Standard and Poor's has maintained

[Lazie]

Jamaica's B rating. Now because some man have issues with Shaw him start to question the credibity of S&P. The same S&P him defended when him idol Omar was MOF (Mismanager of Finance).

[Lazie]

Standard and Poor's maintains ratings for J'ca on 'remarkable achievement'
Keith Collister, Business Observer writer
Wednesday, May 21, 2008


In what has to be an extremely welcome piece of news for the Government, with its continued need for heavy international financing, the world's leading international rating agency, Standard & Poor's, yesterday reaffirmed Jamaica's 'B' rating for both its long-term and short-term sovereign credit ratings on Jamaica.

Clearly referring to the unbudgeted fiscal overrun revealed immediately after the election, the agency noted that
"The Jamaica Labour Party (JLP) was able to outperform the revised budgeted targets despite spending overruns in the first half of fiscal 2007, and notwithstanding adverse weather condition in the fall of 2007, which is a remarkable achievement."

Many analysts and even a few CEO's from some of Jamaica's leading financial companies had feared that the combination of the fiscal overrun, adverse weather conditions, and an extremely challenging international macro-economic environment (in terms of access to finance and the cost of food and energy) had raised the possibility of a downgrade of Jamaica's debt, making the it particularly important that Jamaica met its fiscal target.

Just as important for one of the world's most highly indebted countries that imports nearly all its energy and much of its food, the same release from Standard & Poor's said that its outlook on Jamaica's debt was stable.
Standard & Poor's lead credit analyst on Jamaica, Olga Kalinina, noted that "the stable outlook balances the government's ongoing commitment to disciplined fiscal and monetary stances with the risk stemming from the challenging external environment".

She added: "Supporting the ratings are the government's commitment to fiscal discipline, debt reduction, and economic growth reinvigoration," and "Jamaica's local capital markets, which are well developed compared with those of its rating peers, and political stability are also rating strengths."
On the downside however, the agency made the by now extremely familiar refrain that "Jamaica's ratings remain constrained because of the difficulty in reducing the high general government debt burden as well as the limited fiscal flexibility."

They also noted Jamaica's "increasing external vulnerability stemming from the island's geographical location, size, openness, and high amortisation needs is a further credit weakness."

Fiscal discipline remains the cornerstone of the government's programme.
Correctly noting that "Fiscal discipline remains the cornerstone of the government's programme", Standard and Poor's calculated the overall general government deficit at 5.4 per cent of Gross Domestic Product (GDP) for the fiscal year ended March 31, 2008. This is calculated by adding to the official fiscal deficit of 4.7 per cent of GDP Bank of Jamaica cash losses of 1.1 per cent of GDP, and subtracting a social security surplus of 0.4 per cent of GDP.

The official budget target for the current fiscal year is a deficit of 4.5 per cent of GDP, but Standard & Poor's (S&P) projects the deficit at 5.2 per cent of GDP at the central-government level (including Bank of Jamaica cash losses) and 4.9 per cent of GDP at the general-government level, the difference reflecting the expected social security surplus.
S&P appears to recognise the improving quality of Jamaica's fiscal accounting, when it remarks: "Qualitatively, the budget is important as it increases the transparency of fiscal accounts, aims to rationalise the public sector, including the privatisation plans for large loss-making public enterprises."

Noting a higher rate of economic growth is one of the main goals of the government, S&P argues growth continues to be constrained by a crowding out of the private sector because of the government's high borrowing needs, labour-market rigidities affecting productivity, high security costs, and external shocks.
Hurricane Dean and the prolonged rainy period that followed reduced GDP growth to 1.1 per cent in 2007 from 2.6 per cent in 2006, whilst the weather's impact on agriculture and the resulting food shortages - together with surging oil prices - drove average inflation to 17 per cent in 2007 from 5.7 per cent in 2006.

The negative impact of the slowdown in the US is included in their outlook for GDP growth for 2008 of two per cent, which is counterbalanced by ongoing construction activity, recovery of the agriculture sector, and a still-strong tourism sector (demonstrated by robust first-quarter 2008 results and advanced bookings for newly opened hotels). They note the JLP's focus on restoring growth in the agriculture sector, increasing capacity in the manufacturing and export sectors, and aggressive investment promotion.

S&P believe Jamaica's external situation remains challenging, as a growing oil bill and a possible subdued tourism performance this year are only partly counterbalanced by thus-far strong remittance inflows. They believe the external current account deficit should hover at about 15 per cent of GDP in the next two years, and external liquidity should remain tight, with the external financing gap expected at 125 per cent of usable reserves and current account receipts in 2008.

They believe the current foreign-exchange market confidence needs to be supported by disciplined fiscal policies and a timely monetary response, and argue that the "continuation of the austere fiscal stance - coupled with structural improvements to increase the transparency and efficiency of governance - is the only viable strategy for bolstering investor confidence amid gloomier financial and economic times" given Jamaica's high debt burden, large amortisation needs, and inherent structural vulnerability to external shocks.

"Despite the difficulties facing Jamaican policymakers in the short term, we expect the new JLP government to benefit from the strong support of the domestic private sector, multilateral agencies, and external investors and to act decisively on the fiscal consolidation front to maintain hard-won macroeconomic stability."

Of particular interest is their view that "Intensified cooperation with the multilateral institutions will likely further reduce the interest cost. In fact, since September 2007, Jamaica has signed US$117 million worth of loan agreements with multilateral creditors, and it is negotiating another $219 million in loans for the 2008 fiscal year".

Rating concerns include fiscal deterioration or higher-than-expected tightening in the US dollar liquidity, leading to pressure on the Jamaican dollar and a sharp drop in investors' confidence. They believe this would cause capital outflow, exacerbate debt rollover risk, and probably necessitate a sharp interest rate adjustment like the one that occurred in 2003, which they argue would quickly undo last years fiscal consolidation and debt reduction.