Fitch Ratings agency on Monday affirmed Jamaica's ratings as stable at 'B-', but said crime and high energy costs continue to hurt the island's growth prospects.
The agency hinted that a worsening fiscal deficit and debt-to-output under the new PNP administration could lead to a downgrade. The finance ministry responded by reaffirming a commitment to cost containment.
"The Government is committed to improved fiscal responsibility which will be reflected in sustained efforts to reduce both the fiscal deficit and the debt as a priority. This will be underpinned by comprehensive tax, pension and public sector reforms; which are vital to improving public finances over the medium term and are critical to economic growth," said the Ministry of Finance on Monday.
Fitch maintained the island's sovereign foreign and local currency issuer default ratings (IDRs) at 'B-', its short-term IDR at 'B'; and country ceiling at 'B'.
"Jamaica's ratings are supported by improving macroeconomic stability and its relative high level of institutional strength, which has allowed the sovereign to respond to significant fiscal and balance of payments pressures over the years. Jamaica also compares favourably with peers in terms of GDP per capita and human development indicators (HDI)," said the report.
Fitch expects the Jamaican economy to grow by 1.2 per cent and one per cent in 2011 and 2012, respectively, which follows three years of recession.
"Higher growth is currently constrained by structural weaknesses such as crime and the high cost of energy," said the report.
Jamaica's current account deficit rose to an estimated 11.7 per cent of GDP in 2011, reflecting continued "soft demand" for exports and a large imported fuel bill.
Fitch projects the current account deficit to be near 10 per cent of GDP in 2012, but said "continued multilateral support would be necessary to mitigate Jamaica's external accounts vulnerability to shifts in investor confidence and international oil price shocks".
Fitch forecasts Jamaica's central government deficit to reach 5.2 per cent of GDP at fiscal year 2011-12 ending in March, down from 6.2 per cent in fiscal year 2010-11.
It said that Jamaica's burdensome debt stock, at some 131 per cent of GDP, ranks the fourth highest among all sovereigns rated by Fitch.
"Moreover, in spite of improvements in recent years, debt dynamics are highly sensitive to currency and interest rate risks. Government financing needs, at 16 per cent for fiscal year 2012, are among the highest in the 'B' category," the agency stated.