S&P Affirms Aruba "A-/A-2' Sovereign Credit Rating
Fri Jun 8, 2012 5:13pm EDT
-- We affirmed our 'A-/A-2' sovereign credit ratings on Aruba.
-- The stable outlook on Aruba reflects our expectation that the
government will be able to return shortly to its medium-term fiscal plan to
reduce the central government deficit towards 3% of GDP in 2014.
-- We expect that the government would implement further measures to
contain fiscal slippage in the event the reopening of the island's oil
refinery is delayed beyond a couple of months.
On June 8, 2012, Standard & Poor's Ratings Services affirmed its 'A-/A-2'
sovereign credit rating on Aruba. The outlook on the ratings is stable.
Standard & Poor's 'A-' transfer and convertibility assessment remains
Aruba's prosperous economy with per capita GDP of about $25,000, stable
democracy, high level of social development, and strong government balance
sheet support its creditworthiness. A narrow economic base, limited monetary
and external flexibility, and a sizeable gross general government debt burden
(which is more than offset by public sector pension assets) are credit
The Aruban economy had been recovering rapidly since the recession of 2009 and
2010, with growth approaching 9% in real terms last year. The recent decision
by Valero, the owner of the island's oil refinery, to suspend operations was a
setback to the economy and to the government's fiscal plans to reduce its
deficit in coming years. The refinery, which directly and indirectly employs
about 5% of the island's workforce, is the largest single private-sector
employer. A potential closure of the refinery would, absent substantial fiscal
adjustment, hinder the government's intent to reduce its fiscal deficit
towards 3% of GDP in 2014 (one year later than originally planned) from an
estimated 6.8% of GDP this year. A potential closure would also weaken
We expect that the combination of the reopening of the oil refinery, favorable
growth prospects in the coming year, and various other minor fiscal measures
are likely to restrain the recent rise in the general government's gross debt
burden and stabilize it around 50% of GDP in the coming couple of years. (In
its calculation of gross debt, Standard & Poor's excludes central government
debt that public sector pension and social welfare plans hold.)
The stable outlook reflects our expectation that the government will be able
to reduce the central government fiscal deficit towards 3% of GDP in 2014 from
an estimated 6.8% of GDP this year. We expect that the government would
implement further measures to contain fiscal slippage in the event the
reopening of the refinery is delayed beyond a couple of months.
The rating could fall if slower economic growth and the prolonged suspension
of the refinery results in a higher debt burden. The closure of the refinery
could also negatively impact exports more than imports, possibly contributing
to a fall in foreign exchange reserves and an increase in the country's net
external liability position.
Over the long term, the rating could rise if successful resolution of the
refinery issue, along with other policies, contributes to a more
favorable-than-expected fiscal and debt trajectory and higher-than-expected
GDP growth beyond 2012. That, combined with improving external liquidity to
strengthen the pillars sustaining confidence in the fixed exchange rate, could
result in a higher rating.
Related Criteria And Research
-- Aruba, Dec. 16, 2011
-- Sovereign Government Rating Methodology and Assumptions, June 30, 2011
Sovereign Credit Rating A-/Stable/A-2
Transfer & Convertibility Assessment
Local Currency A-
Senior Unsecured A-
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left