NEW YORK, June 14 (Reuters) - Standard & Poor’s on Friday downgraded Aruba’s sovereign credit rating one notch to BBB-plus from A-minus, citing deteriorating fiscal and external balance sheets following closure of the island’s oil refinery.
The outlook on the new rating is stable.
“Closure of the Valero refinery likely led to an economic contraction of 1.2 percent of GDP in 2012. Furthermore, the closure will contribute to larger current account deficits and a higher external debt burden in the coming two years,” S&P said in a statement.
A combination of the refinery plus spending pressures in health care and pensions have contributed to a weakening of the nation’s public finances in recent years, S&P said.
S&P points out that rising tourism receipts, plus a public investment program providing extra economic stimulus, will help mitigate the economic impact of the refinery’s closure.
“We expect real per capita GDP growth to be 1.7 percent in 2013. Planned private sector investments in the tourism sector, plus public sector investment in infrastructure, should sustain per capita GDP growth of just over 2 percent in the next two years,” S&P said.
Aruba’s fiscal deficits are projected to ease to 5 percent of gross domestic product in 2013 from an average of more than 6 percent in 2011-12.