By Dennise Williams, Staff Reporter
INTERNATIONAL rating agencies have a keen eye on Jamaica's economy and leading debt rating agency
Bear Stearns warns that the Government is walking a tight rope.
However, Bear Stearns, states in their country update report released on March 1 that there is some good news. Jamaica was the top performing country in terms of emerging market debt in the month of January. Bear Sterns visited the country during the last week of February 2004 and presented their findings.
In February, Jamaica under performed every country with the exception of the Dominican Republic during the month.
We remain comfortable with our outperform rating, which we have held since the beginning of the year for two main reasons. First, Jamaican yields are still significantly wider than all other single-B credits in emerging markets. Second, there is an unprecedented spirit of co-operation in the country that is taking the form of a social contract on economic, financial and wage policy. Our view is that this will forestall a credit event at least beyond one year, and perhaps longer.
The so-called Partnership for Progress social contract has effectively 'bought' the government one more year to regain its fiscal credibility. Fiscal targets have been missed by significant margins for three consecutive years. The fiscal 2003-04 deficit is expected to reach 6.9 per cent of GDP, compared with a target of five to six per cent of GDP. The government remains committed to balancing the budget by fiscal 2005-06.
Most of the evidence points to an economy that is improving. Tourism is a bright spot, both in terms of arrivals, tourism expenditures and new investment.
We believe that the risks remain high in Jamaica and that the rating agencies will likely be very slow to upgrade, even if the news turns significantly more positive. Having so little fiscal flexibility left, the country is more vulnerable to unforeseen exogenous shocks than it has been in the past. In addition, one gets the feeling that the current policy environment is the best its ever going to be for the Patterson government, meaning that if its fails, there is very little ammunition left in the policy arsenal.