Jamaica
News - Real Estate - Economy (July 18, 2004)
Standard & Poor's gives Ja 'B'
RESPECTED international credit rating agency
Standard & Poor's (S&P) on Friday assigned its 'B' long-term foreign
currency unsecured bond rating to Jamaica's newly issued Euro 200 million, 11
per cent bond which is due July 27, 2012.
Deutsche Bank and Commerzbank, both of
Germany, were the lead brokers of the bond.
On February 5, S&P lowered its long-term
local currency sovereign rating on Jamaica to 'B' from 'B+' and revised its
outlook on its long-term ratings to negative from stable.
It also affirmed its 'B' long-term foreign and
'B' short-term sovereign credit rating on Jamaica.
Its rationale for the downgrade on the local
currency rating was Jamaica's growing debt burden, the result of continuing high
fiscal deficits and the deterioration of its liquidity position.
CONSTRAINTS
This latest rating, it is felt, is constraned by the high, albeit declining,
Government debt burden, limited fiscal flexibility and the country's external
vulnerability as a result of high financing needs.
There is a pervading air of investor confidence
and though the omens auger well, it must not be forgotten that Jamaica's 2004
debt burden expected to amount to 128 per cent of GDP on a gross basis (or
110 per cent on a net basis) down from 140 per cent and 120 per cent
respectively in 2003 is one of the highest among rated sovereigns.
The debt-servicing comnsumes 55 per cent of
Government revenues. The resulting fiscal constraints weigh heavily on the
rating, although they are being addressed by the Government with its commitment
to achieve a high primary surplus (about 14 per cent of GDP in 2004 from 12 per
cent in 2003) and the two-year wage freeze introduced in 2004.
Jamaica's external financing needs (current
account balance plus long and medium-term amortisation and short term debt) are
high, estimated at more than 250 per cent of reserves.
However, the recent success of the Government
in placing several bond issues alleviate the current year's liquidity
constraints.
According to Jason Morris, investment research
and sovereign risk analyst at JMMB, "Factors supporting the rating include
a more stable political environment than found in most of Jamaica's rating
peers, improving growth prospects thanks to increasing foreign direct
investment, and a strengthend financial sector."
Speaking in the House of Representatives on
July 14, Minister of Finance and Planning, Dr. Omar Davies, said: "Several
indicators confirm that the economy continues to rebound. In this regard,
preliminary figures from STATIN for the first quarter of the year show that the
economy grew by 2.6 per cent over a similar period last year. With respect to
fiscal performance, the out-turn for the first quarter of the fiscal year is
very encouraging. Revenues for the three month period were 3.8 per cent above
budget. What this means is that strong efforts are being made to meet the
targets which we have set for the year. We must be successful in meeting these
targets if we are to return to a fiscal surplus on schedule.
"The receipts from the latest issue will
allow the Government to reduce its presence in the local market, thereby
creating the climate for further reductions in domestic interest rates."
Commenting on this latest Eurobond, business development manager at First Global
Financial Services, Keith Collister, said last week: "We believe the news
that the Jamaican Government has raised Euro 200 million was the last piece in
the puzzle of the restoration of confidence in our local asset market. The
current issue is likely to push Jamaica's Net International Reserves (NIR) to
near record levels of US$1.9 billion, and should create sufficient confidence in
the foreign exchange market."
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