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Moody's takes 'positive outlook' on Jamaica

By Dennise Williams
Sunday, July 15, 2012


JAMAICA has been given a "positive outlook" in the latest report by international ratings agency Moody's.

Interestingly, Moody's reaffirmed the country's stable debt rating after the 2012-13 fiscal budget was read in May. In the national budget, the Minister of Finance, Dr Peter Philips, revealed that approximately 54 per cent of the $612-billion budget was earmarked to service loans and interest.

Indeed, Moody's notes that the rationale behind the rating stems from Jamaica's "high tolerance for fiscal austerity measures among its population, and the country's broad consensus on economic policies". The combination of these factors gave Moody's the confidence to declare that Jamaica has "moderate institutional strength".

International rating's agencies such as Moody's measures the ability of an issuer (such as the Government of Jamaica) to generate cash in the future. Determining the predictability of future cash generation is, therefore, the primary focus of Moody's analysis. This determination is built on an analysis of the individual issuer and of its strengths and weaknesses compared to those of its peers worldwide.

The June report summarised Jamaica's situation as follows:

Jamaica's B3 foreign- and local-currency government bond ratings reflect the country's low economic development, moderate institutional strength, weak government finances, and high susceptibility to shocks. Jamaica's US$7,810 per capita GDP is higher than the B-category median but annual growth has averaged less than one per cent a year in the last decade, much lower than rating peers. After three years of recession from 2008 to 2010 we expect a modest recovery at best, with growth averaging one per cent to 1.5 per cent a year this year and next.

Moody's suggests that Jamaica can move up in the rating if its fiscal consolidation efforts are successful and (or) the economy rebounds strongly. Accordingly, "this will require a combination of continued fiscal restraint and structural reforms supporting faster economic growth."

However, the ratings agency notes that Jamaica is very vulnerable to economic shocks and dependent on tourism for growth in the economy. Moody's also notes that, "continued low growth makes meeting the new targets a challenge and the risk remains high that fiscal slippage will continue to fuel already high debt levels."

Nevertheless, it is Jamaica's history of debt repayment that balances out the challenges and the recent 99 per cent acceptance of the debt exchange in 2010 bringing evidence of the "fiscal austerity" that Jamaicans have embraced. Even so, the ratings agency advises investors that Jamaica's debt burden is one of the highest in its rating category and among rating sovereigns. Critically, the agency declares that policies affecting economic growth are under the control of Jamaica's political system, but this requires no major external shocks which is not susceptible to government control.



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