Bermuda

Politics:

• Analysis

  Bermuda politics: Quick View - Voters oust the PLP government

  Event

  The opposition centre-right One Bermuda Alliance (OBA) ended the hopes of the centre-left Progressive Labour Party (PLP) of a fourth successive election victory, and its 14-year hold on power, in a general election ballot held on December 17th. The OBA won a slim two-seat majority of seats in the legislature following a tight election race in which the premier, Paula Cox, lost her seat.

  Analysis

  Bermudians voted for change at the snap election called by Ms Cox in December when the opposition OBA won a narrow two-seat majority in the 36-seat lower house. A historic high unemployment rate of 8% and four successive years of economic recession had fuelled voter disenchantment with the PLP government. The OBA polled 52% of the vote against 46% for the PLP, while 2% backed independent candidates. The biggest election upset for the PLP came with the loss of Ms Cox's previously safe seat to an OBA newcomer, Glen Smith.

  The PLP's support fell by 15% from the previous election in 2007, while the OBA polled 5% more than the former main opposition United Bermuda Party (UBP). The OBA's victory means party leader and businessman Craig Cannonier will become the next premier. Mr Cannonier is another relative political newcomer, having won his first parliamentary seat in a by-election 13 months previously.

  Bermuda's mainstay international business sector, which contributed 24% of GDP in 2011, is likely to be cheered by the result, as the OBA has pledged to implement policies to encourage overseas investment, including the suspension of six-year work permit term limits for overseas workers and the easing of a requirement for local businesses to be 60% Bermudian owned. The OBA aims to stimulate the economy by extending the scope of tax-efficient economic development zones and through a two-year payroll tax exemption for new Bermudian employees. The OBA also plans to continue with mild fiscal austerity measures such as a public-sector recruitment freeze.

  December 18, 2012

• Background

  Bermuda: Political forces

  The ruling PLP was the first party to be formed in Bermuda, in 1963, as a result of a bid by black workers to gain representation and power in a white-controlled political and economic system. The PLP traditionally advocated higher income taxes and independence from the UK, but dropped both of these policies from its manifesto for the 1998 election in its successful bid to gain power. In government the PLP has repeatedly found itself at odds with its traditional partners in the labour movement.

  The UBP was formed in 1964, largely by whites, as a response to the formation of the PLP. An outbreak of racial conflict in the 1970s led the UBP to broaden its ethnic base to become a multiracial party. Seen as a centre-right party, the UBP won all eight elections between the beginning of the formal party system in 1968 and 1998. In the mid-1990s the party found itself divided on the issue of independence. Divisions and uncertainties surrounding the party damaged its reputation in the years leading up to the 1998 election. Boosted by attracting 48% of the popular vote in the 2003 election, the UBP, under the leadership of Wayne Furbert, is providing robust opposition to the government, while at the  same time attempting to broaden its appeal by reaching outside its traditional constituency.

  The National Liberal Party (NLP) was formed as the result of a split in the PLP in the early 1990s. Although it has had as many as four members of parliament (MPs) in the past, the party failed to win any seats in the 1998 or 2003 elections. A new party leader, Graeme Outerbridge, has maintained the party's centrist approach. However, a general movement by the two main political parties towards the centre ground in recent years has left the NLP struggling to differentiate itself on specific issues.

  July 02, 2007

• Structure

  Bermuda: Political structure

  Official name

  Bermuda

  Form of state

  Representative democracy; UK Overseas Territory

  Head of state

  Queen Elizabeth II, represented by a UK-appointed governor, who is responsible for defence, external affairs and internal security

  The executive

  The premier, chosen from the majority party, heads a cabinet of no more than 14 members of the legislature

  Legislature

  Bicameral; the Senate (the upper house) consists of 11 members, five appointed by the governor on the advice of the premier, three on the advice of the leader of the opposition and three by the governor at his discretion; the 36-member House of Assembly (the lower house) is directly elected for a maximum term of five years

  Legal system

  Bermuda's laws and legal system are based on the UK model; the ultimate court of appeal is the UK Privy Council

  Elections

  December 17th 2012; next election due by February 2018

  Government

  The One Bermuda Alliance holds 19 seats in the 36-member lower house

  Main political organisations

  Government: One Bermuda Alliance (OBA)

  Opposition: Progressive Labour Party (PLP)

  Main members of cabinet

  Governor: George Fergusson

  Premier: Craig Cannonier

  Key ministers

  Attorney-general & legal affairs: Mark Pettingill

  Community and cultural development: Wayne Scott

  Economic development: Grant Gibbons

  Education: Nalton Brangman

  Environment & planning: Sylvan Richards

  Finance: Bob Richards

  Health & seniors: Pat Gordon Pamplin

  Home affairs: Michael Fahy

  Public safety: Michael Dunkley

  Public works: Trevor Moniz

  Tourism: Shawn Crockwell

  Minister without portfolio: Leah Scott

  Chair of the Bermuda Monetary Authority

  Jeremy Cox

  January 18, 2013

Economy:

• Background

  Bermuda: Population

  Population density is high in Bermuda, with 1,119 inhabitants/sq km according to the 2000 census. The 2000 census recorded a total population of 62,059, 6% higher than the 59,324 recorded in the previous census in 1991. During the decade, the foreign-born population grew by 12%. In 2000 blacks made up 55% of the total population, whites 34%, and mixed and other races 11%. The unemployment rate fell to 3% in 2000, down from 6% in 1991. Total employment grew by 1.5% year on year to 38,947 filled jobs in 2005. Many of those employed have more than one job. The nationality split of the workforce has become a political issue in recent years, amid public concern that non-Bermudians have greater employment opportunities than Bermudians. In 2005 non-Bermudians held 28% of all jobs, up slightly from 27% in 2003. The median income for non-Bermudians in 2005 was one-quarter higher than that for Bermudians. There are also income disparities along racial lines, with whites earning 22% more than blacks on average.

  Tourism is directly responsible for around one-fifth of employment on the island, but the trend is downward. Following eight years of falling employment levels, the hotel industry saw a short-lived increase in employment in 2004 as refurbishment of hotels damaged by Hurricane Fabian lifted the number of jobs in the sector. The two fastest-growing sectors in terms of employment are construction and the international business sector. Government remains the largest sectoral employer. However, in line with the increasing importance of the international financial sector to the economy, the share of workers employed by companies offering business services, such as legal and accountancy firms, has increased steadily, rising by just under one-quarter between 2000 and 2005.

  July 02, 2007

• Structure

  Bermuda: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011b	2012b
  GDP at market prices (Bda$ bn)	6.1	5.8	5.8	5.7	5.8
  GDP (US$ bn)	6.1	5.8	5.8	5.7	5.8
  Real GDP growth (%)	3.0	-5.0	-1.9	-2.0	-1.0
  Consumer price inflation (av; %)	4.8	1.8	2.4	2.7a	2.5
  Population (m)	0.1	0.1	0.1b	0.1	0.1
  Exports of goods fob (US$ m)	24.0	29.0	15.0	16.0	11.0
  Imports of goods fob (US$ m)	-1,159.0	-1,065.0	-988.0	-940.0	-920.0
  Current-account balance (US$ m)	890.0	548.0	671.0	726.0	663.0
  Exchange rate (av) Bda$:US$	1.00	1.00	1.00	1.00a	1.00a
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2010	% of total	Components of gross domestic product 2010	% of total
  Agriculture	0.7	Private consumption	41.1
  Industry	7.3	Government consumption	15.7
  Manufacturing	1.3	Fixed investment	24.6
  Services	91.9	Stockbuilding	0.0
  Statistical discrepancy	0.0	Exports of goods & services	54.8
  		Imports of goods & services	33.3
  Main destinations of exports 2009a	% of total	Main origins of imports 2009a	% of total
  Spain	16.3	USA	31.9
  India	14.1	Korea	27.6
  Brazil	9.2	Poland	6.2
  Germany	7.1	Singapore	5.5
  a Based on trading partners' returns.

  Download the numbers in Excel

  Download text file (csv format)

  January 18, 2013

• Outlook

  Bermuda: Country outlook

  Bermuda: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: The centre-right One Bermuda Alliance (OBA) won a narrow election victory for a five-year term in mid-December 2012. The new premier, Craig Cannonier, will cement OBA unity and strengthen the two-party democracy. An orderly and peaceful transition of power after 14 years of government by the nationalist Progressive Labour Party (PLP) indicates political stability will be maintained. However, unions loyal to the PLP may become more active. The new government has a short timeframe to formulate a budget for 2013/14 (April-March) and will be under pressure to enact a credible fiscal framework or face a sovereign credit-rating downgrade. Policy will focus on measures to curb public spending growth with tighter controls on capital spending projects, but there will also be mild stimulus measures through tax incentives to businesses. Higher debt-service costs will weigh on the public finances in the 2013-14 forecast period and beyond. Financing constraints will reduce capital spending but some priority projects will advance. The Economist Intelligence Unit's central forecast is for a weak recovery to begin in 2013 after four consecutive years of recession. High unemployment and public spending constraints will support price stability with annual average inflation of 2.6%. The current-account surplus will narrow to an annual average of 10.3% of GDP in 2013-14.

  DOMESTIC POLITICS: The OBA won power in a general election ballot held on December 17th 2012, ending the 14-year incumbency of the centre-left PLP. The OBA party leader, Mr Cannonier, a relative political newcomer, was sworn in as the premier for a five-year term and appointed a 12-member cabinet. The PLP's support fell by 15% from the previous election in 2007, while the OBA polled 5% more than the former main opposition United Bermuda Party. Despite this shift in voter sentiment, the OBA won the election by only a narrow margin, garnering 52% of the vote against 46% for the PLP, with 2% of voters backing independent candidates. As a result, the OBA holds only a slim, two-seat majority in the 36-seat lower house. The OBA's lack of experience in power and its slim majority could make it vulnerable to internal policy disputes and possible defections, but we expect that the government will maintain party discipline and has enough support to pursue its immediate reform agenda unimpeded, at least during our forecast period to 2014. The new government will face a series of immediate challenges: to kickstart a sustainable economic recovery, to improve job opportunities and to tackle an upsurge in crime. Mr Cannonier has also declared that government priorities will include the overhaul of procedures to ensure ministerial accountability and the introduction of public-sector cost controls. This is in order to address a series of criticisms in recent years by the Auditor-General's Office over a lack of transparency and accountability in the PLP's management of the public accounts. A more business-friendly approach to policymaking than under the former government will encourage international business, but in the absence of a swift improvement in economic conditions the new government's honeymoon period may be short. Public spending cuts will also engender a hostile response from organised labour unions that are traditionally loyal to the PLP and are likely to become more active now that the party is in opposition.

  INTERNATIONAL RELATIONS: Relations between Bermuda and its most important economic partner, the US, will continue to be boosted by ongoing efforts to sign international tax treaties, although relations could deteriorate sharply if the US government were to adopt tax reforms that prevent the use of offshore tax domiciles (such as Bermuda) by US companies. Opposition in the US to the use of offshore jurisdictions to avoid domestic taxes on overseas earnings means that the US government will continue to seek to clamp down on the practice. Relations with the US will therefore be dominated by efforts to improve the supervision of financial services companies, in order to prevent the islands from being used for transactions connected to the illegal drugs trade, money-laundering or terrorism. The PLP remains publicly committed to pursuing a policy of disengagement from the UK, of which Bermuda is an overseas territory. However, it was unable to advance this cause while in power, as over three-quarters of the electorate are opposed to disengagement and the issue will remain dormant under the new OBA government.

  POLICY TRENDS: Policy initiatives will focus on public-sector reform to reduce operating expenditure and limit new borrowing. The OBA government plans to continue with mild fiscal austerity measures including a public-sector recruitment freeze. Increased borrowing to meet spending commitments on healthcare, justice reforms and improved policing will be politically difficult for the OBA to roll back and will prevent any marked contraction in spending. Some stimulatory measures that belatedly began under the PLP government will continue and be expanded to encourage foreign investment, tax breaks for recession-hit businesses and an easing of foreign work visa terms. Efforts to attract international financial services providers-which contributed 24% of GDP in 2011 and are crucial to economic growth-will be reinforced. The new government has pledged to implement policies to encourage overseas investors, including the suspension of six-year work permit term limits for overseas workers and the easing of a requirement for local businesses to be 60% Bermudian owned. The OBA aims to stimulate the economy by extending the scope of tax-efficient economic development zones and through a two-year payroll tax exemption for new Bermudian employees. A new Tourism Authority will be set up to steer tourism policy and marketing. The government also plans to hold a referendum on casino gaming. Most forms of gambling are illegal in Bermuda and a lobby to allow gambling in order to increase visitor numbers stalled under the last government. The legalisation of gambling is strongly opposed by the Church, a powerful influence in Bermudian politics. Weaker revenues will lead to operational cost-cutting and postponements of public investment that will act to undermine recovery prospects. However, the new government will pursue some mild policy stimulus through the continuance of temporary tax exemptions and a holiday on voluntary pension contributions. The OBA government will have little time in which to formulate a budget for the 2013/14 fiscal year, which needs to be approved by lawmakers in March. Given the context of the lengthy recession and large fiscal deficits of recent years, balancing the budget is likely to remain a medium-term goal. The need to maintain a stable tax regime that is attractive to international business will limit the government's ability to increase the corporate tax burden. The budget for 2012/13 projected a fourth consecutive year of fiscal deficit, of around 3% of GDP. However, fiscal trends in the first half of 2012 show spending ahead of budget, and this, together with continued economic contraction, means that the deficit will reach an unsustainably high level of an estimated 4.5% of GDP in fiscal year 2012/13, and we expect only mild tightening at best in 2013/14. Deteriorating fiscal balances since 2007 have forced up debt levels, with estimated public borrowing growing by US$242m (4.3% of GDP) in 2011/12. A successful US$475m, ten-year international bond issue in late June 2012, Bermuda's first since 2010, resulted in a yield of 4.14%, lower than that of a previous issue. This will enable more costly short-term debt to be cancelled and will reduce borrowing costs. However, total public debt and debt guarantees are estimated to rise to around US$1.4bn (29% of GDP) by March 2013. Bermuda's debt/revenue ratio is deteriorating faster than those of its peers, and annual increases in its debt ceiling, withdrawals from its sinking fund (a fiscal reserve fund) to meet interest payments and the inability to implement a multi-year budget programme have undermined the credibility of the fiscal policy anchor. If all planned reforms are swiftly adopted we expect them to be effective in halting the growth of Bermuda's public-debt burden and to gradually restore confidence in the management of the public accounts.

  ECONOMIC GROWTH: Faltering economic growth in Europe and only a weak recovery in the US, on which Bermuda's crucial international business, insurance and tourism sectors depend, will continue to undermine its recovery prospects. Leading indicators for employment, bank credit growth, tourist arrivals and retail sales are all estimated to have fallen below year-earlier levels in 2012. We forecast that a very mild recovery will take hold only in the second half of 2013, after a fourth consecutive year of contraction in 2012, when GDP declined by an estimated 1%. Growth in 2013 will be supported by a mild improvement in investment income, but will be inhibited by the slow recovery in employment levels, a contraction in government consumption and weak public investment. Fiscal adjustment will impair growth prospects throughout 2013-14, assuming that the new government will deepen existing fiscal austerity measures. We expect that pent-up domestic demand will support growth in 2013, but this will be insufficient to lift employment and incomes significantly. However, domestic demand and private consumption will remain underpinned by Bermuda's large proportion of high-income individuals. Downside risks to our growth forecast stem from dependence on the financial services sector, particularly insurance, which can be subject to highly erratic investment flows as a result of shifts in the global economy and in the perceived stability of Bermuda's tax regime towards foreign-based, and especially US-owned, firms.

  EXTERNAL ACCOUNT: After a marked widening in 2010-11, Bermuda's current-account surplus narrowed slightly in 2012, to an estimated 11.4% of GDP, as the import bill declined on the back of weak consumer demand and lower average oil prices. The narrower current-account surplus also reflects the weaker climate for international business and declining investment. Although they are down from 2011 peaks, the prices of soft commodities and oil will remain high, assuming that a global recession is avoided, keeping some pressure on the external accounts. A sluggish recovery in income and services receipts in 2013-14 will be offset by import demand growth during 2013-14. As such, the current-account surplus will be narrower in the period, as a tepid recovery in consumer demand will be amplified by rising import prices, resulting in an increase in the structurally huge trade deficit (with negligible merchandise export earnings). However, an expected modest recovery in tourism revenue will support the services surplus in 2013-14 and, as economic recovery gains traction, some slight easing of fiscal constraints on the back of revenue growth is expected. This will act to drive up the trade deficit again in 2014, but the effect of this on the overall current account will be mild and offset by growing services inflows, resulting in a slight widening of the current-account surplus in that year, to 10.4% of GDP.

  January 21, 2013

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Country Briefing

Land area

Around 53 sq km; Bermuda comprises a string of seven major islands linked by bridges and a causeway and 131 smaller islands. It is situated around 900 km east of the US North Carolina coast

Population

64,237 (2010 census)

Main towns

Hamilton (capital); St George's

Population of main parishes:

Pembroke, incl Hamilton: 10,602 (2010 census)

St George's: 6,417 (2010 census)

Climate

Mild and humid

Weather in Hamilton (altitude 46 metres)

Hottest month, August, 23-30°C; coldest months, February-March, 14-20°C (average daily minimum and maximum); driest month, April, 104 mm average rainfall; wettest month, October, 147 mm average rainfall

Language

English

Measures

UK (imperial) system, also US units

Currency

Bermuda dollar (Bda$) = 100 cents; pegged at parity with the US dollar (Bda$1:US$1)

Time

4 hours behind GMT

Public holidays

January 1st; Good Friday; May 24th (Bermuda Day); third Monday in June (National Heroes Day); Thursday before first Monday in August (Emancipation Day); Friday before first Monday in August (Somers' Day); first Monday in September (Labour Day); November 11th (Remembrance Day); December 25th-26th

January 18, 2013