Jamaica’s government debt is below pre-pandemic levels and will likely continue to decline over the next several years, rating analysts have determined.
Moody's Investors Service said the debt reduction along with progress on structural reforms, had increased the economy's overall shock-absorption capacity. The strong financial news led to a country rating upgrade from Moody's on long-term issuer and senior unsecured ratings to B1 from B2, and senior unsecured shelf rating to (P) B1 from (P) B2.
The outlook for Jamaica has been changed to positive from stable. The improved rating reflects Moody's assessment that a continuation of the favourable fiscal trajectory will increase Jamaica's credit resilience.
Moody’s commented: “Given the improvements in institutions and governance strength, additional declines in Jamaica's debt and interest burdens would support a higher rating.
A less contractionary fiscal stance would also increase growth prospects for the economy.”
Jamaica made strong moves to improve its fiscal strength leading up to the global pandemic, which then forced up the government debt burden to 110 per cent of GDP in the 2020 fiscal year ending March 31, 2021. However, the rating agency said: “Over the past two years, Jamaica has successfully reversed pandemic-related rise in debt and has returned to fiscal policies that put debt on a firmly downward trajectory.
“The fiscal reforms undertaken prior to the pandemic and the maintenance of sizeable primary surpluses will lead to a steady improvement in Jamaica's fiscal strength. Over time, Moody's expects Jamaica's debt and interest burdens will converge with those of higher-rated sovereigns. Moody's has also raised Jamaica's long-term local-currency ceilings to Baa3 from Ba1, as well as the long-term foreign-currency ceiling to Ba2 from Ba3.
“The four-notch gap between the local-currency ceiling and the sovereign rating reflects the strong rule of law and policy predictability as well as the low level of government involvement in the economy and low political risk. The two-notch gap between the foreign-currency ceiling and the local currency ceiling incorporates the strong institutional capacity of the government against a moderately high external debt burden and relatively closed capital account.”
Jamaica's primary surplus has improved (6.7 per cent of GDP in 2021, 5.8 per cent in 2022) in line with budget targets. Higher economic growth has supported tax collection and also allowed for the removal of pandemic-related spending.
Government debt declined to 78 per cent of GDP at the end of fiscal 2022, more than 30 percentage points of GDP below the pandemic-induced increase to 110 per cent of GDP in 2020, and below the 93 per cent debt-to-GDP in fiscal 2019. The declining debt stock and increase in government revenue also contributed to an improvement in debt affordability.
The agency said: “Moody's expects the government will maintain its prudent fiscal stance, which will ensure fiscal and primary surpluses remain consistent with rapidly declining debt burden and in line with the government's 60 per cent debt-to-GDP target by the end of fiscal 2027.
“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 around 63 per cent of government debt at the end of fiscal 2022 and Moody's expects this ratio will remain at a similar level going forward.
“Nearly 60 per cent of Jamaica's external debt consists of international bonds, which exposes Jamaica's debt profile to shifts in market sentiment. However, this risk is minimised by limited maturities coming due in the next few years.
Additionally, the government intends to use funding under the IMF Resilience and Sustainability Facility to repay maturing external commercial debt."
