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Ratings agency urges 'political continuity' of economic programmes

Published:Wednesday | January 4, 2012 | 12:00 AM
The Ministry of Finance at National Heroes Circle, Kingston. Moody's has stressed the importance of continuity of economic policies that are managed from Heroes Circle. - File

Rating agencies Fitch and Moody's individually maintained Jamaica's sovereign debt rating at just below investment grade in their year-end Latin America review.

The reviews were issued days ahead of the December 29 polls.

Moody's indicated that a positive outlook or other upward ratings movement could result if fiscal consolidation efforts to contract the deficit and the debt are successful, or economic growth rebounds strongly, leading to a sustainable drop in the main debt metrics.

"It will require a combination of continued fiscal restraint and structural reforms supporting faster economic growth. This depends on policy continuity to ensure that recent efforts to improve the fiscal and debt position bear fruit," said Moody's disclosures on credit rating for Jamaica.

"This is under the control of Jamaica's political system. But it also requires no major external shock that impacts public finances, which is not susceptible to government control."

Jamaica's B3 foreign and local-currency government-bond ratings reflected the country's low economic development, moderate institutional strength, weak government finances, and high susceptibility to shocks, stated Moody's.

"Jamaica's per capita gross domestic product (GDP) is higher than the B-category median but annual growth has averaged less than 1.0 per cent a year in the last decade. The country has been in recession for the past three years, only recovering in the first quarter of 2011. Lack of growth makes reducing the debt burden difficult and the country's debt-to-revenues ratio remains among the highest in its rating category, even after last year's domestic debt exchange," Moody's argued.

Vulnerable economy

The ratings agency said a high tolerance for fiscal austerity measures among the population, and the country's broad consensus on economic policies supports our view of moderate institutional strength, a key support for the rating.

The country's high susceptibility to event risk is the result of an economy highly vulnerable to external shocks given the importance of tourism and the continued need for external financing. Jamaica's per capita GDP is higher than the B-category median, but annual growth has averaged less than 1.0 per cent a year in the last decade.

Fitch maintained a B- rating on Jamaica's sovereign credit rating with a stable outlook. Its forecast of growth at 1.2 per cent and 1.0 per cent in 2011 and 2012, respectively, trails the region.

Comparatively, Latin America's real GDP is estimated to grow by 3.9 per cent in 2011 and 3.4 per cent in 2012.

Fitch said Brazil and Mexico are expected to record moderate growth rates while Colombia, Panama, Peru, and Uruguay will be more dynamic, but Jamaica and El Salvador will continue to underperform.

International Monetary Fund (IMF) stand-by programmes provide a strong policy anchor and access to foreign currency liquidity support for the smaller countries of the Dominican Republic, El Salvador and Jamaica.

"However, the Dominican Republic and Jamaica have not received IMF disbursements recently due to delays in completing their respective quarterly reviews with the Fund," cautioned Fitch.

Jamaica's 27-month standby agreement with the IMF, which ends in May, has been stalled for a year, due to a lack of progress on a programme to cut the public sector and tax reform.

The Government has missed four quarterly tests under the IMF programme, causing a partial freeze on multilateral funding.

The People's National Party, which won last Thursday's election, has said it plans to negotiate a new IMF arrangement.