British Virgin Islands economy to grow between 1% and 2% in 2017
Thursday, June 22 2017 @ 09:40 AM AST
Contributed by: AleemKhan
Caribbean Information and Credit Rating Services Limited (CariCRIS) has assigned issuer ratings of CariAA- (Regional Scale Foreign and Local Currency) to the Government of the British Virgin Islands (GoBVI), with a stable outlook. These ratings include a 4-notch uplift for the likelihood of support from the United Kingdom (UK). The notched-up Regional Scale Ratings indicate that the level of creditworthiness of this obligor, adjudged in relation to other obligors in the Caribbean is high.
The stable outlook is based on our expectation for continued improvement in real GDP growth of between 1-2% for 2017, supported by good performance of the tourism sector but tempered by flat financial services value-added. Also supporting the stable outlook is anticipated good control over fiscal operations.
The BVI is one of the wealthiest domiciles in the Western Hemisphere. Latest comparable estimate of the BVI’s gross domestic product (GDP) per capita is US $33,983, only surpassed by Bermuda (US $84,381), the USA (US $57,300) and the Cayman Islands (US $47,000). The high GDP per capita gives the country the ability to afford adequate investment and infrastructure for creating sustainable future growth. The BVI’s high GDP per capita can also engender social stability and strong social welfare reflected in a very low unemployment rate of just 2.8%, based on latest available data. While these factors suggest very good income and economic strength, anecdotally, there is a concerning amount of income inequality, with the majority of income being concentrated in the hands of those directly employed in the financial services and related sectors; there is very little local participation in these sectors with an estimated 80% of the sector dominated by expatriate professionals3. Nominal GDP however, of US $968.9 million in 2015 and projected at US $1.0 billion in 2016, is the 5th largest in CariCRIS’ sample of Caribbean peers.
Real GDP growth over the last 5 years has slowed, averaging a modest 1.8% following strong growth in the previous 10 years of 6.4% on average. Growth in 2016 is projected to slow to 1.3% from 1.6% in the prior year.
Dollarization has also supported the strong income and economic fundamentals of the Territory despite the loss of the monetary policy tool. The BVI has been a dollarized economy since 1959. This has promoted financial discipline in the management of the economy as fiscal decisions must be taken with considerable cognisance of the flow of US dollars to the economy. Further, while many of its Caribbean peers have had to contend with considerable volatility with their currencies’ exchange rates with the US dollar, this has not been the case in the BVI, which has allowed for a stable and predictable trade with its major trading partner, the US. Also particularly beneficial for the BVI is the shared currency with the USVI, fostering open and free flowing trade. This is especially important as many visitors to the BVI access the islands via ferry from the US Virgin Islands (USVI). Interest rates in the BVI are market determined and the financial sector is in good health with low non-performing loans to gross loans of just 4.4% in 2016 and strong capital adequacy of 41.7%.