By the Caribbean Journal staff
Standard & Poor’s has raised its long-term foreign and local currency sovereign credit ratings on Jamaica, citing “progress in stabilizing the economy” and the country’s agreement with the International Monetary Fund.
The rating, which was upgraded to “B-” from “CCC+”, also reflected Jamaica’s gains in access to new external funding and “staunching the loss of foreign-exchange reserves,” the New York-based ratings firm said.
“After undertaking a debt exchange (NDX) in March of 2013–the second such exchange in the past three years–the Jamaican government entered into a four-year loan agreement with the IMF,” the firm said. “Enhanced access to external funding, which the government plans to use to fund its fiscal deficit this year and next year, and an expected decline in the fiscal deficit should ease the pressure on external liquidity in the coming year, reducing the risk of near-term default.”
S&P also raised its short-term foreign and local currency sovereign credit ratings to “B” from “C,” with the outlook on the long-term foreign and local currency ratings “stable.”
S&P said Jamaica’s government had undertaken various reforms of the course of this year to meet its “ambitious fiscal targets,” including tax increases and “austere wage settlements with most public sector unions.”
“We believe that recent policy measures, along with expected disbursements of external funding, should moderately enhance the government’s room to maneuver and bolster its ability to service its debt,” the firm said.
That ability remains vulnerable to fluctuations in the exchange rate or interest rates, however, and S&P warned that the level of foreign exchange reserves remained vulnerable to external shocks.
And while the firm said the ratings reflected Jamaica’s “stable democracy and open political system,” and a willingness to service its debt, it said it remained cautious when analyzing the country’s longer-term debt repayment capabilities.
“The breathing room the government gained after the NDX [debt exchange] — about 8.5 percent of GDP from lower interest payments by 2020, according to official estimates–may not be enough, absent successful implementation of other reform measures, to sustainably reduce its debt burden,” the firm said. “Public finances remain vulnerable to a substantial depreciation of the local currency because more than half the debt is denominated in foreign currencies.”