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Fitch downgrades Jamaica from stable to negative

Saturday, January 19, 2013    

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FITCH Ratings has downgraded Jamaica’s outlook to negative from stable, saying the country faces serious financial constraints and is in urgent need of a new agreement with the International Monetary Fund (IMF).

The international ratings agency cited slippage in the Net International Reserves, the devaluation of the Jamaican dollar, and contraction in the economy as factors in the downgrade.

“The outlook revision to negative reflects Jamaica’s rising financing constraints in the context of elevated fiscal and external imbalances. The sustained erosion of the country's international liquidity position has sharply reduced the authorities’ manoeuvre capacity to manage external and fiscal pressures, thereby increasing the urgency of reaching a new agreement with the IMF in the near term,” reported Fitch, adding that growth underperformance furthermore posed serious challenges to sustained fiscal consolidation and debt sustainability.

At 130 per cent of GDP, Fitch said Jamaica’s debt remains among the highest of all sovereign states rated by the agency.

Jamaica has endured four consecutive quarters of negative growth and rising uncertainties about the economy. Fitch noted that domestic financing conditions have tightened in recent months due to the increased market uncertainty, which it said is a major concern given that Government’s financing needs will likely remain large and increase due to increasing domestic amortisations and the start of repayments to the IMF.

“While the domestic market has continued to provide financing to the Government it has done so at higher cost and in shorter terms. FX financing for the Government remains limited, as multilateral disbursements and access to international disbursements is presently constrained by the absence of an IMF agreement in place,” said Fitch.

It added that failure or an extended delay in reaching an IMF agreement would be negative for Jamaica’s creditworthiness. But, while an IMF agreement could stabilise confidence and ease the Government’s balance of payments pressures, the agency said it considers that developing a record of fiscal predictability and moving ahead with structural reforms to strengthen public finances will be key to reduce credit vulnerabilities.

At a special post-Cabinet press briefing at Jamaica House on Monday, Finance Minister Dr Peter Phillips hinted at new tax measures as he announced that public sector wage negotiations will have to be settled before an agreement is inked with the IMF. The public sector wage issue, he said, was one of several “prior actions” the country must settle to satisfy the requirements of the lending body with which the Government has been in negotiations for months.

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