Jamaica willing to service obligations despite low growth, large public debt

In its annual report on Jamaica, Moody’s Investors Service said that the country’s B1 foreign currency government bond rating reflects the government’s strong willingness to service obligations, a proven ability to respond to exogenous shocks and a commitment to fiscal discipline. Constraints to Jamaica‘s ratings include low growth and a large public debt burden that allows very little room to absorb shocks.

“Debt dynamics are complicated by persistently low growth, leaving the bulk of the adjustment to fiscal austerity and leaving Jamaica’s fragile macroeconomic equilibrium continually exposed to a variety of shocks that have the potential to further increase the government’s credit risk,” said Moody’s Vice President and Senior Analyst Alessandra Alecci, author of the report.

She said the new administration intends to kick-start growth via a series of supply-side measures and fiscal restraint that would generate investment and overall greater business confidence. However, given the magnitude of the fiscal constraints, an unfavorable global growth outlook and the prospects for continued very high oil prices, Alecci said, there are important obstacles, particularly for a small, highly indebted open economy like Jamaica. She added that Moody’s will closely monitor the progress of fiscal consolidation, with particular emphasis on the wage agreement with civil servants.

“Given that the current rating incorporates the expectation that debt ratios will improve, continued fiscal slippage could lead to a reassessment of the current ratings for both local and foreign-currency government obligations”, said the analyst.

“Despite modest improvements over the past few years, the size and composition of the government’s debt stock leaves interest payments still very vulnerable to pressure on either the interest or exchange rate.”