By Al Edwards, Business Co-ordinator 
MOODY'S INVESTORS Service has cited concerns over the Government's inability to quickly address its deteriorating financial situation and as a result has placed the country on review for a possible downgrade.
In a statement issued on the day the budget was announced, the international credit rating agency pointed to "concerns over the Jamaican authorities' apparent lack of policy options to quickly correct the fiscal deterioration that has occurred over the last 18 months.
The authorities have faced with determination a series of adverse domestic and external shocks that would be difficult for any economy to withstand without suffering significant harm, Moody's said. It stated that, "Beginning with the 9/11 terrorist attack and its negative impact on tourism, the country's woes have included the fallout from a weak international economy, civil unrest and several natural disasters."
LATEST REPORT
This latest report follows that from US investment house, Prudential Financial, advising investors on the eve of last week's budget that they should refrain from holding Jamaican obligations. In that particular report, Prudential was of the opinion that the government was now incapable of avoiding a debt restructuring exercise because:
The exchange rate and local debt auctions remain under severe pressure
The Government's expenditure budget, showed no major cutbacks.
Jamaica's access to international markets appears to have closed, after its failed attempt to issue Euros several weeks ago.
Given the signs of a debt spiral in Jamaica, haircuts would be necessary to restore financial stability in our view.
However yesterday Bloomberg, the international financial news service went as
far as to declare that Moody's had lowered its outlook on Jamaica's Ba3-rated foreign currency debt to "negative" from "stable". The negative rating is three levels below investment grade
Last week, the Minister of Finance and Planning, Dr. Omar Davies presented a budget that wasn't as unpalatable as expected. He made it clear that he intends to raise revenue mainly by widening the GCT base, taxing imports at source and raising telephone service tax rates from 15 per cent to 20 percent with the country bearing the burden of a tax package of $13.8 billion. Of particular note is that the country would have to face an increase in prices as a result of the 4 per cent cess on imports.
REVENUE TARGETS
With Moody's due to send a team to the island within the next two weeks it will be Minister Davies' task to convene them that he can meet revenue targets and allay their fears. A further lowering of the country's rating will make it even more difficult to raise required sums on the world's international capital markets.
Commenting further on Jamaica's position, the Moody's report read: "As part of its response, the authorities increased further the country's already high public debt burden. While Moody's acknowledges that the Government remains committed to fiscal discipline, the probability of future adverse shocks may be likely to limit the extent to which that commitment can be translated into effective policy actions.
"The authorities continue to maintain a tight grip on the exchange rate by using international reserves and an aggressive monetary policy. However, since much of the public sector debt carries a floating interest rate, such an aggressive monetary policy makes the debt more costly to service, thereby increasing the real burden of the debt."
The review will focus on assessing the ability of the authorities to successfully implement an appropriate fiscal adjustment.
