S&P Global Ratings on Wednesday upgraded its outlook on Jamaica from stable to positive.
At the same time, the ratings agency affirmed its ‘B’ long- and short-term foreign and local currency sovereign credit ratings, and its ‘B+’ transfer and convertibility assessment on the country.
In explaining the positive outlook, S&P said the upgrade reflects the combination of modest GDP growth and better external liquidity.
S&P further noted that Jamaica could see another upgrade over the next 12 months if the country continues to improve its external liquidity such that the economy becomes more resilient to potential external shocks, including possibly higher oil prices.
Still, Jamaica could see downward revision of its outlook to stable during the same period if the recently improved trajectory of Jamaica’s external position reverses and begins to weaken, or the government misses fiscal targets, leading to an increase in debt and interest burdens.
“We expect that the government will continue to meet strict fiscal targets, and maintain its commitment to a gradual reduction in its debt and interest burdens. We also expect that the government will continue advancing toward a more effective monetary policy framework for the central bank, including a more flexible exchange rate,” the ratings agency said.
The agency noted that its ratings on Jamaica continue to be limited by the country’s high debt and interest burden, which restricts fiscal flexibility. It added that despite a recent slow pick-up, GDP growth remains low, constrained by structural impediments.
“Nevertheless, the government’s tight fiscal stance fosters macroeconomic stability — including low inflation — and supports the country’s creditworthiness.
“The country’s external indebtedness has improved in recent years and international reserves are growing. We believe that Jamaica’s policymaking stability and predictability are bolstered by the continuity of fiscal consolidation policies. In addition, ongoing changes in the governance and mandate of the central bank could gradually improve Jamaica’s currently limited monetary flexibility,” S&P said in its report.
According to S&P, the government’s commitment to fiscal consolidation will continue to foster macroeconomic stability in Jamaica, even through the election cycle, which is scheduled for February 2021. Nevertheless, it anticipates that bottlenecks will continue limiting the speed at which growth accelerates, despite the strong performance of some sectors.
S&P reasoned that structural barriers will continue to impede stronger economic growth in Jamaica, resulting in average annual real GDP growth of 1.9 per cent over the next three years (or 1.4 per cent in per capita terms), despite stronger performance in certain sectors of the economy. It also expects that the country’s per capita GDP will be close to US$5,400 in 2018.
“Tourism, agriculture, mining, and manufacturing make the Jamaican economy diversified for a small open economy. Nevertheless, growth is constrained by high security costs, perceived corruption, low productivity, a lack of business competitiveness, and vulnerability to external shocks,” it said.
By: Karena Bennett