SOVEREIGN & SUPRANATIONAL

DECEMBER 5, 2013

CREDIT ANALYSIS

St Maarten, Government of

RATINGS

Overview and Outlook

St Maarten Gov. Bond Rating Country Ceiling Bank Deposit Ceiling

Foreign Currency

Baa1 A2 Baa1

Local Currency

Baa1 A1 A1

Table of Contents: OVERVIEW AND OUTLOOK RATING RATIONALE Economic Strength: Moderate (+) Institutional Strength: High (-) Fiscal Strength: Moderate (+) Susceptibility to Event Risk: Very Low Rating Range Comparatives APPENDICES Chart Pack Rating History Annual Statistics MOODY’S RELATED RESEARCH RELATED WEBSITES

1 2 2 5 7 9 11 12 13 13 15 16 18 18

Analyst Contacts: NEW YORK

+1.212.553.1653

Gabriel Torres +1.212.553.3769 Vice President - Senior Credit Officer [email protected] Mauro Leos +1.212.553.1947 Vice President - Senior Credit Officer [email protected] Bart Oosterveld +1.212.553.7914 Managing Director - Sovereign Risk [email protected]

This Credit Analysis provides an in-depth discussion of credit rating(s) for St Maarten, Government of and should be read in conjunction with Moody’s most recent Credit Opinion and rating information available on Moody's website.

St Maarten’s Baa1 government bond ratings are supported by comparatively high economic development and moderate debt levels. St. Maarten's 2012 per capita GDP of $25,875 is more than double the Baa category median. High wealth levels mitigate the country’s heavy dependence on tourism and susceptible to weather-related shocks and support its ability to quickly rebuild and adapt in the aftermath of a major storm. In 2011 debt to GDP fell to 20.1% from 29.5% in 2009, as a result of debt forgiveness provided by the Dutch government as part of the breakup of the Netherlands Antilles. In 2012 debt began to climb, but we expect it to resume its downward trajectory. Given recent better-than-expected fiscal performance, we project debt to be around 21% of GDP in 2013 and below 20% in 2014. Support from the Netherlands, in the form of low interest longterm financing, fiscal oversight, and assistance with security matters, will likely continue for a few more years. We consider this assistance a key ratings support. The ratings are constrained by the untested nature of the country's institutions, given that St Maarten gained greater independence a little more than three years ago. St. Maarten is located on the Caribbean island of Saint Martin, the other half being French territory. Prior to 2010 St. Maarten was part of the Netherlands Antilles. On 10 October 2010 it became a constituent country of the Kingdom of the Netherlands. St. Maarten’s small, undiversified and slowly growing economy also constrains the ratings. The country’s nominal GDP is just US$1 billion (second smallest among all rated sovereigns) and GDP growth has been lackluster in recent years, as with most Caribbean nations, showing a modest 0.8% average growth since 2008. We expect a slight pickup in growth to 1.5% in 2013 and 2.0% in 2014, and anticipate growth to remain in the 1%-2% range over the medium term. But even such a low level of growth is highly contingent on external conditions and comes with significant downside risks. The economy is heavily dependent on tourism, which represents about 80% of GDP, and unlike other high income Caribbean islands, such as the Bahamas (Baa1) or Cayman Islands (Aa3), St Maarten lacks an offshore financial sector. Efforts to diversify the economy will likely build on the existing tourism-related infrastructure and St Maarten's role as a regional hub.

SOVEREIGN & SUPRANATIONAL

The stable outlook reflects our view that fiscal restrictions limiting debt service to no more than 5% of public revenues and continued support from the Netherlands will help stabilize the debt burden at current relatively moderate levels. A sustained and permanent reduction of debt metrics, together with clear evidence of policy continuity even in the absence of external oversight could lead to upward ratings pressure. Conversely, a persistent increase in debt metrics could lead to downward ratings pressure. Reduced external support without an equivalent increase in domestic institutional strength could also lead to a downgrade. This Credit Analysis elaborates on St Maarten’s credit profile in terms of Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk, which are the four main analytic factors in Moody’s Sovereign Bond Rating Methodology.

Rating Rationale Our determination of a sovereign’s government bond rating is based on the consideration of four rating factors: Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk. When a direct and imminent threat becomes a constraint, that can only lower the preliminary rating range. For more information please see our Sovereign Bond Rating Methodology.

Economic Strength: Moderate (+) High wealth levels counterbalanced by small scale, subdued growth and limited diversification of the economy Factor 1 Scale

VH+

VH

VH-

H+

H

H-

M+

M

M-

L+

L

L-

VL+

VL

VL-

+

-

Economic strength evaluates the economic structure, primarily reflected in economic growth, the scale of the economy and wealth, as well as in structural factors that point to a country’s long-term economic robustness and shockabsorption capacity. Economic strength is adjusted in case excessive credit growth is present and the risks of a boombust cycle are building. This ‘Credit Boom’ adjustment factor can only lower the overall score of economic strength.

St. Maarten's Moderate (+) economic strength assessment balances comparatively high economic development against stagnant growth and a very small and undiversified economy. St. Maarten’s 2012 $25,875 per capita GDP is more than twice the $10,309 Baa median and substantially higher than the $16,037 Baa median measured in PPP terms, but the country’s average real growth rate of 0.8% over the last five years is among the lowest in the Baa-rated space (Exhibit 1). In addition, the economy’s size of just US$1 billion is the second smallest among rated sovereigns (Exhibit 2).

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DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

EXHIBIT 1

EXHIBIT 2

St Maarten is among the wealthier, but slower growing sovereigns in the Baa rating space

Sovereigns rated by Moody’s with economy size of less than US$10 billion

10

Real GDP Growth (2008-12 avg)

8 7

PERU Baa2 INDONESIA Baa3

4 3 2 1 0 -1 -2 -3 0

5

10

15

20

8.1

MOLDOVA (B3)

25

30

35

40

7.3

BERMUDA (Aa3)

5.6

SURINAME (Ba3)

4.8

BARBADOS (Ba1)

4.3

MONTENEGRO (Ba3)

4.3

FIJI ISLANDS (B1)

4.0

CAYMAN ISLANDS (Aa3) BELIZE (Caa2)

3.1 1.5

SINT MAARTEN (Baa1)

1.0

SVG (B2)

0.7 Nominal GDP, US$ Billion, 2012

GDP per capita (PPP, $ 000s, 2010-12 avg)

Source: Moody’s Investors Service

8.7

BAHAMAS (Baa1) URUGUAY Baa3

AZERBAIJAN Baa3 KAZAKHSTAN Baa2 MAURITIUS Baa1 BAHRAIN Baa1 COLOMBIA Baa3 NAMIBIA Baa3 BRAZIL Baa2 TURKEY Baa3 THAILAND Baa1 MEDIAN RUSSIA Baa1 SOUTH AFRICA Baa1 MEXICO Baa1 ST MAARTEN Baa1 BULGARIA Baa2 ROMANIA Baa3 BAHAMAS Baa1 LITHUANIA Baa1 SPAIN Baa3 TRINIDAD & ICELAND Baa3 TOBAGO Baa1 ITALY Baa2 LATVIA Baa2

5

10.0

MALTA (A3)

INDIA Baa3

6

ARMENIA (Ba2)

PANAMA Baa2

9

Source: Moody’s Investors Service

Tourism represents about 80% of St Maarten’s GDP, including the impact on domestic demand and construction. As a mature industry tourism is unlikely to lead to high growth although the small size of the economy means that a single major project can have a large and measurable impact on domestic output. In the years after the global financial crisis, stop-over tourist arrivals had been declining by an average of 0.5% annually, but have started to rebound since 2012. That year recorded a 7.6% y/y increase in stop-over arrivals, which grew by further 1.4% y/y in the first half of 2013 (Exhibit 3). After growing 4.7% y/y on average in the five years to 2007 the economy has settled since then, recording an average growth of 0.8% yearly from 2008 through 2012. For 2013/14 we expect a modest recovery to 1.5% -2.0% per year. St. Maarten is still in the process of developing its own economic and financial statistics in the aftermath of its 2010 independence, so future data revisions are likely. Still, the drop in economic growth since 2008, followed by a modest recovery, mirrors similar economic trends in the rest of the Caribbean. Unlike some other Caribbean islands with similar ratings, such as Barbados (Ba1) or the Bahamas (Baa1), St. Maarten lacks an offshore financial sector. Efforts to diversify the economy will likely build on the existing tourism-related infrastructure and St. Maarten's role as a regional hub.

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DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

EXHIBIT 3

Recent tourism trends in the Caribbean Avg Annual Growth, 2007-12

Change H1 2013 / H1 2012

Share of Caribbean Arrivals

Curacao

7.0%

6.6%

5.5%

Aruba

3.2%

5.4%

11.8%

Jamaica

3.2%

-1.2%

26.0%

Cayman Islands

2.0%

6.2%

4.2%

Saint Lucia

1.3%

4.8%

4.0%

Dominica

0.4%

4.2%

1.0%

St Maarten

-0.5%

1.4%

6.0%

Martinique

-0.6%

1.7%

6.4%

Antigua & Barbuda

-1.2%

-5.2%

3.2%

Barbados

-1.3%

-6.7%

7.0%

Bahamas

-1.4%

-8.6%

18.6%

Grenada

-2.8%

-1.0%

1.5%

Anguilla

-3.6%

4.5%

0.8%

SVG

-3.7%

-10.1%

1.0%

Bermuda

-5.4%

-2.9%

3.0%

Source: Caribbean Tourism Organization

St. Maarten's 2012 per capita GDP of around US$ 26,000is similar to that of the Bahamas (Baa1 negative, Moderate (-) economic strength) but much lower than the more than US$ 53,000 of Cayman Islands (Aa2 stable, Moderate (+) economic strength). The median per capita GDP of rated sovereigns with Moderate economic strength is close to US$ 11,000 while the median of those with High economic strength is around US$ 25,000. St. Maarten’s GDP per capita puts it closer to countries whose economic strength is assessed as High, but its small and concentrated economy limits upside potential. Beyond the numbers, and in the Caribbean small islands context, an assessment of Moderate economic strength indicates a demonstrated ability to deal with natural disasters. For example, in 2004 Hurricane Ivan hit Grenada as a category 3 storm and then went on to the Cayman Islands as a category 5 storm. Grenada defaulted the following year while Cayman, despite losses estimated at about 200% of GDP, saw little impact on its fiscal accounts. It is such demonstrated ability to deal with shocks that supports Cayman’s economic strength assessment. St. Maarten also suffered a series of hurricanes in the 1990s but the economy bounced back and adjusted. The waterfront was rebuilt and today 95% of electric cables are underground as a preventive measure against future storms. St Maarten’s relatively high economic development is counterbalanced by a highly concentrated economic structure, another common Caribbean theme. Its key tourism market is the US with over 50% of arrivals (Exhibit 4). Canada and the Netherlands are also important tourism markets. While diversifying the overall economy is not easy, diversifying the customer base is more feasible. South America, particularly Brazil, is growing in importance for St Maarten. However tourist arrivals outside of North America and Europe have been in relative decline over the last few years. Targeting South America still makes a lot of economic sense and is something that many Caribbean islands are exploring. The South American market is growing stronger in purchasing power, especially with the middle class emerging across the continent. Furthermore, the South American high season coincides with the Caribbean low season, the US summer, which is another advantage.

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DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

EXHIBIT 4

The US tourism market is by far the most important for St Maarten, while Europe’s share is declining 2011

2013 55.0

52.2

% of Total

51.6

2012

24.0

23.0

21.0 16.5

8.8

7.8

US

15.9

10.6

Canada

Europe

13.4

Other

Source: Caribbean Tourism Organization

St. Maarten appeals more to the mid and high-end tourism segments, lacking the large all-inclusive resorts common in other islands. St Maarten’s airport acts as a stepping point to other islands, including St. Bart's and Anguilla. Besides stay-over tourism, over 1.6 million cruise passengers a year arrive in St. Maarten, making its port one of the top transit spots in the world. The cruise industry alone represents 35 % of GDP.

Institutional Strength: High (-) History of policy predictability and institutional support by the Netherlands are key credit strengths Factor 2 Scale

VH+

VH

VH-

H+

H

H-

M+

M

M-

L+

L

L-

VL+

VL

VL-

+

-

Institutional strength evaluates whether the country’s institutional features are conducive to supporting a country’s ability and willingness to repay its debt. A related aspect of institutional strength is the capacity of the government to conduct sound economic policies that foster economic growth and prosperity. Institutional strength is adjusted for the track record of default. This adjustment can only lower the overall score of institutional strength.

Our assessment relies on a country’s rankings in different independent institutional indicators, as well as our qualitative assessment of the institutional arrangements supporting debt servicing. While no single indicator captures this concept fully we rely partly on the World Bank’s Worldwide Governance Indicators (WGI) 1. However, there are no World Bank governance indicators just for St. Maarten. The closest ones available are governance indicators for the Netherland Antilles, which includes St. Maarten and Curaçao, although Curaçao is by far the larger of the two economies. The Netherland Antilles outperform the median of Baa-rated peers in every category (Exhibit 5).

1

5

The WGI is a set of six aggregate indicators, covering topics such as government effectiveness and the rule of law, based on the views of a large number of enterprise, citizen and expert survey respondents in industrial and developing countries. The indicators are reported as a number from -2.5 to +2.5, where higher is better.

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

EXHIBIT 5

World Bank governance indicators relative to Baa-rated peers St Maarten*

Median Baa

Govt Effectiveness 100 75 Voice and Accountability

50

Rule of Law

25 0

Political Stability

Regulatory Quality

Control of Corruption St Maarten represented by the combined score for St Maarten and Curacao (Netherlands Antilles) Source: The World Bank, Moody’s Investors Service

Given St. Maarten’s lack of history as an independent country, predicting how its institutions would react in an adverse scenario is difficult. But support from the Netherlands partially mitigates these concerns, though it is not a permanent feature. This support includes:

6

DECEMBER 5, 2013

»

As part of the Kingdom of the Netherlands St. Maarten benefits from the Netherlands’ legal system and ultimate judicial review. This arrangement is somewhat similar to other Caribbean nations that utilize the UK-based Privy Council as their court of final appeals. This institutional feature has no final deadline.

»

For at least the next three years a specially set up council, the College Financieel Toezicht (CFT), will oversee St. Maarten's fiscal accounts. The CFT can reject budgets if it considers them unrealistic, which is something it has done in the past. St. Maarten has some fiscal constraints, such as the inability to issue debt if it leads to interest payments higher than 5% of public sector revenues. But the CFT’s review extends beyond such ratios and measures: budget approval requires sustainable fiscal accounts and realistic macroeconomic assumptions. In 2011 the budget was rejected twice for overly optimistic growth projections. In 2016 there will be a review of what the CFT has accomplished and a decision made on whether to extend it.

»

While direct government transfers from the Netherlands to St. Maarten are being phased out, Netherlands provides other monetary subsidies. As part of the effort to help the island develop its judicial system, several consultants and government employees from the Netherlands are working in St Maarten. The Dutch government pays part of these employees’ salaries, offering support that has both economic and institutional value.

»

Fiscal support goes beyond the CFT oversight. All of St. Maarten’s debt is owed to the Netherlands, which lends at highly beneficial terms characterized by very low rates and very long maturities.

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

St Maarten’s government is elected to four year terms, with the next elections due in 2014. Early elections are possible, given the recent spate of political uncertainty on the island: Prime Minister Sarah Wescot-Williams’ current administration is an unstable coalition and depends on the support of independent deputies in the 15-member Staten (the parliament). However, regardless of the final outcome of political in-fighting, we do not expect any major policy change since there is ample policy consensus across the political spectrum, as is common in other Caribbean nations with strong institutional frameworks.

Fiscal Strength: Moderate (+) Uncertainty over medium term fiscal trends, moderated by comparatively low debt burden and high debt affordability Factor 3 Scale

VH+

VH

VH-

H+

H

H-

M+

M

M-

L+

L

L-

VL+

VL

VL-

+

-

Fiscal strength captures the overall health of government finances, incorporating the assessment of relative debt burdens and debt affordability as well as the structure of government debt. Some governments have a greater ability to carry a higher debt burden at affordable rates than others. Fiscal strength is adjusted for the debt trend, the share of foreign currency debt in government debt, other public sector debt and for cases in which public sector financial assets or sovereign wealth funds are present. Depending on the adjustment factor the overall score of fiscal strength can be lowered or increased.

St. Maarten’s Moderate (+) government financial strength balances comparatively low debt burden against an expectation of rising debt metrics over the medium term as the government takes on greater responsibilities. Debt to GDP fell to 20.1% in 2011, compared to 29.5% in 2009, as a result of debt forgiveness by the Netherlands as part of the independence process. In 2012, the ratio deteriorated to 22.7%, but remained favorable in comparison with rating peers (Exhibit 6). We expect debt to GDP to

decrease to around 21% in 2013, driven by better-than-expected fiscal performance. EXHIBIT 6

Government debt compares favorably to rating peers St Maarten

Median - Baa

45 40 35

% of GDP

30 25 20 15 10 5 0 2007 Source: Moody’s Investors Service

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DECEMBER 5, 2013

2008

2009

2010

2011

2012

2013F

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

The current debt stock of St. Maarten is what has been agreed with the Netherlands. All of this debt is owed to the Netherlands and is denominated in the local currency of St. Maarten. No principal payments are due for another four years and interest rates are quasi-concessional, resulting in low funding needs and very low interest servicing costs (Exhibit 7). And since the creditor also has veto power over any new issuance, the risk of funding problems remains low, at least as long as the current framework remains in place. EXHIBIT 7

Share of government revenue consumed by interest payments declined significantly after independence, remaining very low compared to peers St Maarten

Median - Baa

14 12 10

%

8 6 4 2 0 2007

2008

2009

2010

2011

2012

2013F

Source: Moody’s Investors Service

While government expenditures have remained largely stable, revenues have increased since independence (Exhibit 8) as the authorities now keep taxes that used to be transferred to the Netherland’s Antilles. By law the government must run a balanced current budget, and deficits can only result from capital expenditures. The initial 2011 budget included capital expenditures of 4%-5% of GDP which did not materialize, leading to a roughly balanced fiscal outcome. In 2012 a fiscal surplus of 1.8% of GDP was recorded. We expect budget surpluses of around 2.0% of GDP in 2013-14 as a gradual uptick in growth supports government revenues. Going forward the key concern regarding government finances is how the new government will manage competing pressures in the context of relatively low economic growth. EXHIBIT 8

Government expenditure and revenue trends Expenses

Revenues

35 30

% of GDP

25 20 15 10 5 0 2007

2008

2009

2010

2011

2012

2013F

Source: Moody’s Investors Service

8

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Susceptibility to Event Risk: Very Low High economic development and stable policy environment limit the risk of shocks Factor 4 Scale

VL-

VL

VL+-

L-

L

L+

M-

M

M+

H-

H

H+

VH-

VH

VH+

+

-

Susceptibility to Event Risk evaluates a country’s vulnerability to the risk that sudden events may severely strain public finances, thus increasing the country’s probability of default. Such risks include political, government liquidity, banking sector and external vulnerability risks. Susceptibility of Event Risk is a constraint which can only lower the preliminary rating range as given by combining the first three factors.

We assess St Maarten’s Susceptibility to Event Risk, the risk of sudden multi-notch downgrade, as Very Low relative to our rating universe. The biggest concern derives from natural disasters, to which St. Maarten is prone. Hurricanes in the past led to losses of over 200% of GDP in other Caribbean small islands such as Cayman Islands, and a future major storm could place strong pressure on the fiscal and debt numbers, a risk heightened by the expected reduction in direct support from the Netherlands. Political risk is negligible given policy consensus, but institutional transition risk, key in a nation that is still developing its own institutions, is a bigger concern. Support from the Netherlands remains a key credit strength, and any sudden reversal of this support would put downward pressure on the rating or outlook. Direct financial risk for the government remains low given the quasi-concessional nature of its current funding. Risk deriving from the banking sector is somewhat higher. IMF data for the whole currency union (St. Maarten and Curacao, where Curacao represents the bulk of the financial system) shows nonperforming loans (NPLs) of about 9%, with provisions covering about 75% of the NPLs. The current account deficit averaged 5.3% of GDP from 2008 through 2012, but have dropped significantly from 19.3% of GDP in 2008 to 0.3% in 2011. Driven by a recovery in tourism-related receipts, the current account balance rebounded to a 9.7% of GDP surplus in 2012 (Exhibit 9), and we expect the positive trend to continue if the rebound in tourism is maintained for the rest of 2013 (stayover arrivals were up 1.4% y/y in the first six months of the year). There is no reliable assessment of private sector debt, so reported external debt metrics likely underestimate the real numbers. EXHIBIT 9

St Maarten’s current account balance rebounded spectacularly in 2012-13, Current Account

Net FDI

CA + FDI Balance

15 10

% of GDP

5 0 -5 -10 -15 -20 -25 2007 Source: Moody’s Investors Service

9

DECEMBER 5, 2013

2008

2009

2010

2011

2012

2013F

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

St. Maarten belongs to a currency union together with the island of Curaçao, with its currency pegged to the dollar since 1970. In 2012 the two nations discussed a possible breakup, with full dollarization as a strong possibility for St. Maarten. But both governments have since chosen to defer any decision on the currency union as St. Maarten further develops needed technical institutions. The shared Central Bank is located in Curacao and will aim to create a fuller office within St Maarten proper.

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DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Rating Range Combining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporate expectations around future metrics and risk developments that may differ from the ones implied by the rating range. Thus, the rating process is deliberative and not mechanical, meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicative rating range. For more information please see our Sovereign Bond Rating Methodology. Sovereign Rating Metrics: St Maarten How strong is the economic structure?

Economic Strength

Sub-Factors: Growth Dynamics, Scale of the Economy, Wealth VH+ VH VH- H+ H

H- M+ M M- L+

L

L- VL+ VL VL-

+

-

VH+ VH VH- H+ H

How robust are the institutions and how predictable are the policies?

Institutional Strength

Economic Resiliency +

H- M+ M M- L+

L

L- VL+ VL VL-

Sub-Factors: Institutional Framework and Effectiveness, Policy Credibility and Effectiveness VH+ VH VH- H+ H

H- M+ M M- L+

L

L- VL+ VL VL-

+

-

VH+ VH VH- H+ H

How does the debt burden compare with the government's resource mobilization capacity?

Fiscal Strength

Government Financial Strength +

H- M+ M M- L+

L

L- VL+ VL VL-

Sub-Factors: Debt Burden, Debt Affordability VH+ VH VH- H+ H

H- M+ M M- L+

L

L- VL+ VL VL-

+

-

Rating Range: A2-Baa1

What is the risk of a direct and sudden threat to debt repayment?

Susceptibility to Event Risk

Sub-Factors: Political Risk, Government Liquidity Risk, Banking Sector Risk, External Vulnerability Risk VL- VL VL+ L+

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DECEMBER 5, 2013

L

L+- M- M M+ H-

Assigned Rating: Baa1

H H+ VH- VH VH+ -

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Comparatives This section compares credit relevant information regarding St Maarten with other sovereigns rated by Moody’s Investors Service. It focuses on a comparison with sovereigns within the same rating range and shows the relevant credit metrics and factor scores. Despite relatively high income levels, St Maarten’s economic strength remains in line with peers due to its small economy and below average growth performance. Moderate to High government financial strength is common in the ‘Baa’ space. St Maarten’s very low susceptibility to event risk is a key credit strength that compares favorably with peers, underpinning its Baa1 rating. EXHIBIT 10

St Maarten Key Peers

Bulgaria

Latvia

Baa1 Median

Latin America & Caribbean Median

St Maarten

Bahrain

Lithuania

Trinidad and Tobago

Rating/Outlook

Baa1/STA

Baa2/NEG

Baa1/STA

Baa1/STA

Baa2/STA

Baa2/POS

Baa1

Ba2

Rating Range

A2 - Baa1

Baa2 - Ba1

A3 - Baa2

A3 - Baa2

Baa1 Baa3

Baa1 Baa3

A2 - Baa1

Baa3 - Ba2

Factor 1

Year

M+

M+

M+

L

M-

L+

M+

M-

Nominal GDP (US$ Bn)

2012

1.0

27.1

42.3

23.9

51.0

28.4

42.3

31.6

GDP per Capita (PPP, US$)

2012

25,875*

28,744

21,615

20,087

14,312

18,255

16,650

11,776

Avg. Real GDP (% change)

2008-2017

0.6

3.8

1.7

0.9

1.8

0.9

2.6

3.3

Volatility in Real GDP growth (ppts)

2003-2012

1.4

2.2

7.3

6.3

4.1

8.9

3.3

2.6

Global Competitiveness Index, percentile [1]

2012

--

63.3

58.7

22.0

50.4

55.0

54.1

24.8

H-

H-

VH-

M

M

VH-

H-

M

2012

--

61.1

62.8

51.2

42.1

63.6

52.9

35.5

2012

--

55.3

66.9

40.4

42.9

69.4

46.2

28.0

2012

--

58.6

59.5

38.0

46.2

57.0

45.0

36.3

Avg. Inflation (% change)

2008-2017

2.5

1.9

3.6

6.2

3.5

3.5

3.9

5.0

Volatility in Inflation (ppts)

2003-2012

--

1.2

3.3

2.7

3.1

4.6

2.7

2.7

M+

M+

M

H+

H+

M+

H

M+

Factor 2 Government Effectiveness, percentile [1] Rule of Law, percentile [1] Control of Corruption, percentile

[1]

Factor 3 Gen. Gov. Debt/GDP

2012

22.7

44.4

40.5

45.0

18.5

40.6

40.1

33.4

Gen. Gov. Debt/Revenues

2012

91.8

148.4

123.7

140.3

52.7

115.7

140.3

163.3

Gen. Gov. Interest Payments/Revenue

2012

3.3

4.9

5.9

6.0

2.5

3.9

6.9

9.0

Gen. Gov. Interest Payments/GDP

2012

1.0

1.5

1.9

1.8

0.9

1.4

1.8

1.9

Gen. Gov. Financial Balance/GDP

2012

1.8

-2.6

-3.3

-2.2

-0.8

-1.4

-2.4

-2.1

VL

H+

M-

VL+

M+

M+

L+

M

Factor 4 Current Account Balance/GDP

2012

9.7

8.1

-0.2

4.0

-1.3

-2.5

-0.4

-3.5

Gen. Gov. External Debt/Gen. Gov. Debt

2012

100.0

14.6

75.3

19.6

--

81.0

23.6

50.2

External Vulnerability Indicator

2014F

45.4

497.2

183.9

1.3

109.6

305.1

42.1

57.4

Notes: * market prices [1] Moody's calculations. Percentiles based on our rated universe. Source: Moody's, National Sources, IMF, World Bank

12

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Appendices Chart Pack St Maarten EXHIBIT 11

EXHIBIT 12

Economic Growth

National Income

Real GDP Volatility, t-9 to t (ppts) (RHS)

GDP per capita (US$)

15,000

1

10,000

Source: Moody’s

Source: Moody’s

EXHIBIT 13

EXHIBIT 14

Population

Inflation and Inflation Volatility Population (Mil.) (LHS)

Inflation Rate Volatility, t-9 to t (ppts) (RHS)

Population growth (% change) (RHS)

13

DECEMBER 5, 2013

4 3 2 1

2014F

2013F

2012

2011

2010

2009

2008

0 2007

-10

2013F

0.00

2014F

-8

2011

-6

0.01

2012

0.01

2010

-4

2009

-2

0.02

2008

0.02

2007

0

2006

0.03

2005

2

2004

4

0.03

2003

0.04

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2006

6

2005

0.04

Inflation Rate (CPI, % change Dec/Dec) (LHS) 5

2003

8

2004

0.05

Source: Moody’s

2013F

0

2003

2013F

5,000

2014F

2011

2012

2010

2009

2008

2006

2007

0

2005

-1

2004

0.5

2003

0

2014F

1

1.5

2011

2

2012

3

20,000

2010

2

2009

4

25,000

2008

2.5

2007

5

30,000

2006

3

2005

6

2004

Real GDP (% change) (LHS)

Source: Moody’s

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

EXHIBIT 15

EXHIBIT 16

Debt Burden

Debt Affordability

Gen. Gov. Debt/GDP (%) (LHS)

Gen. Gov. Interest Payment/GDP (%) (LHS)

Gen. Gov. Debt/Gen. Gov. Revenue (%) (RHS)

Gen. Gov. Interest Payment/Gen. Gov. Revenue (%) (RHS)

6

1.0

4

Source: Moody’s

Source: Moody’s

EXHIBIT 17

EXHIBIT 18

Financial Balance

External Vulnerability Risk

Gen. Gov. Financial Balance/GDP (%)

External Debt/CA Receipts (%) (LHS)

Gen. Gov. Primary Balance/GDP (%)

14

DECEMBER 5, 2013

90 80 70 60 50 40 30 20 10

2013F

2014F

2012

2011

2010

2009

2008

2007

2006

2005

0

2004

0

External Vulnerability Indicator (%) (RHS)

2003

-8 2014F

5

2013F

-6

2012

10

2011

-4

2010

15

2009

-2

2008

20

2007

0

2006

25

2005

2

2004

30

2003

4

Source: Moody’s

2013F

0

2014F

0.0

2011

2

2012

0.5

2003

2014F

2012

2013F

2011

2010

2009

2008

2007

2005

2006

2004

2003

0

8

1.5

2010

5

10

2.0

2009

15 10

12

2007

20

2.5

2008

25

14

2005

30

3.0

2006

200 180 160 140 120 100 80 60 40 20 0

2004

35

Source: Moody’s

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Rating History St Maarten Government Bonds

Foreign Currency Ceilings

Foreign Currency

Local Currency

Outlook

Bonds & Notes

Bank Deposit

Baa1

Baa1

Stable

A2

Baa1

Date

St. Maarten Rating Assigned

15

DECEMBER 5, 2013

November-12

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Annual Statistics St Maarten 2005

2006

2007

2008

2009

2010

2011

2012

2013F

2014F

Nominal GDP (US$, Bil.)

0.67

0.73

0.73

0.85

0.85

0.89

0.93

0.98

1.02

1.07

Population (Mil.)

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

Economic Structure and Performance

GDP per capita (US$)

18,490.49 19,300.46 18,656.90 21,224.27 20,890.84 23,732.08 24,404.59 25,874.74 26,919.44 28,144.27

GDP per capita (PPP basis, US$)

--

--

--

--

--

--

--

--

--

--

Nominal GDP (% change, local currency)

9.09

8.33

0.00

16.92

0.66

3.92

4.40

6.02

4.04

4.55

Real GDP (% change)

4.80

5.20

4.50

1.20

-0.20

1.10

0.30

1.50

1.50

2.00

Inflation (CPI, % change Dec/Dec)

3.10

2.30

2.30

4.60

0.70

3.20

4.60

4.00

2.50

2.50

--

--

--

--

--

--

--

--

--

--

Gross Investment/GDP Gross Domestic Saving/GDP

--

--

--

--

--

--

--

--

--

--

Nominal Exports of G & S (% change, US$ basis)

7.15

4.30

3.59

-0.41

-6.72

4.44

10.35

13.71

2.06

2.00

Nominal Imports of G & S (% change, US$ basis)

26.19

-0.23

5.88

4.81

-11.60

-1.82

6.08

5.86

3.18

3.00

Openness of the Economy [1]

274.69

258.53

270.80

236.84

213.46

207.95

215.58

223.47

220.33

215.95

[2]

0.99

0.73

0.72

0.75

0.75

0.74

0.73

0.74

--

--

Gen. Gov. Revenue/GDP

--

--

22.00

21.25

18.92

19.77

27.22

28.48

31.50

31.50

Gen. Gov. Expenditure/GDP

--

--

26.18

27.25

26.08

25.77

26.55

26.66

29.30

29.50

Gen. Gov. Financial Balance/GDP

--

--

-4.18

-6.00

-7.15

-6.00

0.68

1.82

2.20

2.00

Gen. Gov. Primary Balance/GDP

--

--

-1.74

-3.63

-4.97

-3.75

1.57

2.77

2.90

2.60

Gen. Gov. Debt (US$ Bil.)

--

--

0.2

0.2

0.3

0.2

0.2

0.2

0.2

0.2

Gen. Gov. Debt/GDP

--

--

31.7

27.2

29.5

26.1

20.1

22.7

20.9

19.5

Gen. Gov. Debt/Gen. Gov. Revenue

--

--

170.1

161.9

183.6

161.4

80.8

91.8

76.5

71.2

Government Effectiveness Government Finance

Gen. Gov. Int. Pymt/Gen. Gov. Revenue

--

--

11.1

11.2

11.5

11.4

3.3

3.3

2.2

1.9

Gen. Gov. FC & FC-indexed Debt/GG Debt

--

--

--

--

--

--

--

--

--

--

Gross Borrowing Requirements/GDP

--

14.2

23.9

20.7

18.5

2.9

0.5

6.2

5.7

2.9

General Government External Debt/ Total General Government Debt

--

--

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

16

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

St Maarten 2005

2006

2007

2008

2009

2010

2011

2012

2013F

2014F

1.8

1.8

1.8

1.8

1.8

1.8

1.8

1.8

1.8

1.8

Real Eff. Exchange Rate (% change)

--

--

--

-0.3

1.7

1.6

--

--

--

--

Current Account Balance (US$ Bil.)

-0.1

-0.1

-0.1

-0.2

-0.1

0.0

0.0

0.1

0.1

0.0

External Payments and Debt Nominal Exchange Rate (local currency per US$, Dec)

Current Account Balance/GDP

-20.2

-12.6

-13.8

-19.3

-12.0

-4.3

-0.3

9.7

4.9

2.6

External Debt (US$ Bil.)

--

--

0.2

0.2

0.3

0.2

0.2

0.2

0.2

0.2

Public Sector External Debt/Total External Debt

--

--

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

Short-term External Debt/Total External Debt

--

--

--

--

--

--

--

--

--

--

External Debt/GDP

--

--

31.7

31.8

29.7

27.1

21.0

24.1

21.8

20.3

--

--

21.7

21.8

25.6

22.6

16.6

17.4

16.3

15.6

Interest Paid on External Debt (US$ Bil.)

0.01

0.01

0.02

0.01

0.02

0.02

0.01

0.02

0.01

0.01

Amortization Paid on External Debt (US$ Bil.)

External Debt/CA Receipts

[3]

0.06

0.09

0.18

0.17

0.14

0.17

0.15

0.16

0.16

0.16

Net Foreign Direct Investment/GDP

--

--

9.3

8.3

4.6

3.3

-5.4

1.8

3.3

4.2

Net International Investment Position/GDP

--

--

--

--

--

--

--

--

--

--

Official Foreign Exchange Reserves (US$ Bil.)

--

--

0.2

0.3

0.3

0.3

0.3

0.3

0.4

0.4

0.3

0.3

0.3

0.3

0.6

0.9

0.7

0.6

--

--

--

--

--

--

--

--

--

--

--

--

4.5

5.5

5.0

1.0

1.0

1.0

1.0

1.0

--

--

19.5

19.9

8.8

7.9

11.1

0.9

-2.4

-3.3

--

--

83.5

92.4

100.6

92.8

102.4

99.5

93.0

84.8

--

--

M2/Official Forex Reserves (X)

--

--

--

--

--

--

--

--

--

--

Total External Debt/Official Forex Reserves

--

--

105.8

85.6

86.0

76.5

57.2

65.7

61.1

58.6

7.5

10.8

18.9

17.0

15.9

18.0

14.7

14.0

13.4

13.0

--

--

--

76.5

52.2

57.7

49.9

50.4

47.4

45.4

Liquidity Ratio [6]

--

--

--

--

--

--

72.6

24.1

--

--

Total Liab. due BIS Banks/Total Assets Held in BIS Banks

--

--

--

--

--

2,087.5

77.2

21.9

--

--

17.6

19.5

16.9

19.9

18.5

20.3

19.0

17.3

--

--

--

--

39.9

39.1

33.5

29.0

33.4

33.5

--

--

Net Foreign Assets of Domestic Banks (US$ Bil.)

Monetary, External Vulnerability and Liquidity Indicators M2 (% change Dec/Dec) Monetary Policy Rate (% per annum, Dec 31) Domestic Credit (% change Dec/Dec) Domestic Credit/GDP

Debt Service Ratio

[6]

[6]

[4]

External Vulnerability Indicator

[5]

"Dollarization" Ratio [7] "Dollarization" Vulnerability Indicator

[8]

Notes: [1] Sum of Exports and Imports of Goods and Services/GDP [2] Composite index with values from -2.50 to 2.50: higher values suggest greater maturity and responsiveness of government institutions [3] Current Account Receipts [4] (Interest + Current-Year Repayment of Principal)/Current Account Receipts [5] (Short-Term External Debt + Currently Maturing Long-Term External Debt + Total Nonresident Deposits Over One Year)/Official Foreign Exchange Reserves [6] Liabilities to BIS Banks Falling Due Within One Year/Total Assets Held in BIS Banks [7] Total Foreign Currency Deposits in the Domestic Banking System/Total Deposits in the Domestic Banking System [8] Total Foreign Currency Deposits in the Domestic Banking System/(Official Foreign Exchange Reserves + Foreign Assets of Domestic Banks)

17

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Moody’s Related Research Credit Opinion:

»

St. Maarten, Government of

Sector Comment:

»

Curaçao and Sint Maarten Maintain Central Bank and Currency Union, Avoiding a Credit Negative, August 2012 (145001)

Statistical Handbook:

»

Moody’s Country Credit Statistical Handbook, May 2013 (159963)

Rating Methodologies:

»

Sovereign Bond Ratings, September 2013 (157547)

»

Sovereign Default and Recovery Rates, 1983-2012, June 2013 (154805)

Moody’s Website Links:

»

Sovereign Risk Group Webpage

»

Sovereign Ratings List

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

Related Websites For additional information, please see: »

Central Bank of Curaçao and St. Maarten

»

International Monetary Fund – International Finance Statistics

»

World Bank

MOODY’S has provided links or references to third party World Wide Websites or URLs ("Links or References") solely for your convenience in locating related information and services. The websites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control. Accordingly, MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided by any third party.

18

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF

SOVEREIGN & SUPRANATIONAL

Report Number: 161014

Author Gabriel Torres

Associate Analyst Petar Atanasov

Editor Robert Cox

Production Specialist Wendy Kroeker

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19

DECEMBER 5, 2013

CREDIT ANALYSIS: ST MAARTEN, GOVERNMENT OF