S&P Revises Jamaica's outlook from Stable to Positive

On September 19^th, S&P Ratings Services affirmed its 'B-' long-term foreign and local currency and 'B' short-term foreign and local currency sovereign credit ratings on Jamaica. At the same time, the outlook on the long-term sovereign credit ratings was revised to positive from stable as the government continues to make progress in relation to the IMF quarterly metrics as well as on the economic front. Net foreign exchange reserves have more than doubled in the last 12 months to exceed $2.1Bn. At the same time, Central Government managed to keep the fiscal deficit target below $18.0Bn or 22.2% below the budget. Economic growth for the first half of the year was 1.4% and is expected to remain positive for the rest of the year (barring external shocks). For the March 2014 quarter, the current account deficit narrowed by US$300.6Mn to US$100.6Mn relative to the same period last year, given significant decline imports .The outturn for the review quarter was the second lowest current account deficit recorded since 2007.These factors, along with the implementation of key structural benchmarks have allowed the government to pass its 5^th quarterly test under the current IMF program. As such, the outlook reflects the fact that the Jamaican economy has stabilized thanks to improved external liquidity, a return to economic growth, and the government's success in meeting its fiscal targets. The revision reflects the possibility of an upgrade in the next six to eighteen months if the country sustains the improvement in its external liquidity position, if GDP continues to grow, and if the government achieves greater fiscal credibility as a result of reaching budget targets.  We are of the opinion that the economic growth will continue in the remaining quarters of the calendar year, given continued strengthening in most industries such as bauxite, tourism and construction. However mitigants to growth could come from adverse weather conditions on domestic production (drought and hurricane conditions) as well as the relatively tight fiscal stance as the country continues to implement reforms to stabilize the macro-environment.

Despite these positives, there a challenges which lie ahead, particularly in the fiscal account. There is the continued struggle to keep tax revenues on track and as such the focus has been on keeping expenses under budget in order to meet fiscal targets.  We believe that is unsustainable. Moreover, with elections to be called in the next two years it is likely that expenses could start ramping up late next year.