Nov 2011 Financial News

S&P lowers J'can outlook

Nov 02, 2011

Standard & Poor's Ratings Services has revised its outlook for Jamaica to negative from stable, though without changing any of the country's current ratings.

S&P said that the new outlook reflects its view that the fiscal room to manoeuvre is narrowing as the government tries to implement an austerity plan in a slow growth environment.

It still expects the general government deficit to improve to 5.8 per cent of GDP in 2011/12 as net general government debt stabilises at 130 per cent of GDP. This will leave interest costs at 40 per cent of general government revenue.

The agency also expressed concern about the political appetite for fiscal austerity. "Domestic politics are also shifting," it said. "Prime Minister Bruce Golding's recently announced resignation has opened the possibility for early elections and a change in administration."

Finally, it said, "the standby agreement with the IMF has come to a halt. The IMF hasn't completed its last four reviews because of delays in the implementation of agreed measures. The government hasn't completed the implementation of either tax and pension reforms or the divestment of Clarendon Alumina.

"Moreover, in late August it approved a seven per cent (retroactive) public sector pay rise, which in our view will prevent it from reaching the fiscal targets originally agreed for the IMF."

S&P said: "We revised the outlook on Jamaica to negative from stable based on a potential downgrade if the government fails to increase the primary surplus and meet other requirements necessary to restart IMF and other multilateral funding by 2012."

The Ministry of Finance responded that only three IMF reviews have technically been missed, although the September 2011 review is unlikely to be completed in view of the possible election. It added that talks over public sector wages are continuing. "An understanding is expected shortly." And it said that the government stake in Clarendon had been sold.

"Discussions with the IMF continue as the country seeks to secure the agreed Medium-Term Economic Plan which will ensure both fiscal and debt sustainability," it said. Standard & Poor's has itself said that achieving these conditions will improve Jamaica's credit worthiness.

Oppenheimer's Dr. Carl Ross argued that the change in outlook "is a result of the failure of implementation of the IMF program, as well as some original assumptions in the program that were just unrealistic, with the benefit of hindsight. I am not bothered by the political changes happening. But S&P is right that early elections are likely."


Source:
By Keith Collister
Jamaica Observer
Wednesday November 2, 2011

http://www.jamaicaobserver.com/business/S-P-lowers-J-can-outlook_10073398#ixzz1cYjCCwWc