S&P warns Jamaica not to go crazy ahead of elections
Published:Wednesday | June 29, 2011 | 12:00 AM
Steven Jackson, Business Reporter
Rating agency Standard & Poor's (S&P) says it will likely lower Jamaica's debt rating unless the original International Monetary Fund (IMF) deal is followed by what it called a sustainable economic plan leading up to the general elections.
Essentially, the rating agency in a June report said it feared political risk associated with the 2012 elections and its impact on sovereign debt. Jamaica currently has a credit rating of B-/Stable/C.
"Going forward, it will be key for the ratings that the Government implements a medium-term strategy for reducing the onerous debt burden by improving the primary fiscal balance as well as economic growth prospects," said S&P in a new analysis of the region titled 'Focus on Latin America: A Round-Up of the Region's Latest Sovereign Developments'.
"This is especially the case, given that the IMF agreement is due to terminate in August 2012, just a few months ahead of general elections. If the Government is not able to put in place a sustainable economic plan, we would likely lower the rating. Conversely, if the Government is able to improve its fiscal stance through a credible medium-term economic plan, creditworthiness could improve."
The Jamaican Government has recently announced that it is in negotiations to extend the IMF agreement beyond the election date.
The IMF is reportedly supportive but has yet to officially make a determination.
S&P raised Jamaica's rating to 'B-' from 'SD' (selective default) in February 2010 after the Golding administration secured the IMF deal which resulted in Government restructuring its domestic debt under the Jamaica Debt Exchange (JDX).
Speculative grade
Jamaica is one of six nations in the Latin America region with "speculative grade" debt slated to hold general elections within a year said S&P, including: Guatemala September 2011; Argentina October 2011; El Salvador March 2012; the Dominican Republic May 2012; Jamaica October 2012; and Venezuela December 2012.
Last week, S&P denied placing Jamaica at second after Greece in a list of nations most likely to falter on the repayment of sovereign foreign debt, saying it does not do numerical rankings, in the wake of a CNN report citing S&P as the source of a Top-10 list.
John Piecuch, S&P's director of communications for the Americas, said no such listing has been produced by the agency.
Jamaica, however, remains fragile in its growth and debt dynamics. Specifically, for 2011, Jamaica is projected to register the worst government balance as a share of GDP at -8.3 per cent (-8.4 per cent in 2010); and second lowest growth rate in the region at 1.3 per cent (-1.0 per cent in 2010), based on S&P data. Even Jamaica's best forecast related to inflation at 9 per cent versus 8.0 per cent in 2010 concerns S&P.
"Inflation pressures are also expected to pick up in 2011 and will likely have a significant fiscal cost through subsidies, putting more pressure on the government accounts. That said, the Government has been able to meet most targets under the 27-month standby agreement with the IMF," the rating agency stated in its forecast.
S&P said Jamaica's economic performance highlights its structural deficiencies.
"We do not expect trend growth to be above 2.0 per cent over the next three years. In this context, and given the slow growth and reconstruction costs after the severe rains in September 2010, Standard & Poor's expects the general government deficit to remain high, at 8.4 per cent of GDP in fiscal 2010," it said.
"We expect the Government to continue relying on the domestic capital market as well as multilateral funding to finance its fiscal and external gap in the short term, which will likely continue to constrain the ratings over the medium term."