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EDITORIAL - Beyond the Fitch upgrade

Published:Thursday | February 18, 2010 | 12:00 AM

THE GOVERNMENT is understandably upbeat about the market upgrading of its debt to B-minus by the rating agency, Fitch. We, too, welcome the move.

Fitch's decision tells the global credit market that Jamaica is not facing imminent economic catastrophe and that loans to this country is only for the most inveterate, risk-taking gambler. This is important, for notwithstanding the success of the Government's restructuring more than $700 billion in domestic debt, which is projected to save $40 billion in interest payments, the administration is not out of the debt market.

Indeed, despite the projected inflows from the International Monetary Fund (IMF) and other multilateral financial institutions, the government projects that in the coming fiscal year it will require nearly $200 billion in non-official borrowings, albeit the bulk of this will come from domestic lenders, representing mostly rollovers. Nonetheless, more than $40 billion will be sought from the foreign markets, which are still skittish about lending to developing countries in the aftermath of the global financial meltdown.

The Fitch upgrade, in that context, sends a signal to the markets, foreign and domestic, that with the IMF programme in place and the reorganisation of the domestic debt, there are now better prospects for the Jamaican economy and it is more likely that money will be repaid. In other words, the move should help to build confidence and ease the demand of lenders for a risk premium.

Hold off on the hollering

While this is positive, we would advise the finance minister, Mr Audley Shaw, to hold off on the hollering. After all, the agency's previous issuer - default rating 'C' for domestic debt and 'CCC' for foreign currency - had pushed Jamaica deep into junk territory. And the revised rating does not suggest Jamaica is a good economic performer.

In other words, there is much economic work to be done and hard decisions to take, beyond the success of debt restructuring, for Jamaica to have the kind of economic performance to be assured of good ratings by Fitch as well as Moody's, Standard & Poor's and others. For instance, Mr Shaw needs to urgently publish the outlines of the new budget, including where and how he will cut government spending.

The administration has to begin to indicate the specifics of its public-sector reform project and reveal its much-talked about but overdue fiscal responsibility legislation.

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