WILLIAMS... we inherited a mountain of domestic arrears
FAYVAL Williams, minister of state in the Ministry of Finance and the Public Service, said yesterday that the two-notch upgrade to B3 by Moody’s Investors Service reflects the rating agency’s confidence in the Government’s continued fiscal discipline and the strong emphasis on economic growth and job creation.
This week, Moody’s upgraded Jamaica’s Government issuer, senior unsecured and provisional shelf ratings to B3 from Caa2, and changed the Caribbean island’s outlook to stable from positive.
Moody’s said its decision to upgrade Jamaica’s ratings was driven by “significant and sustained fiscal consolidation, and the Government’s strong commitment to continued reforms to reduce its high debt burden.
“Having the [new] Stand-by Arrangement in place in such quick succession and in such a seamless manner significantly reduces the risk to the economy and helps to boost confidence among local and international investors. The change in the outlook to stable, together with the rating upgrades are hugely positive for Jamaica,” the state minister told the
Jamaica Observer yesterday.
Two Thursdays ago the Government inked a new Stand-By Agreement with the International Monetary Fund (IMF) board to replace the existing arrangement which comes to an end in March 2017. The new economic programme will provide Jamaica with assistance from the IMF over three years. The agreement is equivalent to support of US$1.7 billion.
Moody’s in its ratings release made note of the new IMF agreement, stating, “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”.
The news of improved ratings also followed on the report last week by Director General of Planning Institute of Jamaica Dr Wayne Henry that the economy continued to record growth during the second quarter of the fiscal year.
For July – September 2016, real Gross Domestic Product (GDP) is estimated to have increased by 2.2 per cent relative to July – September 2015. Real value added in the goods producing industry grew by 6.7 per cent, while real value added for the services industry expanded by 0.8 per cent.
Moody’s said the decision resulted from “significant improvement in the current account balance and in reserve levels, which has reduced external vulnerability.
“The stable outlook assigned to the B3 rating balances our expectation that the debt burden will come down materially over the next 2-3 years against Jamaica’s high susceptibility to external shocks, particularly natural disasters,” Moody’s said.
“At B3, Jamaica’s rating reflects its low economic growth, very high debt burden and very high interest payments, which require strong fiscal efforts to service debt and bring the debt-to-GDP (gross domestic product) and interest-payment-to-revenue ratios down,” it added.
Moody’s said Jamaica has made significant progress in this direction, stating that its fiscal metrics, although still very weak, have improved since 2013.
The ratings agency said, however, that although GDP growth is recovering, Jamaica’s sovereign credit profile remains constrained by “structural impediments to growth and a very high government debt and debt servicing burden.
“Jamaica has relatively strong institutions compared to similarly rated peers, but its recent track record of debt restructurings constrains our assessment of institutional strength to ‘Low’,” Moody’s said.
“In recent years, however, policy effectiveness has been demonstrated in credit positive fiscal consolidation and structural reforms,” the agency added, noting that “Jamaican authorities remain committed to fiscal reforms, while shifting focus to boosting growth through Foreign Direct Investment (FDI)-financed investment in tourism, energy and infrastructure.”
Meanwhile, it said the drop in oil prices has supported a reduction in average annual inflation to historically low levels of around four per cent in 2016.
It said they introduced tax and expenditure measures and maintained a sizeable primary fiscal surplus of around seven per cent of GDP “to put public finances on a sounder footing over the medium term”.
The agency said it expected Jamaican authorities to achieve a balanced budget in the fiscal year 2017/18 and to increase the overall fiscal surplus over the medium term, resulting in the debt burden falling to 106 per cent of GDP by 2020 from 122.4 per cent at the end of fiscal year 2015/16.
Moody’s projected economic growth recovering in Jamaica in 2016 and 2017 to an average 1.7 per cent, up from 0.9 per cent in 2015.
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