U.S. BASED Standard & Poor's Ratings Services said yesterday that it has lowered its long-term ratings and outlook on Jamaica.
Standard & Poor's (S&P) lowered its long-term local currency sovereign credit rating on Jamaica to 'B+' from 'BB-'; its long-term foreign currency rating to 'B' from 'B+'; and revised its outlook on the ratings to stable from negative. The short-term issuer credit ratings on Jamaica were affirmed at 'B'.
This latest news follows Moody's decision back in May of this year to lower the country's ceiling for foreign currency bonds and notes to B1 from Ba3 and the ceiling for foreign currency bank deposits was lowered to B2 from B1. Jamaica's foreign currency issuer rating was also downgraded to B1 from Ba3. The local currency denominated bond issuer rating of the government was downgraded to Ba2 from Baa3.
According to sovereign analyst Richard Francis, the S&P downgrade is based upon Jamaica's increased debt burden and heightened fiscal pressures, despite the tax measures implemented at the beginning of financial year 2003. "Due, in part, to the sizeable fiscal deficit of 11 per cent in financial year 2002, the gross general government debt reached 155 percent of GDP," Mr. Francis said. "Interest payments now exceed 55 percent of general government revenue due to the increased debt burden and to high interest rates, despite the fact that revenue represents more than 30 percent of GDP," he continued.
Mr. Francis explained that tight fiscal management is necessary to reduce Jamaica's stock of debt, as economic prospects are insufficient to provide much-needed fiscal flexibility. "Annual GDP growth is likely to remain below 3 per cent in the coming years due, in large part, to a weak outlook for merchandise exports, an inflexible and relatively costly labour market, significant security costs, and high real interest rates," said Mr. Francis.
"Jamaica's GDP grew at a modest average rate of 1.0 per cent per annum from 1997-2002," he added. Standard & Poor's said its ratings on Jamaica are supported at the 'B' level by the country's stable political environment and by the broad agreement across parties on the need for fiscal stringency. "The stable outlook rests on the sizeable adjustment made in the financial year 2003 budget, which, if maintained, will begin to reverse the debt trajectory," Mr. Francis concluded.
Speaking with The Gleaner last night, JMMB Research Analyst Jason Morris said: "For some time now Jamaican bonds have been trading as if they had a "B" rating so this decision by S&P comes as no great surprise. In the short term the Government could do very little to prevent this latest downgrade, however a "Stable" outlook augers well as we go forward."
