BRADES, Montserrat (September 25, 2012) – The continued strong institutional and financial support from the United Kingdom was the basis for Standard & Poor’s affirmation of a 'BBB-/A-3' sovereign credit ratings for Montserrat.

S&P released a statement on Monday affirming the rating with the outlook remaining stable as they expect “that the U.K. and EU's strong institutional and financial support of Montserrat will continue through the medium term and foreseeable future.”

Standard & Poor’s noted that Montserrat’s credit ratings could be raised “if the government makes significant progress on its infrastructure projects, which could improve growth prospects. We could lower the rating if U.K. financial support declines before the island economy is able to generate higher fiscal revenues on its own.”

The rating services also affirmed the 'BBB-' transfer and convertibility assessment.

In its rationale S&P said “the sovereign credit ratings on Montserrat reflect the U.K.'s strong institutional and budgetary support of the island, which is an internally self-governing overseas territory of the U.K. The U.K., through the Department for International Development (DFID), and the EU contributes more than 50% of GDP in grants for budget support and infrastructure investment to the government of Montserrat.

A May 2012 memorandum of understanding reaffirmed the joint effort between the U.K.-DFID and the government of Montserrat to promote growth of the private sector to 50% of GDP, as well as government fiscal self-sustainability by 2020.

“The national political agenda remains focused the construction of a new port at Carr's Bay and, subsequently, construction of a new town centre and tourism hospitality services at Little Bay. The government approved the redesigned master plan in early 2012.

We expect that construction of the Carr's Bay port break-wall and jetty will not begin until 2013 since public concession contracts have not been announced. We expect these implementation delays of the port and Little Bay development will contribute to subdued 2% economic growth through this year and for 2013 and moderate 2.5% inflation over the period.

“Thanks to external aid, Montserrat has a low debt burden--with 9% gross public-sector debt relative to GDP and low interest expense of less than 1% of fiscal revenues. The external grants from the U.K.-DFID and EU also mitigate risks of Montserrat's external imbalances. Montserrat's narrow economy and export base contribute to its structurally large current account deficit--estimated at 14% this year--and gross external financing needs (financed principally by external grants) that exceed 100% of current account receipts.

Montserrat has a favourable external public-sector debt profile that a multilateral lending institution finances. The combined debt of the general government and public-sector companies is estimated at 8% of GDP and 12% of current account receipts, reflecting an amortizing loan for the Plymouth pier and a loan for the new Brades power station. However, we expect Montserrat's small private sector and small fiscal revenue base to continue to limit substantially its debt capacity over the medium term.”

The full statement can be read on www.gov.ms under Office of the Premier Publications.

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