By Al Edwards, Financial EditorINTERNATIONAL CREDIT rating agency Moody's maintained a B-rating on Jamaica based on a number of positive and fiscal developments such as sustained improvements in the current account, growth in real GDP and the general fiscal outturn for 2003/2004.
Only last week Standard & Poor's (S&P) assigned its 'B' long-term foreign currency unsecured bond rating to Jamaica's newly issued Euro 200 million, 11 per cent bond which is due July 27, 2012.
Commenting on the rationale behind the rating a Moody's report read: "Despite the constraints imposed by the burden of a large public-sector debt, the Jamaican authorities continue to respond successfully to shocks in a challenging environment. The economy remained on a positive growth path in 2003 for the fifth year in a row. GDP growth for the financial year 2003/2004 is estimated to have reached 2.2 per cent buoyed, by strong growth in the country's main tradable sectors, bauxite/alumina and tourism. The authorities estimate that economic activity will continue to expand above the two per cent in the current fiscal year."
INVESTOR CONFIDENCE
While devaluation was the ogre of the 1990s, it has now been replaced by inflation. Inflation for 2003/2004 more than doubled to about 16.5 per cent, with year - end 2003 inflation at 14.1 per cent.
Moody's has noticed the strengthening of the exchange rate. "After reaching a peak of 439.6 to US$1 in May 2003 partly fuelled by expectations of fiscal slippage, the exchange rate has remained broadly stable at around $60 to US$1."
The credit rating agency sees growing investor confidence and attributes this to the gradual easing of monetary policy which has been reflected in the lowering of benchmark interest rates 15 times over a 12-month period. Interest rates have gone from 35.95 per cent in March 2003 to 17.95 per cent in March 2004." For the Bank of Jamaica, open market interest rates are another sign of the return of investor confidence."
But while Moody's remained upbeat on the country's economic prospects it did point to Jamaica's vulnerability to external shocks.
"Nevertheless, the Jamaican economy remains vulnerable to adverse external shocks, acts of nature and shifts in investor confidence, particularly that of resident investors. The risk that the ongoing fiscal consolidation efforts could be destabilised with another severe combination of negative shocks remains."
Moody's opines that while comparatively strong, key indicators may deteriorate quickly.
VULNERABILITY AND LIQUIDITY
"The ability to sustain favourable external vulnerability and liquidity indicators continues to be a supporting factor for Jamaica's ratings. The ratio is highly sensitive to changes in the level of international reserves. This in turn, depends on the authorities' access to international capital markets and the need to use the reserves to defend the exchange rate.
"Liquidity and vulnerability indicators deteriorated in 2003 but remain better than other B-rated countries in the Caribbean region and in South America. Although the external vulnerability ratio of Jamaica increased in 2003, it is still below 100 per cent of international reserves and the authorities are rebuilding reserves. A sustained improvement of the ratio in 2004 will fundamentally depend on the stability of the exchange rate. At 87.1 per cent in 2003, the ratio compares well with that of the Dominican Republic's 741 per cent, Bolivia's 167 per cent, and Uruguay's 192 per cent."
