Standard & Poor’s Ratings Services removed the prospect of any downgrades for the Caribbean island of Aruba any time soon, citing an improved view for economic growth and pension and health-care reforms.
In raising its outlook on Aruba to stable from negative, S&P said recent reforms to address shortfalls in Aruba’s pension system and health-care agency should strengthen public finances over the long term.
Though the government’s debt burden has risen recently, S&P predicted the growth would be contained thanks to Valero Energy Corp.’s (VLO) decision to reopen its refinery in Aruba after an 18-month shutdown, as well as favorable growth prospects in the coming year and various fiscal measures.
Oil refining and storage had largely ceased to be a mainstay of Aruba’s economy–which largely relies on tourism–in the last couple of years until Valero’s move.
S&P currently rates Aruba at A-, which is four notches above junk territory.
It said the rating could fall if reform momentum stalls or economic growth unexpectedly declines, resulting in high fiscal deficits and a rising burden of government debt. On the other hand, the rating could rise if the fiscal and debt trajectory grow more favorable than expected, along with higher-than-expected GDP growth beyond next year and improving external liquidity to support confidence in foreign exchange.