MOODY’S credit rating agency yesterday said Jamaica’s large primary surplus and adequate international reserves provide the Government with ample buffers to limit the immediate credit-negative effect that travel restrictions will have on the tourism industry because of the novel coronavirus disease (COVID-19) outbreak.

“While we expect growth to slow from declining tourist arrivals, the effect on Jamaica’s external accounts will be partially offset by the high import content of tourism earnings, which will reduce the country’s import bill. Moreover, lower oil prices will also have a positive effect on Jamaica’s current account,” Moody’s said in an issuer comment.

“We believe that the country has sufficient fiscal and external buffers to cope with a shock in the tourism industry, limiting the immediate credit negative effect,” the agency added.

Noting that Jamaica has issued travel restrictions on the United Kingdom, China, Italy, South Korea, Singapore, France, Spain, Germany, and Iran Moody’s said the travel ban will exacerbate the slowdown in tourism and the economy. However, the agency said, compared with other Caribbean islands, Jamaica’s vulnerability to tourism is moderate.

Moody’s pointed to World Travel and Tourism Council data showing that travel and tourism either directly or indirectly accounted for 34 per cent of Jamaica’s 2018 gross domestic product (GDP), 31 per cent of employment and almost 60 per cent of total exports.

The credit agency also noted that the tourism sector has grown steadily over the past decade, with tourist arrivals (including cruise passengers) increasing to 4.2 million in 2019 from 2.8 million in 2010, boosted by investment in facilities and domestic infrastructures such as highways.

“The increased arrivals supported growth in various sectors, such as hotels and restaurants, retail trade and accommodation services, with spillovers to other sectors including construction. The unprecedented combination of the coronavirus pandemic, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets,” Moody’s said.

The agency also pointed out that Jamaica is particularly vulnerable to a slowdown in tourist arrivals from the United States, which accounted for 66 per cent of total arrivals in 2018, followed by Canada with 16 per cent of arrivals and the UK, which accounted for nine per cent.

“While we expect growth to slow from declining tourist arrivals, the effect on Jamaica’s external accounts will be partially offset by the high import content of tourism earnings, which will reduce the country’s import bill,” Moody’s said. “Moreover, lower oil prices will also have a positive effect on Jamaica’s current account.”

The credit rating agency noted that the reforms monitored by the International Monetary Fund helped Jamaica reduce fiscal and external imbalances, which led to the agency’s December 2019 upgrade of Jamaica’s rating to B2.

“Notably, the adoption of a formal inflation target and flexible exchange rate regime contributed to a narrower current-account deficit and the accumulation of international reserves,” Moody’s said. “Additionally, the Government’s timely measures amid the coronavirus outbreak reflect its stronger institutional capacity to cope with external shocks. The Government announced emergency funding amounting to $7 billion or 0.4 per cent of 2018 GDP to support the medical staff and health facilities (quarantine facilities have been in place since around mid-February), and an $18 billion stimulus package to be used in the form of tax cuts to mitigate the coronavirus’ negative economic effects.”