Ministry of Finance building at Heroes Circle.
Al Edwards, Business Co-ordinator
INTERNATIONAL CREDIT rating agency, Moody's, has sounded an encouraging note on the Jamaican economy by affirming its stable outlook on the country's sovereign credit ratings, (Government bonds foreign currency: B1/stable, Government bonds local currency: Ba2/stable, country ceiling fx currency debt: B1/stable, country ceiling local currency debt: B1/stable).
Moody's bright outlook is based on Jamaica's efforts at fiscal consolidation, the commitment of the authorities to return to a balanced budget in 2005/06 and the constitutional provision mandating debt-service as the first expenditure priority.
SUNNY DISPOSITION
This somewhat sunny disposition follows the more sombre outlook by Standard & Poor's (S&P) on Jamaica. On February 05, 2004 it lowered its long-term local currency sovereign rating on Jamaica to "B" from "B+" and revised its outlook on its long-term ratings to negative from stable.
It also affirmed its "B" long-term foreign and "B" short-term sovereign credit rating on Jamaica. It's rationale for the downgrade on the local currency rating it said was Jamaica's growing debt burden, the result of continuing high fiscal deficits and the deterioration of its liquidity position.
Although Moody's had a brighter credit opinion it did point to areas of concern that need attention immediately. It projected that the fiscal deficit at the end of the calendar year was 7.5 per cent of GDP, and that the economy, fiscal position, public sector debt dynamics and the external balance all remain sensitive to external and domestic shocks. The report said Jamaica's rating would more than likely be determined by the effect of potentially high fiscal costs and quasi fiscal expense of defending the exchange rate. Moody's is projecting the calendar 2004 fiscal deficit to be 4.6 per cent of GDP, inflation of 7 per cent, real GDP growth of 2.0 per cent and the current account deficit of 11.4 per cent of GDP.
It is no secret that Jamaica has a high Government debt burden that currently stands at approximately J$650 billion. The Government's efforts to address its debt burden are somewhat constrained by exchange and interest rate movements. At 145 per cent of GDP, Jamaica's debt is one of the highest among rated sovereigns, surpassed only by that of the Republic of Lebanon in the speculative grade category.
TAKEN ABACK
The Ministry of Finance was a little taken aback by S&P's downgrade and responded through a release that read: "We are extremely surprised by this decision and its timing. Only last month Jamaica raised 200 million euros in a highly successful bond issue, with that issue more than two times oversubscribed. This action by S&P's comes in an environment where economic growth is picking up as reflected in a buoyant tourism sector and expanding activity in bauxite mining, among other things and as interest rates are trending down.
"Against the background of these developments, and just before the presentation of the new budget with further measures to continue the fiscal correction, the conclusion by S&P is unfortunate."
LATEST CREDIT OPINION
Commenting on Moody's latest credit opinion on Jamaica, George & Branday's Business Development Manager, Keith Collister, told Sunday Business: "Moody's reaffirmation of a stable outlook is a very encouraging sign, and I believe it mainly reflects the rating agency giving significant credibility to the Government's declarations that it will live up to their commitment to return to a balanced budget in 2005/06.
"The slightly more positive rating than we might have expected may also reflect the fact that Moody's gives a higher rating to external liquidity e.g. net international reserves than S&P, and these and the other relevant external indicators clearly look like they will continue to improve with the recent euro and highway financing issues. Hopefully this good news will continue next week with potential positive announcements on the wage talks and the proposed Partnership for Progress debt swap. Jamaica deserves a little economic luck."
