12 February 2016
Standard & Poor’s (S&P) rating service has conducted a recalibration exercise that has revised ratings for Jersey, Guernsey and other small sovereign states. Jersey’s rating has therefore been recalibrated from AA+ to AA, which remains one of the highest possible ratings.
There is only a marginal difference between the two ratings, as defined by Standard & Poor’s “An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.”
Despite no material change having occurred since S&P’s last review in November 2015, they have conducted the recalibration as a way of addressing their concerns that small sovereigns such as Jersey were receiving the same rating (AA+) as larger countries. This view reflects S&P’s assumption that smaller countries are more susceptible to global economic factors. S&P conducted a review across the class at the same time so that the outcomes could all be published on the same day.
Jersey’s short-term rating remains at A-1+, which is the highest rating it is possible to achieve. Another consequence of the exercise was to label Jersey’s outlook as ‘negative’, in common with the outlook that was assigned to the UK. This reflects the uncertainty and therefore potential effect on the Island’s economy of Britain exiting the EU. This outlook statement is an indicator of a potential downgrade should this happen and should Jersey’s economy be affected in the way that they anticipate.
In its report, S&P noted “The rating on Jersey continues to reflect our view of its mature political and institutional setting, flexible policy environment, wealthy economy and a healthy financial position underpinned by low debt and a high net general government asset position.”
Treasury and Resources Minister, Senator Alan MacLean, said “While we understand that credit rating agencies are liable to take a particularly risk-averse view, we are disappointed with this recalibration exercise. It is good that Jersey has retained one of the highest possible ratings but we do not accept the rationale behind the change. The European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, recently declared us to be an ‘important partner’ in the fight against tax evasion, fraud and abusive tax avoidance. Our standards of regulation and transparency are justly recognised to be very high, and we have been recognised for our implementation of the Common Reporting Standard on automatic exchange of information, and our support of the BEPS programme, alongside EU Member States.
“It is important that the reasons for this recalibration are well understood. The rating does not reflect a decline in our economy or a worsening of our position. Their opinion around the likelihood of Brexit, for example, is not within our control, and there are many speculative views on that issue. I have every confidence that our economy will continue to grow, regardless of the outcome of that referendum.”
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