Government preparing to refinance debt as credit ratings improve
NCB Capital Markets

NCB Capital Markets (NCBCM) recently highlighted Jamaica's positive economic transformation in its NCBCM Market Guide, noting that Jamaica's sovereign credit rating has improved to a 'non-investment grade speculative' category. This comes as the sovereign recently received two rating upgrades in just over a month from international rating agencies Standard and Poor Global Ratings (S&P) BB-/stable, and Moody's Investor Services (Moody's) B1/positive.

According to the article titled 'Jamaica's Fiscal Discipline Paying Dividends' these upgrades have improved Jamaica's access to capital markets through more favourable terms.

NCBCM reported that following recent rating upgrades, the Government of Jamaica (GOJ) plans to issue new local currency notes on international capital markets. This move is aimed at refinancing USD-denominated short- to medium-term notes due in 2025 and 2028 through a cash tender offer. This strategy extends the maturity profile of Jamaica's debt and reduces its exposure to foreign exchange risk, making the debt more manageable and facilitating further reductions in the debt-to-GDP ratio.

These achievements come after facing challenges like debt restructurings, currency devaluation, high-interest rates, and crowding out of the private sector. Despite these hurdles, Jamaica has improved its fiscal space, attracted investments, and set a foundation for a swift recovery from the COVID-19 pandemic, with a positive economic outlook.

NCBCM also emphasised the country's establishment of robust institutions and governance, which are expected to persist. These factors are crucial in maintaining a positive trajectory for fiscal and debt management, thereby enhancing Jamaica's credit resilience. Additionally, fiscal policy will be supported by economic measures, including a flexible exchange rate system and effective monetary policies, contributing to growth but at a more gradual pace.

The article highlighted Jamaica's recent credit upgrade from Moody's to B1 with a positive outlook, reflecting the government's dedication to fiscal consolidation and debt reduction. Jamaica's economic stability and favourable fiscal surplus in recent years, along with a decreasing government debt, contribute to the positive outlook. Reforms have improved policy effectiveness, enhancing economic and credit resiliency.

The upgrades signal improved economic prospects, making Jamaica more attractive for investment and offering better access to international markets. This is expected to strengthen the Government's reputation.

Improved access to capital markets is expected to lower borrowing costs for the Government and businesses, with a broader investor base. The Government is capitalising on this by issuing new notes and launching a cash tender offer to repurchase existing ones.

NCBCM noted that this marks Jamaica's first issuance of local currency global bonds, reducing exposure to exchange rate risk. Around 60 per cent of the Government's debt is in foreign currency, and issuing the new notes in Jamaican dollars positions Jamaica for a more favourable fiscal outlook.

Furthermore, the Government's interest burden is gradually decreasing. The new issuances will help reduce the cost of USD-denominated debt in Jamaican dollars, aiding Government's goal to bring its debt burden down to 60 per cent of GDP by fiscal 2027. This reduction will free up resources for social programmes and infrastructure projects while maintaining fiscal targets and supporting Jamaica's growth prospects. The tender offer and new notes also mitigate refinancing risk on upcoming maturities.

"Jamaica's commitment to fiscal consolidation, debt management, and economic growth, have put it on a positive path for the future, as captured by the recent credit upgrades," the NCBCM article opined. "The upgrades enhance Jamaica's reputation as a reliable borrower, which should help to attract more investment and help to fuel job opportunities and growth."

"The efforts at keeping debt sustainable are also reflected in the refinancing of USD-denominated debt with local currency debt and maturity extension that is underway, if rendered successful," it added. "Continued debt reduction should provide the Government with the fiscal space to invest more in infrastructure and public services, also boosting growth, hence the current positive outlook from Moody's."

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