NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Jamaica's ratings as follows:
-- Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B-';
-- Short-term IDR at 'B';
-- Country Ceiling at 'B'.
The Rating Outlook is Stable.
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 favorably with peers in terms of GDP per capita and Human Development Indicators (HDI).
Key credit weaknesses include one of the highest debt burdens of all sovereigns rated by Fitch, weak external and fiscal solvency indicators, continued growth underperformance, and high vulnerability to external and confidence shocks.
In 2011, the central bank, the Bank of Jamaica (BOJ), has been able to maintain, and even reduce, historically low interest rates in the context of broad exchange rate stability and reduced inflationary pressures. Inflation averaged 7.5% in 2011, while the exchange rate was stable in spite of the absence of reviews under the IMF Stand-By Arrangement (SBA) since December 2010.
The new PNP administration has announced that it intends to negotiate a new agreement with the IMF (as the 2010 SBA ends in May 2012), reign in expenditure pressures, and move forward with policies to reform the tax system, bring public sector salaries under control and contain rising pension costs.
'Maintaining the credibility of fiscal policy and multilateral support will be key given Jamaica's sizeable twin deficits and limited buffers, which leave the economy vulnerable to swings in investor confidence and a variety of shocks ranging from a weaker global growth to natural disasters,' said Erich Arispe, Director in Fitch's Sovereign Group.
Jamaica's current account deficit (CAD) rose to an estimated 11.7% of GDP in 2011, reflecting still soft demand for exports and a large imported fuel bill. With Fitch projecting the CAD to be near 10% of GDP in 2012, 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% of GDP in fiscal year (FY) 2011 (April 2011 until March 2012), down from 6.2% in FY 2010. The domestic debt exchange and low domestic interest rates have supported fiscal consolidation in spite of the lackluster growth performance and continued expenditure pressures, especially in terms of public sector salaries.
As the 2010 domestic debt restructuring (JDX) did not involve haircut on principal, Jamaica's burdensome debt stock, estimated at 131% of GDP, is 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% for FY 2012, are among the highest in the 'B' category.
After three years of recession, Fitch expects the Jamaican economy to grow by 1.2% and 1% in 2011 and 2012, respectively. Higher growth is currently constrained by structural weaknesses such as crime and the high cost of energy.
'Reforms designed to improve the structure of public finances by either increasing government revenues or reducing expenditure rigidities, as well higher growth are key to achieve sustainable fiscal consolidation and positive debt dynamics,' added Arispe.
Continued fiscal consolidation and higher economic growth that ensures medium-term debt sustainability as well as further reduction in the country's external vulnerabilities could benefit sovereign creditworthiness. On the other hand, increased external and fiscal financing risks as well as destabilizing fiscal dynamics would be negative for Jamaica's ratings.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:,
'Sovereign Rating Methodology', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Sovereign Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648978
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