International credit ratings agency Moody’s maintained a stable ‘Aa3’ credit rating for the Isle of Man, the same rating as the UK, supported by its high wealth levels, strong institutions, prudent fiscal policies, very low direct debt and substantial reserves.
Moody’s annual report, published on 26 May, also cited the strong linkages between the Isle of Man and the UK as fortifying the Island’s institutional strength, but said this could also leave the Island’s credit profile exposed to changes in the UK’s creditworthiness. The contingent liability risks to the government’s balance sheet from the large banking system, it said, were mitigated by substantial foreign ownership and the sector’s robust capitalisation.
Moody’s assessed the Isle of Man’s economic strength as ‘baa1’, underpinned by high wealth levels and a track record of robust economic growth. It said the Island’s small economic base limited its capacity to absorb shocks. However, strong regulatory frameworks for its key financial and e-gaming sectors supported its competitiveness, which, along with specific government policies to foster diversification, had supported economic resilience during the global financial crisis and the Covid pandemic, with key sectors such as Information and Communication Technology (ICT), financial services and e-gaming being only moderately affected.
It assessed institutions and governance strength as ‘a1’, given the country’s robust and transparent institutional framework. As a Crown Dependency, although independent and self-governing, the Isle of Man benefits strongly from the UK’s institutions and governance strength, which was also assessed at ‘a1’. Solid regulatory frameworks and a proactiveness to regulation were a source of competitiveness.
Moody’s considered the Isle of Man’s fiscal policies to be forward-looking and prudent, exemplified by the large fiscal buffers that were accumulated over many years, helping the public finances to absorb recent shocks. Importantly for its status as a low-tax jurisdiction, it had a good track record of complying with international tax standards and was rated ‘compliant’ by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, in line with other small European offshore financial centres.
The Isle of Man’s fiscal strength was assessed at ‘aaa’. The Island, it said, benefitted from a high level of reserves, estimated at 30% of GDP in 2025, which were used to finance budget deficits and provide a shock-absorbing buffer. The debt level – estimated at around 6% of GDP in 2025 – was among the lowest in Moody’s rated universe and was expected to decline gradually, assuming no new issuances. The debt primarily consisted of a single bond issued in 2021.
The banking sector risk was assessed as ‘a’, in part reflecting the large size of the banking system. Total assets of the banking system were equivalent to almost seven times the Island’s estimated GDP at the end of 2024. However, nearly all those assets were foreign-owned entities with strong connections to the UK and South Africa, which reduced the contingent liability risks for the government’s balance sheet.
Furthermore, the risks to the Isle of Man’s credit profile were mitigated by solid capitalisation. A new bank resolution and recovery regime came into effect at the start of 2021, although there were limits to the extent to which the Island authorities could mitigate the risk arising from the large share of deposits held by the branches of overseas banks.
Moody’s anticipated real GDP growth of 2.2% in 2026, slightly below its estimate for 2025, reflecting robust labour market dynamics and resilient internationally oriented sectors, including tourism, despite increased global uncertainty and a contracting gambling sector.
Insurance and financial services, as well as the visitor and hospitality economy, which represent over half of total economic activity, had rebounded swiftly from the various external shocks over the past several years. In 2024, the Island attracted around 330,000 visitors, surpassing pre-pandemic levels, and the government expected similar volumes for 2025 and 2026.
Labour shortages remained a key structural credit challenge faced by the Isle of Man’s economy, with the number of vacancies remaining high against a very low unemployment rate of 0.6% as of April 2026. Immigration levels were relatively stable and remained insufficient to compensate for industry employment needs, albeit successfully attracting more young skilled workers in recent years. The Island’s UNESCO Biosphere Reserve status, although not having a material impact on the credit rating itself, gave the Island a competitive advantage in attracting people to live and work.
Budget deficits, said Moody’s, would continue to be financed from the Isle of Man’s substantial reserve funds rather than by issuing debt, with reserves just over £2 billion as of May 2026 (22% of GDP), as measured at market value. Although reserves have supported fiscal flexibility, the government’s strategy aimed to reduce reliance on these resources over the medium term, supported by stronger investment returns and continued fiscal discipline.
Reserves were expected to remain broadly stable in the near term before gradually increasing, as investment income helps offset drawdowns to fund the government budget deficit. Moody’s estimated, according to its general government definition, the budget to register a deficit of 1.3% of GDP on average in 2026 and 2027, followed by gradual fiscal consolidation achieving a balanced budget by the end of the decade.
To fund the healthcare funding gap, the government had temporarily raised the higher rate of income tax from 20% to 22% in 2024-25 before reducing it to 21% for the 2025-26 tax year and maintaining it at that level. A consultation process on a new National Health Service (NHS) levy on top of income tax concluded last year and was rejected. Moody’s said the government intended to work towards strengthening NHS finances, as well as identifying new funding mechanisms.
Starting in 2025, a permanent minimum domestic top-up tax was introduced for multinational corporations with revenues exceeding €750 million under the OECD’s new Pillar Two framework. This tax is expected to generate approximately £30 million annually by 2027, representing around 0.4% of projected GDP for that year.
The standard corporate tax rate remains at 0%, with exceptions for specific sectors. Banking businesses and retail trade with turnover above £500,000 are taxed at 10%, while development and rental income, as well as oil extraction, are taxed at 20%.
Moody’s said that, in light of the material credit linkages with the UK, the Isle of Man’s ratings could be upgraded if the UK’s rating was upgraded. Positive pressure on the Isle of Man’s ratings could also arise in a scenario of broader economic diversification that reduced sensitivity to developments in key sectors.
Conversely, Moody’s said downward pressure on the rating would arise if it expected a material deterioration in the Isle of Man’s own economic or fiscal position. Technological or regulatory changes in key industries, including the gaming sector, could pose a risk to the credit profile, given the significant concentration of economic activity in these sectors.
A downgrade of the UK’s sovereign ratings could also put downward pressure on the Isle of Man’s ratings. However, it was also possible that the trajectory of the Isle of Man and UK ratings could begin to diverge if the Isle of Man’s intrinsic credit strengths remained intact despite pressure on the UK credit profile, or if any negative spillovers to the Island proved less significant than expected.
“Moody’s reaffirmation of the Isle of Man’s Aa3 stable rating is a cause for optimism and provides a solid base for the next parliament and government,” said Isle of Man Treasury Minister Chris Thomas.
“The ‘aaa’ assessment of the Isle of Man’s fiscal strength – acknowledging forward-looking and prudent fiscal policies which enabled us to absorb recent shocks and its ‘compliant’ rating by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes – is particularly important.”
