In its annual report on Jamaica, Moody's Investors Service says the country's B1 foreign-currency debt rating and stable outlook are supported by the government's resolve to reverse debt dynamics via an aggressive fiscal adjustment. The ratings are constrained by the authorities' limited maneuvering room for a response to any additional shocks without triggering further deterioration in the fiscal-balance and the public-sector debt ratios. (Click here to view full report: Analysis: Jamaica)
"The stable outlook reflects a balance between vulnerability to economic shocks and ongoing efforts at fiscal consolidation. The economy, the fiscal and external positions as well as the public-sector debt dynamics all remain sensitive to external and domestic shocks. The authorities' ability to maintain a high level of credibility in the macroeconomic program will be key in order to avoid a potential loss of confidence during times of pressure," said Moody's Assistant Vice President Alessandra Alecci, author of the report.
Despite six years of steady growth in the face of a series of external shocks, major imbalances in the country's finances persist. Public debt ratios, albeit modestly declining, remain significantly elevated, with general government debt to GDP at 137%. External debt ratios also worsened. Jamaica's deficit narrowed to around 5.0% of GDP for the 2004/05 fiscal year but remained well above the target. The current account deficit is still substantial at 7.9% of GDP in 2004 but is reduced from previous years.
The central objective for Jamaica's 2005/2006 budget continues to be a balanced fiscal position over the medium term to ensure the sustainability of public-sector debt dynamics. Jamaica's government has designed an ambitious medium-term macroeconomic program to achieve a sustained reduction in debt ratios, says Moody's, noting that while the targets are attainable, correcting Jamaica's imbalances will require steadfast commitment to fiscal discipline and a swift response to potentially destabilizing exogenous shocks.
"Despite a carefully crafted and aggressive adjustment program, a sustained reduction in debt ratios remains very vulnerable to policy slippage and exogenous shocks, such as hurricanes and interest and exchange rates," said Ms. Alecci.