Moody’s upgrades Jamaica’s rating to B2 – stable outlook

Moody’s Investors Service (Moody’s) on Wednesday raised Jamaica’s sovereign credit rating to ‘B2’ from ‘B3’ and assigned a stable outlook, citing as two key drivers behind the upgrade:

• Jamaica’s strong commitment to fiscal consolidation and structural reforms leading to continued decline in government debt and sustained improvements in economic resiliency,
• improving debt structure limiting risks associated with a high levels of government debt. Standard & Poor’s credit rating for Jamaica stands at B+ with stable outlook. Fitch’s credit rating for Jamaica was last reported at B+ with stable outlook.

Jamaica’s Minister of Finance and the Public Service Nigel Clarke, posted the news on his social media with the comment, “Today Moody’s upgraded Jamaica’s credit rating to B2 from B3 on account of Jamaica’s improved economic standing. This upgrade underscores the importance of government of Jamaica’s commitment to sustained economic reform. #MovingInTheRightDirection”.

Moody’s cited Jamaica’s vigorous commitment to “fiscal consolidation and structural reforms” as well as the improvement of “debt structure limits risks associated with a high level of government debt” as the key factors pushing the upgrade.

Fiscal consolidation has brought about reduced imbalances in the economy while structural reforms such as inflation targeting, a free-floating exchange rate and increased foreign exchange reserves have made the country more resilient to economic shocks. Moody’s also recognised the Government’s “disaster risk financing strategy” as a mechanism to protect budget resources which would normally be called upon after a disaster.

Regarding the improvement of debt structure limits, Moody’s elaborated that “the Jamaican Government has reduced gross borrowing requirements and lengthened the average maturity of its debt stock, while also reducing the cost of debt, resulting in an improving debt structure.”

It cautioned, however, that with a sizeable chunk of the debt denominated in foreign currency (62 percent in 2018/19) the debt structure continues to be unprotected from any detrimental foreign exchange shifts.

Moody’s also elaborated on its change of Jamaica’s outlook from positive to stable.

“The stable outlook reflects Moody’s expectations that the improvements in Jamaica’s credit profile, which have improved macroeconomic stability and put debt on a downward trend, will be sustained,” the organization revealed. “However, structural constraints due to the country’s small size, sizeable economic concentration in the tourism industry, low economic growth and vulnerability to external shock mean that despite improved resilience, Jamaica’s economy remains exposed to shocks. Even with a very significant decline in its debt burden, Jamaica’s debt and interest burdens remain high, and above those of similarly rated peers.”

If the government of Jamaica remains committed to its reforms, increases GDP growth rates, further reduces debt and enhances external buffers then this could bring up the country’s rating in the future, Moody’s explained.

Clarke affirmed that the government’s commitment will continue.

“I welcome this news which represents an endorsement of the continued progress made by Jamaica in sound economic management and reduction of its public debt,” he said in a statement. “Under the newly approved 3-Year Standby Arrangement with the International Monetary Fund, the government remains firmly committed to fiscal consolidation aimed at further reducing its public debt burden, and to strengthening competitiveness and accelerating private sector-led growth through deep structural reforms. These actions will further strengthen Jamaica’s credit rating in the international capital market.”

Jamaica Observer