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Moody’s, the United States-based rating agency, has said that the Jamaican Government’s policy response to reducing the country’s debt burden was both “appropriate and resolute”.
The agency’s view is expressed in the recently released July report on the country. Moody’s also said that the rate of Jamaica’s Gross Domestic Product (GDP) could reach up to 3.5 per cent over the next few years, moving from the average 1.4 per cent over the past several years. “A combination of factors could lead to considerably higher rates of GDP growth in the coming years,” the influential rating agency added.
The agency noted that the Jamaican Government had “set out a credible fiscal adjustment programme that has begun to allow for a sustained decline in interest rates, currency stability and a reduction in domestic debt placements”. It said that in time, this should facilitate the expansion of private sector credit as well as foster a greater entrepreneurial spirit in the island.
Moody’s also referred to “unprecedented large-scale projects” in infrastructure, tourism and mining, which should make a considerable contribution to growth in the coming years. The agency highlighted the multi-billion (US) dollar projects, stating that major expansion of the country’s roads and airports should bolster tourism earnings “and further establish Jamaica’s premier role as a popular Caribbean destination for North American and European tourists”. The agency noted that the current Jamaican administration has demonstrated “significant ability” to garner civil society support for its macro-economic programme. It referred to the historic Memorandum of Understanding (MoU) signed with the country’s trade unions, noting that it has resulted in noteworthy reductions in wage expenditures. The rating agency, whose analysis carries weight in financial markets and among institutional investors, reported that the unions are committed to sticking with the MoU, despite the increase in the inflation rate.
“In Moody’s view, the unions’ willingness to absorb real wage cuts represents an unusually high degree of consensus for a developing country,” said the agency. But the agency also noted that major imbalances still existed in the economy and warned the authorities to maintain vigilance in sticking to the fiscal targets. “Despite a carefully crafted and aggressive adjustment programme, a sustained reduction in the debt ratio remains very vulnerable to exogenous (external) shocks and policy slippage,” Moody’s observed.
The agency cited a marked improvement in local confidence and “detectable signs” that “Jamaica might be on the onset of a virtuous cycle of economic development”. Continuing its positive review of the Jamaican economy, Moody’s said while there were considerable risks to the Government’s ambitious medium-term macro-economic programme, the targets were attainable, although their attainment would require exceptional and unwavering policy discipline and the absence of major external shocks.
Moody’s noted, however, that previously, Jamaica had achieved modest economic growth despite significant shocks. The agency concluded that “despite external debt accumulation, higher FX (foreign exchange) reserves and growing current account receipts have left Jamaica’s external profile in a better position than in recent years”.