Jan 18 - Fitch Ratings has revised the Rating Outlook on Jamaica's sovereign
ratings to Negative from Stable. Fitch has also affirmed the ratings as follows:
--Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B-';
--Short-term foreign currency rating at 'B';
--Country Ceiling at 'B'.
Jamaica's ratings balance the sovereign's structural strengths, such as
relatively high income per capita and social indicators, policy consensus and
relatively strong institutional capacity against continued growth
underperformance, high vulnerability to external and confidence shocks, weak
public finances and fiscal solvency indicators. Jamaica's ratings incorporate
the sovereign's vulnerability to external and cyclical downturns as well as
NEGATIVE RATING OUTLOOK
The Outlook revision to Negative reflects Jamaica's rising financing constraints
in the context of elevated fiscal and external imbalances. The sustained erosion
of the country's international liquidity position has sharply reduced the
authorities' maneuver capacity to manage external and fiscal pressures, thereby
increasing the urgency of reaching a new agreement with the International
Monetary Fund (IMF) in the near term. Growth underperformance poses serious
challenges to sustained fiscal consolidation and debt sustainability.
Large external vulnerabilities reflected in weak external solvency ratios and
large current account deficits have been compounded by sustained decline in
international reserves through most of 2012. International reserves fell by
USD832 million to USD1982 million driven by deteriorating domestic confidence,
an estimated current account deficit of 11.6% of GDP and limited financing
The Jamaican dollar (JMD) has come under pressure in 2012, as domestic
confidence slipped due to the delay in reaching a new agreement with the IMF. So
far, the authorities have managed the increased currency pressures by primarily
intervening in the FX market. However, the present limited international
reserves firepower could lead to rapid adjustment in the monetary policy stance
in the event of significant loss of confidence.
Domestic financing conditions have tightened in recent months due to increased
market uncertainty. This is a source of concern given the sovereign financing
needs (at 15.8% of GDP) will likely continue to remain large and increase to
17.7% in FY13 driven by increasing domestic amortizations and the start of
repayments to the IMF. While the domestic market has continued to provide
financing to the government, it has done so at higher cost and in shorter terms.
FX financing for the government remains limited, as multilateral disbursements
and access to international disbursements is presently constrained by the
absence of an IMF agreement in place.
The economy contracted by an estimated 0.5% in 2012. Weighed down by structural
constraints, growth is likely to remain lackluster over the next two years,
which would in turn continue to test the government's ability to achieve a
sustainable fiscal consolidation. Challenges have already increased for the
government to meet its primary surplus target of 6% of GDP in FY12 due to
continued revenue underperformance. Government debt remains among the highest of
all sovereigns rated by Fitch at 130% of GDP.
While an eventual IMF program could stabilize confidence and thus provide relief
to JMD and balance of payments pressures, Fitch considers that developing a
record of fiscal predictability and moving ahead with structural reforms to
strengthen public finances will be key to reduce credit vulnerabilities.
The main factors that could lead to a negative rating action are:
--Continued weakening in external liquidity combined with currency pressures
leading to increased macroeconomic instability;
--Increasing financing constraints and fiscal imbalances leading to
unsustainable debt dynamics could increase the risk of some form of debt
Future developments that may individually or collectively lead to a
stabilization of the Outlook include:
--Stabilization of international reserves and increased confidence that risks to
macroeconomic instability have reduced materially;
--Improved growth performance, fiscal consolidation and easing of financing
The ratings and Outlooks are sensitive to a number of assumptions:
--Fitch assumes that Jamaica will finalize an agreement with the IMF in the near
term. Failure or an extended delay in reaching such an agreement would be
negative for creditworthiness.
--Fitch assumes that Jamaica's domestic market will continue to provide
financing to the government and roll-over maturing debt, albeit at higher cost
and shorter maturity.
--Fitch base case scenario assumes no deepening of the financial crisis in
developed economies, most notably the U.S. and no adverse weather phenomenon
that would severely impact Jamaica's growth and/or fiscal accounts.