NEW YORK – Leading international credit rating agency Standard & Poor's Ratings Services (S & P) on Monday affirmed its “B-/B” long - and short-term sovereign credit ratings on Jamaica, stating that the island’s economic outlook “remains negative.”
The Wall Street-based firm also said Jamaica’s “B” transfer and convertibility (T&C) assessment remains unchanged.
“Our ratings on Jamaica reflect its high general government debt and interest burden; limited fiscal, monetary, and external flexibility; low growth prospects; and vulnerability to natural disasters due to its location in the hurricane belt,” the statement said.
“They also reflect the country's political stability and relatively developed domestic capital markets,” it added.
S & P said Jamaica’ s continued low growth prospects, with Gross Domestic Product (GDP) likely to expand only one per cent or less this year, along with a recently declining trend in the level of foreign exchange reserves, “highlight its credit weaknesses.”
It noted that the island’s general debt burden was about 126 percent of GDP in 2011, “and we expect it to remain at a similar level in 2013.
“The negative outlook incorporates our expectation that the government will continue to rely on the domestic capital market, multilateral funding, and possible international issuances to finance its fiscal and external gap in the short term,” S & P said.
“We also expect that the government will take additional measures in case lower-than-expected GDP growth or higher-than-expected increases in the public-sector salary bill threaten to undermine its budget targets for the current fiscal year,” it added.
S & P said a prolonged loss of foreign exchange reserves could weaken investor confidence and raise the risk of greater exchange rate volatility, “which could exacerbate the government's already high debt burden.”
It warned that if the Portia Simpson Miller administration fails to stabilize Jamaica's external account, “the resulting further loss of external liquidity would likely lead to a lower rating.”
S & P said it could revise the outlook to stable if the government is able to “staunch the recent loss of external liquidity, as well as present a credible medium-term economic plan (likely along with a new agreement with the International Monetary Fund) that begins to reduce its high debt burden and leads to better prospects for economic growth.”