JP Morgan backs economy

By Al Edwards, Acting Financial Editor

JP MORGAN, one of the world's leading finance house, has acknowledged Jamaica's attempts to redress its macro-economic plight and return to growth.

In a report released earlier this week entitled 'Jamaica: Spreads reflect slow improvement in creditworthiness', it reads: "The economy has returned to growth, international reserves have nearly doubled, and the fiscal deficit has narrowed dramatically. In our view, the anticipated improvements in the economy and stabilisation of debt ratios is already reflected in current spreads of 339-569. Similarly rated credits such as Peru and Bulgaria currently trade 100-150 bps wide of Jamaica.

"Although fiscal balance will likely be attained this year, the Government may access the international capital markets on a more frequent basis going forward in order to rebalance the external debt ratio (47 per cent of GDP) versus the domestic debt ratio (76 per cent of GDP) and to allow domestic interest rates to decline." The report further added that the IMF programme calls for an increase in external debt ratios over the coming year, although part of this increase will be due to net new lending from multilateral creditors. The limited amount of outstanding external bonds (US$1.4 billion) and the local bid are likely to lead to ongoing demand for Jamaican paper.

Last month, U.S. composite index and financial rating institution Standard & Poor's upgraded Jamaica's local currency Sovereign Credit rating from B+ to B++.

The rating assigned to the country's long term foreign sovereign credit was upgraded from B to B+. The outlook for the economy was adjudged to be "stable". Standard & Poor's attributed the new rating to the Jamaican Government's efforts to rehabilitate the financial sector and the country's improved prospects for macro-economic stability.

Commenting on the upgrade at the time, Minister of Finance & Planning, Dr. Omar Davies, said that it represented an additional indicator that financial analysts recognised the advances made in the management of the economy. He added that the upgrade would have a positive impact on interest rates and should increase investor confidence.

JP Morgan noted:

The government's greatest challenge lies in public sector debt burden reduction, which will require a strong commitment to a long term fiscal adjustment

The Government may access the international capital markets in order to rebalance the external debt ratio versus the domestic ratio and to allow domestic rates to decline

This is the clearest validation yet of Mr. Davies' policy of growing the economy through inflation containment and exchange rate stability. He is currently overseeing a trending down in interest rates and the registering of slight growth in the economy. For further details on the JP Morgan report read this week's Financial Gleaner.

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