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Rating agency, Standard & Poor's (S&P)has maintained a negative outlook and B- long-term foreign currency rating for Jamaica in its latest report issued a fortnight ago.
The ratings were constrained by the country's stalled International Monetary Fund (IMF) standby agreement, its narrow economic structure, large informal sector, and persistent fiscal and external deficits, which led to heavy debt-service burdens.
S&P added that the IMF remains uncertain "how Jamaica's relationship with the Fund will develop" under the administration of the recently elected Prime Minister, Portia Simpson Miller.
"The negative outlook reflects our view of the likelihood of a downgrade if in 2012 the government fails to increase its primary surplus and meet other requirements that are necessary to once again receive funding from the IMF and other multilateral agencies," stated S&P in its report.
"Our view is that the newly elected government's room for fiscal manoeuvring is narrowing. If the government fails to stabilise both the external and fiscal accounts, we would likely lower the rating," added S&P.
Conversely, S&P could improve the island's rating if the government improves its fiscal stance through a credible medium-term economic plan that will bring its IMF agreement on track while reducing external pressures.
In late December 2011, other rating agencies Fitch and Moody's individually maintained Jamaica's sovereign debt rating at just below investment grade in their year-end Latin America review.
The IMF standby agreement provided a three-year programme of US$1.27 billion to help the Jamaican government implement economic reforms to recover from the global recession.
The report said that contrary to what it had agreed, the government has not finished implementing tax and pension reforms or divesting Clarendon Alumina Partners.
S&P added that the government – referring to the Jamaica Labour Party administration – exacerbated the situation in August 2011 by approving a 7.0 per cent retroactive increase in public employees' salaries.
"We believe (the salary hike) will prevent it from reaching the fiscal targets it agreed to as part of the IMF programme,” S&P said.
The rating agency expects the government deficit to remain "high" at about 5.8 per cent of gross domestic product (GDP) through fiscal year 2011/12, but improve thereafter.
It expects net general government debt to stabilise at 130 per cent of GDP in fiscal year 2011/2012 and to drop slightly to 126 per cent in fiscal 2012/2013.
S&P expects the government to continue to rely on the domestic capital market, multilateral funding, and strategic international issuances to finance its fiscal and external gap in the short term, including the amortisation of the upcoming €200 million bond maturing July 2012.
Jamaica's interest burden, which improved after the government concluded its "distressed" debt exchange (JDX) in February 2010, will likely also remain high at about 40 per cent of general government revenue for the foreseeable future, it reasoned.
"Following the JDX, interest rates have decreased, and the exchange rate has stabilised. We expect Jamaica's international reserves to cover 3.6 months of current account payments as of the end of 2011," it said.
S&P also expects the reopening of two bauxite alumina plants and a healthy tourism industry to support economic growth, with per capita GDP growth of about 1.0 per cent in 2011 and 2012.
The ratings were constrained by the country's stalled International Monetary Fund (IMF) standby agreement, its narrow economic structure, large informal sector, and persistent fiscal and external deficits, which led to heavy debt-service burdens.
S&P added that the IMF remains uncertain "how Jamaica's relationship with the Fund will develop" under the administration of the recently elected Prime Minister, Portia Simpson Miller.
"The negative outlook reflects our view of the likelihood of a downgrade if in 2012 the government fails to increase its primary surplus and meet other requirements that are necessary to once again receive funding from the IMF and other multilateral agencies," stated S&P in its report.
"Our view is that the newly elected government's room for fiscal manoeuvring is narrowing. If the government fails to stabilise both the external and fiscal accounts, we would likely lower the rating," added S&P.
Conversely, S&P could improve the island's rating if the government improves its fiscal stance through a credible medium-term economic plan that will bring its IMF agreement on track while reducing external pressures.
In late December 2011, other rating agencies Fitch and Moody's individually maintained Jamaica's sovereign debt rating at just below investment grade in their year-end Latin America review.
The IMF standby agreement provided a three-year programme of US$1.27 billion to help the Jamaican government implement economic reforms to recover from the global recession.
The report said that contrary to what it had agreed, the government has not finished implementing tax and pension reforms or divesting Clarendon Alumina Partners.
S&P added that the government – referring to the Jamaica Labour Party administration – exacerbated the situation in August 2011 by approving a 7.0 per cent retroactive increase in public employees' salaries.
"We believe (the salary hike) will prevent it from reaching the fiscal targets it agreed to as part of the IMF programme,” S&P said.
The rating agency expects the government deficit to remain "high" at about 5.8 per cent of gross domestic product (GDP) through fiscal year 2011/12, but improve thereafter.
It expects net general government debt to stabilise at 130 per cent of GDP in fiscal year 2011/2012 and to drop slightly to 126 per cent in fiscal 2012/2013.
S&P expects the government to continue to rely on the domestic capital market, multilateral funding, and strategic international issuances to finance its fiscal and external gap in the short term, including the amortisation of the upcoming €200 million bond maturing July 2012.
Jamaica's interest burden, which improved after the government concluded its "distressed" debt exchange (JDX) in February 2010, will likely also remain high at about 40 per cent of general government revenue for the foreseeable future, it reasoned.
"Following the JDX, interest rates have decreased, and the exchange rate has stabilised. We expect Jamaica's international reserves to cover 3.6 months of current account payments as of the end of 2011," it said.
S&P also expects the reopening of two bauxite alumina plants and a healthy tourism industry to support economic growth, with per capita GDP growth of about 1.0 per cent in 2011 and 2012.