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S&P upgrades Jamaica's credit rating

Published:Friday | March 8, 2013 | 12:00 AM

Standard & Poor's (S&P) has raised its long-term foreign and local currency sovereign credit ratings on Jamaica to 'CCC+' from selective default following the completion of the government's debt restructuring, the National Debt Exchange (NDX).

The move on Wednesday followed a similar upgrade by Fitch rating agency last week.

"At the same time, we raised our short-term foreign and local currency sovereign credit ratings on Jamaica to 'C' from 'SD'," S&P said in a statement out of Washington.

It said the outlook on the long-term foreign and local currency sovereign credit ratings is stable.

In addition, S&P's has assigned its 'CCC+' rating to Jamaica's new benchmarks bonds, issued at the conclusion of the debt exchange.

"The new rating will reflect our assessment of the Government's continued vulnerability to adverse external shocks, its low level of international reserves, and the risks to a successful implementation of its reform programme in conjunction with assistance from the International Monetary Fund (IMF)," the agency said.

S&P said the failure of the 2010 domestic debt restructuring, the Jamaica Debt Exchange, to achieve sustainable debt reduction highlights the difficulties facing Jamaica.

"The ratings on Jamaica reflect the Government's still high debt burden, offset somewhat by its improved amortisation and cost profile in the short term," said S&P credit analyst Joydeep Mukherji.

The NDX, which was launched on February 12 and settled February 22 affected about J$860 billion of domestic debt, or half of Jamaica's total public debt stock.

The external debt was excluded from the transaction. The participation rate in the restruc-turing was 99 per cent.

The restructuring lengthened the maturity of locally issued debt and lowered the coupon by between one and five points. The Government was aiming to save about J$17 billion in interest payment annually.

"We expect the pace of recovery in the real economy to be slow, despite various proposed reforms the Government plans to implement as part of its new agreement with the IMF," the rating agency said, pointing to Planning Institute of Jamaica estimates indicating that the Jamaican economy contracted around 0.3 per cent in 2012.

GDP may grow by one to two per cent in 2013, S&P said, adding that slow growth and a low level of investment by the private sector could make it difficult for the Government to meet its goal to reduce its debt to 95 per cent of GDP by 2020.