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NEW YORK, United States, CMC –The international credit rating agency, Fitch Ratings, has revised Jamaica’s economic outlook to positive.
Fitch affirmed Jamaica’s long-term foreign and local currency Issuer Default Ratings (IDRs) at “B-“ and also affirmed the island’s senior unsecured foreign and local currency bonds at “B-“.
The Rating Outlooks on Jamaica’s long-term IDRs are revised to positive from stable.
In revising the country’s economic prospects, Fitch said Jamaica external financing risks have diminished and that the Bank of Jamaica (BoJ) has built up reserves equivalent to more than three months of current account payments.
Fitch said the current account deficit declined to an estimated six per cent of Gross Domestic Product (GDP) in 2014, compared with an average of nearly 10 per cent of GDP in 2009-2013.
“The current account adjustment has been driven by tight fiscal policy and currency depreciation, but services and remittances are also on an upward trend,” Fitch said, adding that capital inflows have also strengthened, with foreign direct investment (FDI) doubling in 2014, reaching 4-5 per cent of GDP. Fitch said it expects similar levels of FDI in 2015-2016.
“The government is sticking to a fiscal and structural adjustment, designed to bring down government indebtedness.
“Jamaica is on course to meet its 7.5 per cent of GDP primary fiscal surplus target for the second successive fiscal year (FY) in FY2014/2015, recording a small overall deficit.
“Maintaining this primary surplus is the overarching target under the Extended Fund Facility (EFF) arrangement with the IMF,” it added.
Under realistic assumptions, maintaining this surplus will put government debt/GDP on a downward path from its very high starting point of 131.6 percent of GDP (estimated) at end FY2014/2015 to 120 percent of GDP by end FY2016/2017,” Fitch said, noting that the government’s biggest near term challenge is to reduce the public sector wage bill to 9 percent of GDP in 2015-2016.
“The economy is showing signs of revival, growing at an underlying rate of almost 2 percent before being hit by a sharp contraction in agriculture in the second half of 2014.”
It said unemployment in Jamaica fell by 1.6 percentage points in 2014, but remains high at 13.8 per cent.
The rating agency said growth in tourism, the re-opening of some shuttered capacity in the bauxite and alumina sector, infrastructure investments, a strengthening US economy and an improvement in terms of trade, all point to stronger growth in 2015-2016 of around 2 percent, “well above the lacklustre five-year average of 0.2 per cent.
“The government has demonstrated access to external bond markets, pre-financing external debt maturities in 2015.
“But it has been unable to reopen the domestic debt market at medium and long term maturities in local currency, still highly not liquid following the domestic debt exchange in 2013,” it said, adding “financing flexibility is, therefore, limited”.
Fitch said government debt burden is the fourth-highest among rated sovereigns, and well above the “B” median and that even after the debt exchange, interest payments account for 28 per cent of spending.
It said about 61 per cent of the government debt is denominated in foreign currency, including some domestic debt, stating that currency depreciation worsens government solvency.
“While Jamaica has avoided imposing punitive losses on bondholders, it has twice re-profiled domestic debt (in 2010 and 2013), which constitutes a default under Fitch’s methodology.
“Structural indicators such as governance, human development and per capita income are better than the ‘B’ median,” Fitch said, noting that the island’s crime rate,”which has deterred investment, is falling and business environment indicators are improving”, referring to the World Bank’s “Doing Business” survey.
