Feb 2016 Financial News

Fitch upgrades Jamaican debt to B, revises outlook to stable

Feb 12, 2016

Jamaica on February 11 received a ratings upgrade from Fitch Ratings, with the company stating that among its key assumptions was that “the fiscal policy stance will remain broadly unchanged after the general election called by Prime Minister Portia Simpson Miller for February 25 and that the next government will adhere to the IMF programme through March 2017”.

Fitch Ratings has upgraded Jamaica’s long-term foreign and local currency IDRs (International Depository Receipts) to B from B- and revised the Rating Outlooks to stable from positive.

In addition, Fitch upgraded Jamaica’s senior unsecured Foreign- and Local-Currency bonds to B from B-. The Country Ceiling has been affirmed at B and the Short-Term Foreign-Currency IDR affirmed at B.

According to Fitch, key factors in the upgrade were the Jamaica Government’s continued adherance to the fiscal primary surplus targets agreed with the IMF and passing the 10th review of the programme in December.

Fitch noted, “Austerity has proved unpopular, but Fitch believes that the policy stance will remain unchanged after the general election on February 25, as the goals of the IMF programme are backed by diverse stakeholders. While the IMF and Jamaica agreed to a slight relaxation in the targeted primary fiscal surplus in December (which will allow the government to increase public investment), it will still reach 7.25 per cent of GDP in FY15 and seven per cent of GDP in FY16. This is consistent with a small overall budget deficit of less than 0.5 per cent of GDP. Reforms and tax hikes in 2015 have boosted revenues above budget, despite below-target economic growth.”

Fitch also stated that the decline in public debt has slightly outpaced Fitch’s expectations.

“The Government has reduced its debt stock and demonstrated access to both external and domestic markets. A buyback of PetroCaribe debt in July 2015 owed to Venezuelan national oil company PDVSA, for half of its face value, reduced debt by 10 per cent of GDP and alleviates the external debt repayment burden.”

The ratings agency also noted that external finances continue to improve. “Lower oil prices slashed the import bill in 2015 and helped drive down the current account deficit to three per cent of GDP, from 7.7 per cent of GDP in 2014. Subdued energy prices, a change in the energy mix and a more competitive Jamaican dollar promise to keep the CAD in check through 2017.”

Fitch said that tourism and remittances, the main sources of foreign exchange (FX), are performing well. It noted that FX reserves increased to US$441m (or by 17.8 per cent) during 2015, boosted by external government borrowing, as well as FX purchases and borrowing by the Bank of Jamaica. Reserves now cover between four and five months of current external payments (CXP), closing the gap with the ‘B’ median.

The agency said that falling energy prices have also helped lower inflation to an average of 3.7 per cent in 2015, and allowed the Bank of Jamaica (BOJ) to lower its policy interest rate by 50bps during 2015 to 5.25 per cent.

It observed, “The BoJ is taking steps towards inflation targeting. Reforms to the securities dealer sector, which has channelled savings into government bonds through so-called retail repos, have reduced risks to financial stability. Commercial banks’ non-performing loan portfolios are falling and credit growth is picking up.”

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter 
Jamaica Observer
Friday February 12, 2016

http://www.jamaicaobserver.com/business/Fitch-upgrades-Jamaican-debt-to-B--revises-outlook-to-stable_51506