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S&P GIVES ISLAND TOP-CLASS NOD AGAIN - 21 June 2004

Standard & Poor's has reaffirmed its 'AAA' long-term sovereign credit and senior unsecured debt ratings and 'A-1+' short-term sovereign credit rating on the Isle of Man. The outlook is stable.

‘The ratings on the Isle of Man reflect its prudent policies, which are expected to continue to sustain a high general government net asset position,’ said S&P credit analyst Eileen Zhang.

Reflecting a peak in capital investment, the Island's estimated general government balance - which consolidates the current account, income from invested funds, and capital spending by revenue-funded entities, but excludes internal financing - has been in deficit since 2002. The deficit narrowed in 2003, however, and the general government balance is expected to return to a surplus by 2005. In addition, the government's balance sheet remains exceptionally strong, underpinned by net assets equivalent to about 45 per cent of GDP.

S&P said the ratings are also supported by the Island's open, export-orientated, and increasingly flexible economy. It said that substantial inward investment, a stable business environment and net immigration have supported robust economic growth over the past decade. Real growth averaging 6.8 per cent annually over the past five years has increased per capita income to an estimated $26,669 (£14,500). Unemployment remains negligible.

S&P said the IoM's creditworthiness is also underpinned by a high degree of economic integration with the UK (UK: AAA/Stable/A-1+). This enables the Island to mitigate many of the risks stemming from its small, highly open economy. As part of the UK monetary zone, the IoM benefits from low inflation and minimal external risk. Moreover, its customs union with the UK Exchequer underpins political and fiscal flexibility.

‘Over the medium term, we expect that the Isle of Man's very strong credit standing will remain secure against almost all foreseeable downside economic, political and financial risks,’ said Ms. Zhang. ‘Although the EU Savings Tax Directive - which is expected to come into effect in 2005 - will have a negative impact on the Island's financial sector, policy-makers are well-placed to manage any political, fiscal or economic repercussions. Moreover, the government's robust financial position, coupled with close economic and financial ties with the UK, should enable the Island to weather external shocks or significant changes in its economic environment without major strain on its factor markets or overall economic stability.’