Above: Kingston (CJ Photo)
By the Caribbean Journal staff
Fitch has lowered Jamaica’s outlook to negative, although the firm affirmed its B- credit rating on the country, it announced Friday.
The revision to negative reflects “Jamaica’s rising financing constraints in the context of elevated fiscal and external imbalances,” the New York-based firm said.
“The sustained erosion of the country’s international liquidity position has sharply reduced the authorities’ maneuver capacity to manage external and fiscal pressures, thereby increasing the urgency of reaching a new agreement with the International Monetary Fund (IMF) in the near term,” it said in a statement. “Growth underperformance poses serious challenges to sustained fiscal consolidation and debt sustainability.”
The firm also said the Jamaican dollar had come under pressure last year, as domestic confidence slipped due to the delay in reaching a new agreement with the IMF.
“So far, the authorities have managed the increased currency pressures by primarily intervening in the FX market,” Fitch said. “However, the present limited international reserves firepower could lead to rapid adjustment in the monetary policy stance in the event of significant loss of confidence.”
Jamaica’s economy contracted by an estimated 0.5 percent last year, according to the firm.
“Weighed down by structural constraints, growth is likely to remain lackluster over the next two years, which would in turn continue to test the government’s ability to achieve a sustainable fiscal consolidation,” it said. “Challenges have already increased for the government to meet its primary surplus target of 6% of GDP in FY12 due to continued revenue underperformance.”
Jamaica’s government debt is the highest of all sovereigns rated by Fitch, at 130 percent of GDP.
“While an eventual IMF program could stabilize confidence and thus provide relief to JMD and balance of payments pressures, Fitch considers that developing a record of fiscal predictability and moving ahead with structural reforms to strengthen public finances will be key to reduce credit vulnerabilities,” it said.
The rating assumed that Jamaica would finalize an agreement with the IMF in the near-term, it said. But a failure or an extended delay in reaching an IMF deal would be negative for creditworthiness, it said.