(Source: Info-Prod Research (Middle East))
To assess the potential rating implications for Jamaica, Moody's
Investors Service is carefully monitoring developments surrounding
the country's discussions with the International Monetary Fund. A
statement clarifying the status of negotiations is expected within a
few days as the current IMF mission to Jamaica draws to a close.
Jamaica's B2 rating, among the lowest assigned by Moody's to a
sovereign nation, already reflects significant concerns about the
government's ability to honor obligations given the limited policy
options to deal with the on-going economic downturn. High levels of
public debt and vulnerability to interest and exchange rate
movements limit the country's flexibility in meeting these
challenges. "Delays in reaching an agreement with the IMF, together
with continued fiscal underperformance represent significant sources
of concern," said Moody's Vice President Alessandra Alecci. "An
agreement with the IMF would be crucial to provide essential
multilateral funding to strengthen Jamaica's external position,
shore up confidence, and meet financing obligations." Alecci said a
sizeable fiscal adjustment required to stabilize debt dynamics is
presenting a major challenge to the government as the majority of
expenditures are devoted to wages -- which have already been frozen -
- and interest payments, while revenues are declining amid depressed
economic activity. This year's fiscal deficit is projected at 8.7%
of GDP and public debt is expected to reach some 120% of GDP. "The
government has repeatedly expressed its commitment to servicing its
obligations in both local and foreign currency and has a long track
record of timely debt service even during difficult times," said
Alecci. "However, Jamaica's limited resources relative to the size
of the public debt raise the possibility of a debt restructuring in
order to place the government financial position on a sustainable
path." In an August issuer comment, Moody's argued that, if a
restructuring were to take place, it could involve only limited
losses to investors because of the exposure of the local financial
institutions to government debt and the government's high
willingness to pay. However, the rating agency also indicated that
only a meaningful reduction in Jamaica's debt burden would restore
debt sustainability. The report pointed out that, historically,
Moody's ratings in the wake of sovereign defaults have ranged from
B3 to C, depending on expected recovery rates.
Originally published by Info-Prod Strategic Business Information.
(c) 2009 Info-Prod Research (Middle East). Provided by ProQuest LLC. All rights Reserved.
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