International ratings agency Moody’s upgraded Jamaica’s long-term issuer and senior unsecured ratings to B2 from B3 yesterday.
Additionally, the Jamaica’s senior unsecured shelf rating improved from (P)B3 to (P)B2.
However, constraints to the country’s current structural credit saw its outlook move from positive to stable.
According to Moody’s, the ratings upgrade was due to two main factors; the country’s strong commitment to fiscal consolidation and structural reforms and its improving debt structure. These two factors, it said, indicate a likely continued decline in the government’s debt and continued improvements in the economy’s resilience and a limiting of risks associated with the high levels of government debt, respectively.
“The stable outlook also reflects the structural credit constraints due to the country’s small size, sizeable economic concentration in the tourism industry, low economic growth and vulnerability to external shock.”– Moody’s
“The Jamaican authorities have built up a track record of improved fiscal policy management and demonstrated a commitment to fiscal consolidation and structural reforms over the past six years. This commitment, in turn, has supported a reduction in economic imbalances,” Moody’s said adding that it expects “the government to continue to run large primary surpluses, well in excess of those necessary to stabilize debt, and will maintain the downward trend in debt metrics.”
It projects that government debt will fall to 94 per cent of gross domestic product (GDP) at the end of the current fiscal year, and 84 per cent at the end of the 2021/2022 fiscal year.
As it relates to the country limiting risk associated with government debt, Moody’s said Jamaica has reduced its borrowing and reduced the cost of debt which has positively impacted its debt structure. “Jamaica has taken advantage of favorable market conditions to conduct liability management operations and issue longer-dated external commercial bonds, using the proceeds to buyback upcoming maturities of external debt.”
For the degraded outlook, the agency said while it expects that Jamaica’s improved credit profile will continue, it recognises that there are challenges present. “The stable outlook also reflects the structural credit constraints due to the country’s small size, sizeable economic concentration in the tourism industry, low economic growth and vulnerability to external shock.”
Even with a significant decline in debt, the country would still be faced with high debt and interest burdens, more so than countries with similar ratings, Moody’s said.
But, there is hope for an upgraded rating should the agency see greater commitment to reforms and evidence of improving GDP which results in greater economic resiliency.