Jan 2006 Financial News

Jamaica's credit rating stable

Jan 20, 2006

STANDARD AND Poor's Rating Services said yesterday that it affirmed its 'B' long- and short-term sovereign credit ratings on Jamaica.

The outlook remains stable, the international credit rating agency stated. According to Standard & Poor's credit analyst Olga Kalinina, the ratings are supported by the Government's ongoing commitment to fiscal discipline and debt reduction amid external shocks.

"The ratings also reflect expected higher growth prospects, boosted by the strong inflow of foreign direct investment in the tourism and mining sectors," Ms. Kalinina said. "The confidence level of domestic businesses and international investors remains strong, reflecting the Government's timely and appropriate policy response to adverse external developments. Transparent dialogue between the Government and market participants regarding economic performance and policy direction are important ingredients of Jamaica's stable investment and political environment."

She explained that, while economic growth may pick up, the Government faces a challenging task to generate fiscal surpluses in 2006 and beyond. Fiscal 2005 ending March 31, 2006, is now expected to yield a general government deficit of 1.6 per cent of Gross Domestic Product (GDP), below that targeted but a significant improvement over fiscal 2004's 7 per cent deficit. A 1.5 per cent of GDP general government deficit is expected in fiscal 2006. The two-year public sector wage freeze expires in March 2006, and capital expenditure needs remain high.

FISCAL PRUDENCE

"Nevertheless, the Government remains committed to fiscal prudence and expects to support it with better tax administration, simplification of the tax system, and further restraining of capital expenditure where feasible," Mrs. Kalinina said.

Despite a worse-than-expected fiscal performance, government debt is projected to decline to 127 per cent of GDP at the end of fiscal 2005, down from 133 per cent one year earlier. Interest payments now consume 43 per cent of general government revenue, down from 53 per cent in fiscal 2004.

Real GDP growth is expected to rise to 2.5 per cent in 2006, up from an estimated 1.5 per cent in 2005. Medium-term growth is expected to hover at about 2.5 per cent of GDP, based upon significant investment in the tourism and mining sectors.

PRUDENT FISCAL POLICIES

"The stable outlook balances the expectation of prudent fiscal policies and promising growth prospects with significant risk stemming from the high interest - and foreign-exchange-rate sensitive government debt and rising fiscal pressures," noted Mrs. Kalinina. "Standard & Poor's expects that higher economic growth, continued popular support for the government's stabilisation program, and a disciplined fiscal stance will help keep fiscal accounts in check. If this scenario does not materialise, however, missed fiscal targets in 2006 will likely endanger public support for reform, macroeconomic stability, and foreign-investor sentiment toward the country, all of which will harm Jamaica's creditworthiness," she concluded.

The Jamaican Gleaner
Thursday, 19th January, 2006
http://www.jamaica-gleaner.com/gleaner/20060119/business/business1.html