Guernsey's credit rating drops amid rising deficit while Jersey's remains unchanged

Guernsey's credit rating has fallen while Jersey's remains at its previous level. Credit: ITV Channel

Guernsey's sovereign credit rating has fallen as the gap between government spending and the revenue it collects widens.

Standard and Poor's, which publishes credit ratings for countries around the world as a measure of economic performance, has downgraded Guernsey's rating from a 'very strong' AA-/A-1+ to a 'strong' A+/A-1.

Meanwhile, Jersey's rating remains unchanged at a 'very strong' AA-/A-1+.

What is an S&P credit rating?

Standard and Poor's (S&P) is a credit rating agency that publishes financial insights which allow different industries, assets and different jurisdictions to be benchmarked.

While consumer credit ratings from the likes of Equifax or Experian give a numeric score, S&P ratings give countries a grade from AAA to D indicating how likely it is countries will be able to repay any money loaned to them:

Letter grades are often combined with a positive or negative sentiment or 'outlook' indicating whether the country's financial situation is expected to improve or get worse in the future.

The reasons for Guernsey's drop have been put down to the island's increasing deficit in public finances.

S&P's assessment states that "increasing pressure on health and care services is intensifying the squeeze on public finances, while the shrinking working age population also threatens tax collections."The company also refers to market turmoil which has been a 'blow' to Guernsey's financial situation.

S&P has warned the States that the cost of the Government Work Plan puts further pressure on public finances due to "years of under-investment".

The Policy & Resources Committee says it is vital to stabilise the island's debts or risk its credit rating falling further.

Deputy Mark Helyar, Vice-President of the Policy & Resources Committee, says this downgrade should be taken "very seriously":

"There’s a real impact on our reputation as a stable, reliable, well-run jurisdiction and to the competitiveness of our local industry.

"We cannot underestimate what is at stake, and if we become unattractive to business and our economy suffers, our financial problems will get even worse."

He added: "While the announcement from S&P Global is disappointing, I hope it serves as a wake-up call to States Members that there is no time left to carry on going around in circles hoping a solution will fall into our laps."

Meanwhile Jersey's Treasury Minister, Deputy Ian Gorst, said the island remains in a strong situation:

"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."