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America’s leading rating agency, Standard and Poors, has maintained Jamaica’s ‘B’ (stable) rating, noting that, “the ratings on Jamaica are supported by the Government’s ongoing commitment to fiscal discipline and debt reduction amid external shocks”.
In its latest update on Jamaica, Standard and Poors cited Jamaica’s “higher growth prospects”, boosted by strong inflows of foreign direct investments (FDIs) in the tourism and mining sectors, as being among the reasons for maintaining the country’s stable outlook.
“The confidence level of domestic businesses and international investors remains strong (despite worse-than-expected performances in 2005), due to the Government’s timely and appropriate policy responses to adverse external developments,” the rating agency says.
It observes that Government debt is projected to decline to 127 per cent of gross domestic product (GDP) in fiscal 2005, compared to 133 per cent in the previous year. While improvements in the debt structure have slowed, Standard and Poors reports that, “on a positive note the interest cost burden is subsiding due to a decline in domestic interest rates”. Interest payments now consume 45 per cent of general Government revenue, down from 53 per cent in 2004.
The rating agency expresses concern over the expiration of the public sector wage freeze as well as significant infrastructure spending needs, saying this will put increasing pressure on the fiscal accounts. However, the agency says that higher economic growth, plus “a disciplined fiscal stance”, would alleviate some of these pressures. Real GDP growth this year is expected to be 2.5 per cent, up from 1.5 per cent in 2005.
Standard and Poors says that despite Jamaica’s deterioration in its current account deficit, which is now nine per cent of GDP, this deficit remains smaller than other B-rated countries with a similar economic structure. And although Jamaica’s trade deficit is higher than its peers with a B rating, its higher remittances act as a positive counterbalance.
Note is taken in the latest report of the close liaison Jamaica maintains with the International Monetary Fund (IMF). “The indirect benefit of this additional surveillance (by the IMF) is an increased policy transparency domestically and abroad. While the targets for 2005 have been revised downward due to external shocks, the timely and transparent communication of this information to the markets helps to preserve investors confidence in the economy,” the rating agency says.
After praising Jamaica for its high primary surpluses of over 9 per cent of GDP since 2003, Standard and Poors expresses concern over the high level of debt and the crime rate.
Significantly, America’s leading rating agency says of the upcoming race for the succession in the governing People’s National Party (PNP), that “regardless of the final winner, Jamaica’s main fiscal and economic policies are unlikely to change”, observing that all the candidates realise the importance of the current fiscal adjustment and would not jeopardize “the successful macro-economic stabilization achieved by the Patterson administration over the last several years”.
The agency report includes high praise for Jamaica’s institutions, including its civil service, judiciary and media, saying they are “generally stronger and play a more vital role” than do most of the other countries with a ‘B’ rating.