Standard and Poors, which assesses the Island twice annually, say that the decision was made because of economic uncertainty caused by Brexit and also the threat of reputational risk to the Island’s finance sector, such as that from the publication of the Paradise Papers.
The report says that a ‘single scandal’ could have a negative impact on the entire Island.
Jersey’s economic outlook has been downgraded from stable to negative, which means that its credit rating could also shift downwards, increasing the cost of borrowing for the Island.
Guernsey’s economic outlook was also moved to negative, meaning that both islands are now rated the same as the UK, which had already been downgraded because of Brexit.
Both Channel Islands maintained their AA- rating for long-term borrowing and A-1+ rating for short-term borrowing for the time being.
Treasury Minister Alan Maclean said that the rating was the ‘most important thing’ and that the new negative economic outlook rating would not affect his timetable for securing funding for the new hospital.
‘Brexit has created uncertainty and where there is a uncertainty an organisation like Standard and Poors is naturally going to be cautious,’ he said.
‘Their report is based on what information they have at the moment. Jersey has faced uncertainty before, such as following the global financial crisis in 2008 and we have come through it.
‘Indeed, Standard and Poors’ report points out many positives about our economy and describes us as “resilient”.’
He added that there was ‘nothing we don’t already know’ in the S & P report.
S & P’s report says that Jersey’s credit ratings could be lowered within 24 months, if it does not respond to the risks it faces.
‘The outlook revision reflects our view that the risks for the ratings on Jersey are increasingly tilted to the downside,’ it says.
‘External policy uncertainties, including those associated with the slower-than-anticipated progress of the Brexit negotiations and a potential policy shift in the UK, could make it difficult for Jersey to set appropriate policies in response.’
It adds: ‘The recent Paradise Papers leak thrust the Island into the spotlight when it was discovered that an Apple subsidiary became a tax resident in Jersey, despite its business activities remaining in Ireland.
‘Despite the scale of the leaks, no illegal activities were found and Jersey was not placed on the list of 17 countries blacklisted by the Economic and Financial Affairs Council.
‘Nevertheless, this highlights that as a small economy with a heavy focus on the financial sector, Jersey is especially vulnerable to reputational risk – a single scandal could have a negative impact on the whole jurisdiction.’
