that we have for spending on infrastructure and other things and work out how likely we are to be able to meet those plans.

"They've reached the conclusion that the position we're in, unless we reform our tax position is unsustainable."

Deputy Helyar said it is unlikely this position will change quickly so Guernsey could be left with the negative rating for some time.

"Ratings don't generally tend to change upwards at short notice, they go downwards quickly if there's a problem so it's unlikely that we'll ge upgraded. They might change the outlook but it's unlikely that we'll be upgraded until this time next year.

"They don't just look at the numbers, they look at the politics and the media, and get a feel for whether things are likely to happen or not happen and that's one of the reasons why we find ourselves in this position."

Pictured: The CI Vision report was published this week, encouraging pan island working.

Earlier this week a report suggested Guernsey and Jersey work more closely together, citing losing business to Jersey as one challenge Guernsey needs to face. That came out the same day RBC Wealth Management announced it is closing its Guernsey office and that 89 jobs will be redeployed elsewhere - predominantly in Jersey.

Asked directly if the latest S&P rating could mean Guernsey loses more business to Jersey, Deputy Helyar was blunt.

"Honestly? Yes. Because we now have a lower rating than Jersey," he said.

"The way that credit ratings work if you're a financial institution that's based in one of those islands, because it's a sovereign rating that institution can only have, as a maximum - even if it's really well capitalised - the maximum of the sovereign rating of the country in which it's based. So, if you had a bank that was based solely in Guernsey you can only have Guernsey's rating and vice versa for Jersey.

"It's what external institutions like banks for example, that might be lending to governments, it's what they use as a yardstick for how good we are for the money.

"Now, it's not a bad rating internationally speaking - it's still not a bad rating. It's still quite a positive rating but the point is it's going in the wrong direction."

By comparing Guernsey to Jersey, outside investors and firms looking to employ locally will be more likely to consider Jersey over Guernsey as a result of this. Deputy Helyar said with Guernsey's fiscal outlook that then leaves us potentially facing an even worse situation as the island needs to keep its revenue rolling in.

"Unfortunately we have a whole load of stuff which needs fixing and building and and infrastructure investment which is necessary. We haven't done anything for 10 years and there's a very big bill attached to that and we have to find a way to pay for it

"Or we don't do it," he said.

Pictured: Jersey's Treasury and Resources Minister, Deputy Ian Gorst.

In its latest report - published today - S&P noted that "Jersey's economy will remain comparatively insulated from global economic headwinds, owing to the broadly favourable impact of rising global interest rates on Jersey's international banking sector."

It said "there is no change to the long and short-term sovereign credit rating (for Jersey) with the outlook stable". 

Jersey has claimed this "stable outlook reflects balanced risks to Jersey's creditworthiness over our two-year outlook horizon" and that "Jersey's economy has rebounded strongly from the pandemic".

Recent economic data showed that Jersey's GDP was already above pre-pandemic levels in 2021, and the island's Minister for Treasury and Resources, Deputy Ian Gorst, said: “I am happy that our strong credit rating is confirmed by S&P as unchanged, despite the significant headwinds being experienced by economies around the world. 

“S&P’s outlook for Jersey as a stable economy is something I’ll be working to maintain in the medium and longer term.”  

Read more...

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