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Fitch maintains Jamaica rating despite deficit expectation

Published:Sunday | March 21, 2021 | 12:25 AM

Fitch rating agency expects the Jamaican Government to spend more than it earns in the upcoming fiscal year but is maintaining a stable rating for the country despite the expected deficit.

“The stable outlook is supported by our expectation that the public debt level will return to a firm downward path post-pandemic, which is underpinned by political consensus to maintain a high primary surplus, the resilience of external finances, and stronger economic policy institutions,” the rating said.

Fitch projects a deficit of 0.8 per cent of GDP for fiscal year 2021-22 in contrast to the small surplus target of 0.3 per cent of GDP expected by the Jamaican Government.

But on the upside, it sees growth returning in the fiscal year in the region of around 4.5 per cent and then accelerating to 5.2 per cent in 2022-23.

The risks to the downside include the uncertainty around the vaccine roll-out and a possible third wave of the virus. Fitch also assumes that tourism will recover in the upcoming winter tourist season, which usually kicks off in mid-December.

The growth forecast by Fitch rests at the lower end of the 3-8 per cent range anticipated by Jamaica’s central bank and planning agency for fiscal 2022.

Finance Minister Dr Nigel Clarke said the stable rating from Fitch was underpinned by the expectation that Jamaica’s debt levels at some 111 per cent of the total size of the economy, or GDP, will return to pre-pandemic levels of below 100 per cent.

“The decision by international rating agency Fitch to maintain Jamaica’s credit rating at B+ and their affirmation of Jamaica’s outlook as stable, in the middle of the worst economic crisis in our history, is strong evidence of the value and benefit of good policy,” said Clarke in a statement.

Fitch cited positives as the island’s recent track record of achieving a “strong” primary surplus, above its peers.

“Jamaica is expected to be one of the few Fitch-rated sovereigns to post a primary surplus at 2.6 per cent of GDP,” the agency said. It also described Jamaica as having a strong economic, social, and governance, or ESG, rating when compared with its rating peers, aided by the stable democracy.

Fitch, however, remains concerned about a third-wave impact of the COVID-19 pandemic as well as the current performance of the economy, which contracted by around 10.2 per cent in 2020, according to estimates. Fitch said the contraction was “much worse” than the median of Jamaica’s B-rated peers, for which the decline was 4.2 per cent.