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Jamaica has worst debt-to-revenue ratio in Moody's rating universe
Published: Wednesday | July 27, 2011 8 Comments
Jamaica's sovereign [COLOR=blue !important][COLOR=blue !important]bond[/COLOR][/COLOR] rating will remain stable at 'B3', or three grades from default, provided there are no external shocks, says Moody's Investors Services.
"Shocks that could push Jamaica again to default would include a powerful hurricane, a global liquidity crunch affecting Jamaica's access to foreign financing, a softening of foreign exchange inflows due to a global slowdown affecting tourism and/or another similar shock affecting the exchange rate," said Moody's in its annual outlook on Jamaica published July 11.
Political shocks could also affect the rating.
The country would need to double its growth rate to about "1.5 per cent a year" for a decade or balance the budget in order to inspire a rating upgrade, all things equal, Moody's indicated.
"Jamaica's B3 foreign and local currency government bond ratings reflect the country's low economic development, moderate institutional strength, weak government finances, and high susceptibility to shocks. A high tolerance for fiscal austerity measures among its population, and the country's broad consensus on economic policies support our view of moderate institutional strength, a key support for the rating," the ratings agency said.
Jamaica scored the highest external vulnerability indicator (EVI) at 99 when compared with its rating peers, including Argentina, Pakistan, Nicaragua and Belize. The median score was 54.
"EVI is the ratio of maturing external debt and non-resident foreign currency [COLOR=blue !important][COLOR=blue !important]deposits[/COLOR][/COLOR] to external reserves. The higher the EVI, the higher the vulnerability," said Moody's.
The rating agency projects growth at 1.4 per cent, the local dollar at J$92 to US$1 and inflation of 5.8 per cent by 2012.
The external debt, however, is projected to remain largely unchanged at US$10.6 billion in 2012, up from US$10.1 billion in 2011, with central government debt to GDP at 115 per cent for the fourth consecutive year.
General government interest payments compared with general government revenues will dip from 40.8 per cent to 33.6 per cent in 2012, according to Moody's predictions.
Another advantage
The rating agency added that eliminating the fiscal deficit would give the country the ability to grow the economy and increase its potential for a rating upgrade.
"With that in mind, the Govern-ment has set a target of a balanced fiscal result by 2015. If this is accomplished it will represent a significant [COLOR=blue !important][COLOR=blue !important]credit[/COLOR][/COLOR] positive for the sovereign, though it will not be an easy task. As part of the effort the Government has revamped its budgeting process and divested itself of several loss-making enterprises," the report stated.
"The Standby Arrangement with the International Monetary Fund is seen as credit-positive as fiscal performance evaluations are to be performed periodically. These are the kind of reforms and procedures that can take some time to show their effectiveness, but last year's actions are an important first step."
It added that while Jamaica's per capita GDP is higher than the B-rating category median, the grade is based on annual growth that has averaged less than 1.0 per cent in the last decade, and the country being in recession for the past three years.
Lack of growth makes reducing the debt burden difficult, says the rating agency, and the country's debt-to-revenue ratio remains among the highest in its rating category "in the Moody's rating universe", even after last year's domestic debt exchange.
"While the 2010 domestic debt exchange improved the Govern-ment's fiscal position by dramatically reducing the interest burden, debt levels remain much higher than those of most of Jamaica's rating peers, giving the country little room to manoeuvre," said Moody's.
"Jamaica's stable outlook reflects Moody's views that changes to the Government's bond ratings are unlikely to change, given the country's still-high debt burden and low economic growth. While the economy will likely grow in 2011, future growth is expected to remain subdued, and fostering faster growth will remain a key policy challenge."
Jamaica's total debt was recorded at J$1.57trillion in April. The country projects revenue collections of J$350 billion, inclusive of grants, this fiscal year.
steven.jackson@gleanerjm.com
Published: Wednesday | July 27, 2011 8 Comments
- Lacklustre growth predicted
Jamaica's sovereign [COLOR=blue !important][COLOR=blue !important]bond[/COLOR][/COLOR] rating will remain stable at 'B3', or three grades from default, provided there are no external shocks, says Moody's Investors Services.
"Shocks that could push Jamaica again to default would include a powerful hurricane, a global liquidity crunch affecting Jamaica's access to foreign financing, a softening of foreign exchange inflows due to a global slowdown affecting tourism and/or another similar shock affecting the exchange rate," said Moody's in its annual outlook on Jamaica published July 11.
Political shocks could also affect the rating.
The country would need to double its growth rate to about "1.5 per cent a year" for a decade or balance the budget in order to inspire a rating upgrade, all things equal, Moody's indicated.
"Jamaica's B3 foreign and local currency government bond ratings reflect the country's low economic development, moderate institutional strength, weak government finances, and high susceptibility to shocks. A high tolerance for fiscal austerity measures among its population, and the country's broad consensus on economic policies support our view of moderate institutional strength, a key support for the rating," the ratings agency said.
Jamaica scored the highest external vulnerability indicator (EVI) at 99 when compared with its rating peers, including Argentina, Pakistan, Nicaragua and Belize. The median score was 54.
"EVI is the ratio of maturing external debt and non-resident foreign currency [COLOR=blue !important][COLOR=blue !important]deposits[/COLOR][/COLOR] to external reserves. The higher the EVI, the higher the vulnerability," said Moody's.
The rating agency projects growth at 1.4 per cent, the local dollar at J$92 to US$1 and inflation of 5.8 per cent by 2012.
The external debt, however, is projected to remain largely unchanged at US$10.6 billion in 2012, up from US$10.1 billion in 2011, with central government debt to GDP at 115 per cent for the fourth consecutive year.
General government interest payments compared with general government revenues will dip from 40.8 per cent to 33.6 per cent in 2012, according to Moody's predictions.
Another advantage
The rating agency added that eliminating the fiscal deficit would give the country the ability to grow the economy and increase its potential for a rating upgrade.
"With that in mind, the Govern-ment has set a target of a balanced fiscal result by 2015. If this is accomplished it will represent a significant [COLOR=blue !important][COLOR=blue !important]credit[/COLOR][/COLOR] positive for the sovereign, though it will not be an easy task. As part of the effort the Government has revamped its budgeting process and divested itself of several loss-making enterprises," the report stated.
"The Standby Arrangement with the International Monetary Fund is seen as credit-positive as fiscal performance evaluations are to be performed periodically. These are the kind of reforms and procedures that can take some time to show their effectiveness, but last year's actions are an important first step."
It added that while Jamaica's per capita GDP is higher than the B-rating category median, the grade is based on annual growth that has averaged less than 1.0 per cent in the last decade, and the country being in recession for the past three years.
Lack of growth makes reducing the debt burden difficult, says the rating agency, and the country's debt-to-revenue ratio remains among the highest in its rating category "in the Moody's rating universe", even after last year's domestic debt exchange.
"While the 2010 domestic debt exchange improved the Govern-ment's fiscal position by dramatically reducing the interest burden, debt levels remain much higher than those of most of Jamaica's rating peers, giving the country little room to manoeuvre," said Moody's.
"Jamaica's stable outlook reflects Moody's views that changes to the Government's bond ratings are unlikely to change, given the country's still-high debt burden and low economic growth. While the economy will likely grow in 2011, future growth is expected to remain subdued, and fostering faster growth will remain a key policy challenge."
Jamaica's total debt was recorded at J$1.57trillion in April. The country projects revenue collections of J$350 billion, inclusive of grants, this fiscal year.
steven.jackson@gleanerjm.com