Fitch Ratings has revised Jamaica's outlook from stable to positive and affirmed the country's credit rating at B+.
This is the first time since January 2020 that the rating agency has given Jamaica a positive outlook which would have been impacted by the novel coronavirus. Fitch predicated this positive outlook to significant debt reduction despite the pandemic shock, stability-oriented institutional framework and favourable financing conditions which has been reinforced by the new credit facilities from the International Monetary Fund (IMF).
"Jamaica's 'B+' rating is also supported by World Bank Governance Indicators that are substantially stronger than the 'B' median. The ratings remain constrained by deep structural weaknesses, including a high crime rate, low productivity and weak demographics, reflected in subdued underlying growth potential, estimated between 1-2 per cent," the Fitch release said on the country's rating.
A credit rating is an indicator of a borrower's ability to repay its financial obligations. The main credit rating agencies Moody's, S&P and Fitch give updates on a country's outlook and credit rating as developments occur within that territory.
Other key drivers for the country's current rating include the declining debt, strong policy framework, primary budget surpluses, new IMF financing, resilient external sector, declining inflation, significant monetary tightening by the Bank of Jamaica (BOJ), well-capitalised banks and the pandemic recovery despite a weaker growth outlook.
Finance Minister Dr Nigel Clarke pointed out last month that the country is expected to end this financial year (March 31) with public debt to gross domestic product (GDP) of 79.7 per cent and projecting the figure to further decline to 74.2 per cent in the upcoming financial year.
Fitch has forecasted the country's debt to GDP to decline to 80 per cent by the end of 2023, to 70 per cent by 2026, but expects the 60 per cent target by 2028 to be challenging. It expects this gradual decline to be driven by sizeable primary budget surpluses with the primary surplus beyond 2022 to be four per cent of GDP.
Dr Clarke mentioned at a Mayberry Forum that meeting the 60 per cent debt-to-GDP target would reduce the debt servicing cost as a percentage of GDP and result in more funds being available to build new schools, pay more to public sector individuals and execute more infrastructure projects.
Factors which could result in a positive rating action or upgrade include a sustained decline in government debt to GDP based on consistent adherence to fiscal rules and clear evidence of enhanced resilience of economic growth without the emergence of macro imbalances.
The next rating above B+ for Fitch is BB–. A BBB– credit rating is described as being investment grade and would open up Jamaica to billions of dollars in capital from overseas investors including pension funds and other managed funds which only invest in investment grade assets.
S&P Ratings currently has a credit rating for Jamaica of B+ with a stable outlook.
"Jamaica has a strong, stability-oriented economic policy framework that is built on two key pillars: Bank of Jamaica [BOJ] inflation targeting monetary policy and fiscal policy anchored on debt reduction targets. The government has built a track record of fiscal prudence that has gained credibility over recent years and it will be further institutionalized by the new independent fiscal commission which will judge the compliance of the draft annual budgets with the fiscal rule," the Fitch report concluded.
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