Reductions in capital flows could impact Jamaica the most among countries in the region, according to Fitch Ratings in a November special report.

However, Fitch expects regional economies to largely maintain their rating in light of US Fed tapering.

“While the pace of positive rating actions could slow given the new global and regional economic outlook, Fitch does not anticipate significant downward rating pressures to develop because of US Fed tapering,”, said the ratings agency in its special report entitled US Tapering Effects in LATAM Sovereigns. “In most cases, negative rating actions would follow from country specific deterioration that may be compounded by less accommodating external conditions.”

Jamaica, with its high public and current account deficits, which are either close to or above 10 per cent of the country’s economic output, remained among the “most vulnerable to US tapering (monetary tightening by the US-based Federal Reserve) in 2013”.

“Some countries in Central America and the Caribbean with high current account deficits, high borrowing requirements and modest international reserves could be exposed in more challenging external conditions,” indicated Fitch.

It however tempered Jamaica’s vulnerability indicating that the island currently has financial support from multilateral agencies including the International Monetary Fund (IMF).

The rating agency explained that the US Federal Reserve “tapering” could lead to higher borrowing costs for sovereign issuers in Latin America.

Additionally, it could result in renewed equity, bond markets and currency volatility; diminished access to international capital markets for the private sector; and further easing of commodity prices especially if China’s economy slows.

“Some of the lower-rated countries face the twin deficit problem (current and public account deficits), which exposes them to swings in capital flows and a potentially more difficult external financial environment,” stated Fitch in the seven page document.

The agency added that currency depreciation could benefit economies by increasing exports and reducing imports.

“Externally, if US tapering is accompanied by some currency depreciation among these countries, the resulting gain in competitiveness could allow for a reduction in the current account deficit,” said Fitch. “As the US tapering process will come in response to some improvement in US demand, countries in the region could also see stronger demand for their exports, and better trade balances.”

In March this year Fitch upgraded Jamaica to CCC citing that the over 98 per cent participation in the National Debt Exchange (NDX) materially “cured” a possible default event in line with Fitch’s Distressed Debt Exchange Criteria.

The upgrade was preceded in January by a downgrade based on the slippage in Jamaica’s Net International Reserves, the depreciation of the Jamaican dollar, and contraction in the economy.