Moody’s up­grades Ja­maica credit rat­ing

Jamaica Gleaner - - BUSINESS - Steven.jack­son@glean­erjm.com

MOODY’S IN­VESTORS Ser­vice is more bullish, if some­what cau­tious, about the Ja­maican econ­omy, say­ing its out­look is based on a bal­ance of po­ten­tial risks.

On the plus side, it ex­pects the debt bur­den to fall but is oth­er­wise con­cerned that Ja­maica is sus­cep­ti­ble to na­ture-in­duced ex­ter­nal shocks.

On Mon­day, the in­ter­na­tional rat­ings agency up­graded Ja­maica’s govern­ment is­suer, se­nior un­se­cured and pro­vi­sional shelf rat­ings to B3 from Caa2 and changed its out­look to stable from pos­i­tive.

It comes with the sign-off of a suc­ces­sor ar­range­ment with the In­ter­na­tional Mon­e­tary Fund (IMF), with which Ja­maica now has a US$1.67-bil­lion standby agree­ment.

Moody’s said Mon­day that its de­ci­sion to up­grade Ja­maica was driven by sus­tained fis­cal con­sol­i­da­tion and the Govern­ment’s strong com­mit­ment to con­tin­ued re­forms to re­duce its high debt bur­den, as well as sig­nif­i­cant im­prove­ment in the cur­rent ac­count bal­ance and for­eign re­serves.

“The stable out­look as­signed to the B3 rat­ing bal­ances our ex­pec­ta­tion that the debt bur­den will come down ma­te­ri­ally over the next two to three years against Ja­maica’s high sus­cep­ti­bil­ity to ex­ter­nal shocks, par­tic­u­larly nat­u­ral dis­as­ters,” said Moody’s.

The rat­ings agency’s assess­ment of Ja­maica was tem­pered by low eco­nomic growth, very high debt bur­den and very high in­ter­est pay­ments. This re­quires con­tin­ued ef­forts, it said, to ser­vice debt and bring the debt-to-GDP and in­ter­est­pay­ment-to-rev­enue ra­tios down.

“Ja­maica has made sig­nif­i­cant progress in this di­rec­tion and its fis­cal met­rics, al­though still very weak, have im­proved since 2013. Al­though GDP growth is re­cov­er­ing, its sov­er­eign credit pro­file re­mains con­strained by struc­tural im­ped­i­ments to growth and a very high govern­ment debt and debt ser­vic­ing bur­den,” said Moody’s.

The ‘pre­cau­tion­ary’ standby agree­ment with the IMF re­places the Ex­tened Fund Fa­cil­ity, which was orig­i­nally due to run for four years to March 2017. How­ever, with the progress al­ready made by Ja­maica on its eco­nomic re­form pro­gramme, the new Hol­ness ad­min­is­tra­tion sought a dif­fer­ent ar­range­ment that it is pitch­ing as more of an in­sur­ance pol­icy — that is, funds can be drawn down from the IMF but only if the Ja­maican Govern­ment deems it nec­es­sary.

The cur­rent agree­ment still re­quires Ja­maica to main­tain a seven per cent pri­mary sur­plus, and fore­sees a fall in the debt ra­tio to 60 per cent of GDP by March 2026.

One of the crit­i­cisms of the last IMF pro­gramme was that it placed too many con­straints on growth-in­duc­ing ini­tia­tives.

Still, Moody’s said the re­forms raised in­vestor con­fi­dence, and it ex­pects that in 2016 and 2017, growth will av­er­age 1.7 per cent, or double the 0.9 per cent out-turn in 2015.

SHIFT FO­CUS

“A fac­tor un­der­pin­ning the up­grade is our ex­pec­ta­tion that even as the au­thor­i­ties shift fo­cus to­wards achiev­ing higher growth rates, they will main­tain their fis­cal per­for­mance and pri­mary sur­plus of around seven per cent of GDP over the next three years,” said the rat­ings agency.

“The sup­port of the pub­lic and busi­ness com­mu­nity for the re­form pro­gramme, along with the coun­try’s

broad con­sen­sus on eco­nomic poli­cies, but­tresses our ex­pec­ta­tion that re­forms will con­tinue.”

It sees con­tin­ued fis­cal re­forms as more likely to fo­cus on the pri­vati­sa­tion, merger or clo­sure of state-owned en­ter­prises.

Moody’s ex­pects Ja­maica to achieve a bal­anced bud­get in the fis­cal year FY2017/18, and its debt bur­den to fall to 106 per cent of GDP by 2020 from 122.4 per cent at the end of FY2015/16.

Ad­di­tion­ally, debt-ser­vic­ing costs are pre­dicted to de­cline grad­u­ally over the next three years.

“At 27 per cent of rev­enues, the

Govern­ment’s in­ter­est pay­ment bur­den re­mains very high. That said, the Govern­ment has pur­sued an ac­tive debt man­age­ment strat­egy of length­en­ing ma­tu­ri­ties and tak­ing ad­van­tage of low in­ter­est rates to re­duce debt-ser­vice costs and buy back some of its out­stand­ing debt. This has put the in­ter­estto-rev­enue ra­tio firmly on a down­ward tra­jec­tory, and we ex­pect it to drop from nearly 10 per cent of GDP in 2012/13 to 6.1 per cent in 2019,” Moody’s said.

Con­cur­rent with its sov­er­eign up­grade of Ja­maica, Moody’s also up­graded the credit rat­ings of

Govern­ment-re­lated en­ti­ties Air Ja­maica Lim­ited and Na­tional Road Op­er­at­ing and Con­struc­tion Com­pany to B3 from Caa2, and sim­i­larly changed the out­look to stable from pos­i­tive.

The long-term for­eign cur­rency bond ceil­ing was changed to Ba3, while the short-term for­eign cur­rency bond ceil­ing is un­changed at NP; the long-term for­eign cur­rency de­posit ceil­ing was changed to Caa1, while the short-term for­eign cur­rency de­posit ceil­ing re­mains at NP; and the long-term lo­cal cur­rency bond and de­posit ceil­ings were changed to Ba2.

The Min­istry of Fi­nance and Plan­ning at He­roes Cir­cle in Kingston, home of the trea­sury.

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