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Moody’s Upgrades Jamaica

Published:Thursday | May 28, 2015 | 12:00 AM

Ratings agency Moody's yesterday upgraded Jamaica's government bond rating and government-related entities to Caa2 from Caa3, and changed the country's ceilings while maintaining a positive outlook.

Moody's Investors Service says their decision to upgrade Jamaica's rating was driven by continued fiscal consolidation and a strong commitment to structural reform.

The ratings agency said that, in addition, the improving balance of payments position and reduced vulnerability to external shocks such as natural disasters and world events played a part in the upgrade.

Moody's said the positive outlook reflects its expectation that Jamaica will sustain the reform momentum under the International Monetary Fund-supported programme.

The ratings agency also felt that Jamaica would solidify its fiscal programme of adjustment in a bid to continue to pay down its debts.

Applies Government entities

The rating action also applies to Government of Jamaica-related entities: Air Jamaica Limited and the National Road Operating and Constructing Co. Ltd.

The rating upgrade means the long-term foreign currency-bond ceiling changed to B2 from B3. The long-term foreign-currency deposit ceiling changed to Caa3 from Ca. The long-term local-currency bond and deposit ceilings changed to B1.

The short-term foreign-currency bond and deposit ceilings remain unchanged at NP.

Low growth and high debt burden

Moody's is indicating that persistently low economic growth and high debt burden are two factors that continue to constrain Jamaica's rating. The agency said, however, that the Jamaican Government has made substantive progress towards completing its fiscal consolidation programme.

Moody's also noted the introduction of tax and expenditure reform measures, and the maintenance of a large primary surplus of 7.5 per cent over the past two years. Moody's expects these reforms to put public finance on a more sound footing and help reach the set target of cutting debt to less than 100 per cent of gross domestic product by 2020 from a 135 per cent peak in 2013.

The ratings agency also noted that Jamaica's current-account (CA) deficit has narrowed significantly in 2014-15 as a result of continued import compression and the drop in oil prices, with further improvement projected in 2016.