New York, December 11, 2019 -- Moody's Investors Service ("Moody's") has today
upgraded the Government of Jamaica's long-term issuer and senior
unsecured ratings to B2 from B3, and senior unsecured shelf rating
to (P)B2 from (P)B3. The outlook has been changed to stable from
positive.
The key drivers of rating upgrade are:
• Jamaica's strong commitment to fiscal consolidation and structural
reforms portends to continued decline in government debt and sustained
improvements in economic resiliency
• Improving debt structure limits risks associated with a high levels
of government debt
The stable outlook reflects Moody's expectations that the improvements
in Jamaica's credit profile, which have improved macroeconomic
stability and put debt on a downward trend, will be sustained.
The stable outlook also reflects the structural credit constraints due
to the country's small size, sizeable economic concentration
in the tourism industry, low economic growth and vulnerability to
external shock.
In a related action, Moody's has also upgraded the senior unsecured
debt ratings of government-related entities Air Jamaica Limited
and National Road Operating and Construct. Co Ltd. to B2
from B3. These ratings are based on an explicit debt guarantee
provided by the government. The outlook on the ratings has been
changed to stable from positive.
Moody's has today also raised Jamaica's long-term local-currency
bond and deposit ceilings to Ba1 from Ba2, as well as the long-term
foreign-currency deposit ceiling to B3 from Caa1. The long-term
foreign-currency bond ceiling remains at Ba3. The short-term
foreign-currency bond and deposit ceilings remain at NP.
RATINGS RATIONALE
RATIONALE FOR THE UPGRADE TO B2
FIRST DRIVER: JAMAICA'S STRONG COMMITMENT TO FISCAL CONSOLIDATION
AND STRUCTURAL REFORMS PORTENDS TO CONTINUED DECLINE IN GOVERNMENT DEBT
AND SUSTAINED IMPROVEMENT IN ECONOMIC RESILIENCY
The Jamaican authorities have built up a track record of improved fiscal
policy management and demonstrated a commitment to fiscal consolidation
and structural reforms over the past six years. This commitment,
in turn, has supported a reduction in economic imbalances.
Moody's expects the government to continue to run large primary
surpluses, well in excess of those necessary to stabilize debt,
and will maintain the downward trend in debt metrics. Moody's sees
government debt falling to around 94% of GDP at the end of fiscal
year 2019/20, from a peak of 135% in fiscal year 2010/2011,
and anticipates further declines to 84% of GDP at the end of fiscal
year 2021/22.
Moody's sees little risk of policy reversal which would undue the
downward trend in the government debt ratio. The government has
made substantial improvements on both revenue and expenditures,
which Moody's doesn't expect to reverse in any meaningful
way. The improvements in government revenue intake will keep tax
revenue-to-GDP at around 26% of GDP, favorably
high for a B-rated credit. While the structure of government
spending remains relatively rigid, spending flexibility has improved.
In fiscal year 2018/19, interest and wages account for 52%
of government revenue, compared to 69%, respectively,
in fiscal year 2014/15.
Structural reforms have improved the macroeconomic framework in a way
that enhances Jamaica's ability to absorb economic shocks.
In particular, the shift to inflation targeting has allowed the
Bank of Jamaica to ease monetary policy, stimulating demand for
credit and supporting a pickup in credit growth. Additionally,
the exchange rate, which is now freely floating, is the first
line of defense to absorb shocks. The central bank has accumulated
sizeable foreign exchange reserves, which as of October 2019 were
sufficient to cover close to 6 months of goods and services imports.
Recognizing that Jamaica is one of the most exposed countries to natural
disasters and climate change, the government has taken a number
of steps to enhance the country's resilience to these risks. The
government has developed a disaster risk financing strategy where it seeks
to build a buffer to cover immediate financing needs after a weather-related
event. This will reduce the need to shift budget resources to reallocate
spending to post-disaster risk management.
SECOND DRIVER: IMPROVING DEBT STRUCTURE LIMITS RISKS ASSOCIATED
WITH A HIGH DEBT BURDEN
The Jamaican government has reduced gross borrowing requirements and lengthened
the average maturity of its debt stock, while also reducing the
cost of debt, resulting an improving debt structure.
Jamaica has taken advantage of favorable market conditions to conduct
liability management operations and issue longer-dated external
commercial bonds, using the proceeds to buyback upcoming maturities
of external debt. This has two positive effects on Jamaica's
debt profile. First, by issuing longer-dated bonds
-- most recently re-opening an existing bond maturing in 2045
-- to buyback bonds maturing over the next five to eight years,
the government has significantly reduced rollover risk, reducing
Jamaica's susceptibility to a tightening of financial conditions
or a sudden increase in the cost of borrowing. Second, the
average time to maturity on Jamaica's government debt has lengthened
to 11.3 years in December 2018, from 9.6 years in
2014.
Moody's estimates amortizations on external debt will be no more
than 4% of GDP in any single year between now and fiscal 2023/24.
Domestic debt amortizations will also remain between 3-4%
of GDP over the next three years thanks to past liability management operations.
Jamaica benefits from a relatively deep domestic investor base,
which allows the government to issue debt in local currency at relatively
favorable interest rates. Total financial system assets as a percentage
of GDP stood at 213% as of September 2018 (including central bank
assets), which compares favorably to most B-rated credits.
Domestic institutional investors provide a source of long-term
domestic funding to the government, which increases its ability
to issue debt at relatively long maturities.
Moody's notes however that the government's debt structure
remains exposed to adverse foreign exchange movements because a significant
portion of its debt is denominated in foreign currency. Foreign-currency
denominated debt accounts for 62% of government at the end of fiscal
year 2018/19, and Moody's expects this ratio will remain at
a similar level going forward.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectations that the improvements
in Jamaica's credit profile, which have improved macroeconomic
stability and put debt on a downward trend, will be sustained.
However, structural constraints due to the country's small
size, sizeable economic concentration in the tourism industry,
low economic growth and vulnerability to external shock mean that despite
improved resilience, Jamaica's economy remains exposed to
shocks. Even with a very significant decline in its debt burden,
Jamaica's debt and interest burdens remain high, and above
those of similarly rated peers.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are material to Jamaica's credit profile.
As a small island economy, the country is highly exposed to the
impact of climate change. Jamaica is exposed to a number of weather-related
natural disasters, such as hurricanes, tropical storms,
earthquakes, droughts, floods and landslides. These
events can have a significant impact on Jamaica's credit profile:
increasing volatility of GDP through the impact of floods on agriculture
output, lower revenue and higher government debt as a result of
lower GDP growth and cost of reconstruction following severe tropical
storms and hurricanes.
Social risks also inform Moody's view on Jamaica's credit
profile. High crime rates represent one of the most significant
structural obstacles to growth in Jamaica, with a negative effect
on investment. In addition, an aging population and high
rates of net migration, particularly among highly-skilled
workers, represents a loss of human capital.
Governance considerations are material to Jamaica's credit profile
and are a key driver in Moody's assessment of institutions and governance
strength. The government has made significant strides in improving
overall policy effectiveness, as demonstrated by improvement in
revenue collection, improving the flexibility of government spending,
and the introduction of fiscal rules which have allowed for a significant
reduction in government debt. In addition, the central bank's
transition to inflation targeting and improved transparency have also
supported policy effectiveness.
WHAT COULD MOVE THE RATING UP
Moody's would upgrade Jamaica's rating if it conclude that
a combination of the government's continued commitment to institutional
and economic reforms, combined with evidence of higher real GDP
growth rates, will result in greater economic resiliency which remains
constrained by country's inherent exposure to shocks. Debt
declines and increases in external buffers beyond current expectations
would also be positive.
WHAT COULD MOVE THE RATING DOWN
Conversely, a sharp reversal in the decline in government debt would
weigh on Jamaica's credit profile, particularly as Jamaica's
B2 rating incorporates a steady decline in the debt-to-GDP
ratio. This could result from a weakening in the government's
fiscal performance or from adverse exchange rate developments.
An increase in external vulnerability, as reflected in a decline
in the country's international reserve buffer would also be negative.
Severe weather-related events that materially affect government
finances threatening the sovereign's ability to service debt could also
trigger a negative rating action.
GDP per capita (PPP basis, US$): 9,473 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.9% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.4%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: 1.2%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -2.3% (2018 Actual)
(also known as External Balance)
External debt/GDP: 91.8%/GDP (2018 Actual)
Level of economic development: a 'ba3' level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 06 December 2019, a rating committee was called to discuss the
rating of the Jamaica, Government of. The main points raised
during the discussion were: The issuer's institutions and governance
strength, have increased. The issuer's fiscal or financial
strength, including its debt profile, has materially increased.
Other views raised included: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's susceptibility to event risks has not materially changed.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
David Rogovic
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
