Moody's upgrades Jamaica's rating

Moody's upgrades Jamaica's rating

#MovingInTheRightDirection says Clarke

Observer writer

Friday, December 13, 2019

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Moody's Investors Service (Moody's), the internationally recognised bond credit rating arm of Moody's Corporation, has changed Jamaica's outlook from positive to stable while upgrading the long-term issuer and senior unsecured ratings of the Government of Jamaica from B3 to B2. The senior unsecured shelf rating was upgraded from (P)B3 to (P)B2.

Jamaica's Minister of Finance and the Public Service Nigel Clarke, on Wednesday posted the news on his social media with the comment, “Today Moody's upgraded Jamaica's credit rating to B2 from B3 on account of Jamaica's improved economic standing. This upgrade underscores the importance of GOJ's commitment to sustained economic reform. #MovingInTheRightDirection”

Moody's cited Jamaica's vigorous commitment to “fiscal consolidation and structural reforms” as well as the improvement of “debt structure limits risks associated with a high level of government debt” as the key factors pushing the upgrade.

Fiscal consolidation has brought about reduced imbalances in the economy while structural reforms such as inflation targeting, a free-floating exchange rate and increased foreign exchange reserves have made the country more resilient to economic shocks. Moody's also recognised the Government's “disaster risk financing strategy” as a mechanism to protect budget resources which would normally be called upon after a disaster.

Regarding the improvement of debt structure limits, Moody's elaborated that “the Jamaican Government has reduced gross borrowing requirements and lengthened the average maturity of its debt stock, while also reducing the cost of debt, resulting in an improving debt structure.”

It cautioned, however, that with a sizeable chunk of the debt denominated in foreign currency (62 per cent in 2018/19) the debt structure continues to be unprotected from any detrimental foreign exchange shifts.

Moody's also elaborated on its change of Jamaica's outlook from positive to stable.

“The stable outlook reflects Moody's expectations that the improvements in Jamaica's credit profile, which have improved macroeconomic stability and put debt on a downward trend, will be sustained,” the organisation revealed. “However, structural constraints due to the country's small size, sizeable economic concentration in the tourism industry, low economic growth and vulnerability to external shock mean that despite improved resilience, Jamaica's economy remains exposed to shocks. Even with a very significant decline in its debt burden, Jamaica's debt and interest burdens remain high, and above those of similarly rated peers.”

If the Government of Jamaica remains committed to its reforms, increases GDP growth rates, further reduces debt and enhances external buffers then this could bring up the country's rating in the future, Moody's explained.

Minister Nigel Clarke affirmed that the Government's commitment will continue.

“I welcome this news which represents an endorsement of the continued progress made by Jamaica in sound economic management and reduction of its public debt,” he said in a statement. “Under the newly approved Three-Year Standby Arrangement with the IMF, the Government remains firmly committed to fiscal consolidation aimed at further reducing its public debt burden, and to strengthening competitiveness and accelerating private sector-led growth through deep structural reforms. These actions will further strengthen Jamaica's credit rating in the international capital market.”

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