Fitch Says Macroeconomic Outlook Stable

New York-based Fitch Ratings, in its latest report, has maintained Jamaica's foreign and local currency Issuer Default Ratings (IDR) at 'B-', while its short-term IDR remains at ‘B’ and its country ceiling at ‘B’.

The rating report, issued early February, reflects the improving macroeconomic stability and relatively improved institutional strength. Importantly also, the international rating agency projected that this ranking was unlikely to drop in the near future and that the outlook for the island is “stable."

The report by Fitch highlighted the country’s response to significant fiscal and balance of payments pressures over the years, and noted that its performance compared favourably with its peers in terms of Gross Domestic Product (GDP) per capita and Human Development Indicators (HDI).

On the negative side, Fitch noted that Jamaica’s key credit weaknesses included the country’s debt to GDP ratio, which was among the highest of the sovereigns rated by the company; weak external and fiscal solvency indicators; continued growth underperformance; and high vulnerability to external and confidence shocks.

On the positive side, Fitch acknowledged that in 2011, the Bank of Jamaica (BoJ) maintained, and even reduced, “historically low interest rates in the context of broad exchange rate stability and reduced inflationary pressures."

In 2011, inflation averaged 7.5 per cent, while the exchange rate was stable, “inspite of the absence of reviews under the International Monetary Fund (IMF) Stand-by Arrangement (SBA) since December 2010.”

Fitch, in its rating assessment, also referred to assurances by the new administration to negotiate a new agreement with the IMF, to curtail expenditure, and give momentum to the promulgation and implementation of policies to reform the tax system, bring public sector salaries under control and contain pension costs.

“Maintaining the credibility of fiscal policy and multilateral support will be key, given Jamaica's sizeable twin deficits and limited buffers, which leave the economy vulnerable to swings in investor confidence and a variety of shocks ranging from a weaker global growth to natural disasters,”  argued Director of Fitch's Sovereign Group, Erich Arispe.

The rating agency projected that Jamaica’s current account deficit (CAD) will remain close to 10 per cent of GDP in 2012, a decline from the estimated 11.7 per cent of GDP in 2011. Fitch opined that the country will need continued multilateral support to mitigate Jamaica's “external accounts vulnerability to shifts in investor confidence and international oil price shocks.”

Fitch forecasted that Jamaica's central government deficit would reach 5.2 per cent of GDP in fiscal 2011 to March 2012, down from 6.2 per cent in 2010/11 fiscal year.

Projecting modest economic growth, Fitch contends that the Jamaican economy will grow by 1. 2 per cent and 1 per cent in 2011/12 and 2012/13 fiscal years, respectively.

The agency argued that improvement in Jamaica’s credit rating in the future is predicated on continued fiscal consolidation and higher economic growth that ensures medium-term debt sustainability as well as further reduction in the country's external vulnerabilities.

By Allan Brooks, JIS Senior Reporter