Fitch Ratings is threatening to downgrade Jamaica’s creditworthiness to “default” if Government undertook debt restructuring that lead to any material loss to creditors.

“Fitch would deem a potential debt restructuring involving a change in the terms on existing market debt that leads to a material loss for creditors a Coercive Debt Exchange,” said Fitch in a press statement issued yesterday “Upon completion of such an exchange, Jamaica’s ratings would be downgraded to a default category.”

The international ratings agency yesterday joined Standard and Poors and Moody’s International in downgrading Jamaica’s credit worthiness, citing the “heightened risk” of debt restructuring.

Fitch downgraded Jamaica’s long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘CCC’ from ‘B’.

The outlooks on the long-term ratings remain negative. Jamaica’s country ceiling has also been lowered to ‘B-‘ from ‘B+’ and the short-term foreign currency IDR has been downgraded to ‘C’ from ‘B’.

“The downgrade reflects the country’s increased macroeconomic pressures and a sharp fiscal deterioration, which has resulted in unsustainable debt dynamics and heightened the risk of some form of debt restructurin, said Fitch in a press statement issued yesterday. “While the current account deficit has improved, the capital account of the balance of payments is highly dependent on disbursements from the International Monetary Fund (IMF) and multilaterals. Delays in negotiating a critical IMF stand-by continue to weigh on investor confidence.”

“While the government’s willingness to service its massive debt burden has traditionally been high, its capacity to do so is being seriously jeopardised by the magnitude of the macroeconomic and fiscal shocks the country faces,” said Shelly Shetty, senior director, Fitch Ratings. “Limited policy options to meet the fiscal challenges raise the possibility of some form of debt restructuring.”

The Jamaican authorities are negotiating an IMF Stand-By programme to buttress its external accounts and international liquidity position. A successful conclusion of the IMF negotiations will be critical for increasing multilateral disbursements and restoring investor confidence.

However, even with an IMF programme, Fitch believes that Government will still need to implement a credible fiscal consolidation plan to place its heavy debt burden on a downward trajectory. In light of Jamaica’s crushing debt burden, restoring debt sustainability could involve some form of debt restructuring.