Pressure Builds on Jamaica Sovereign Credit

Moody’s has cut Jamaica to B2 (stable) from B1, citing elevated indebtedness as well as large fiscal and external imbalances. Moody’s says the central government deficit is expected to reach close to 6% of GDP this fiscal year, leaving public debt to GDP well in excess of 100%, once direct guarantees are included. On the external side, despite a contraction in imports, this year’s current account deficit could remain in the double digits as a percentage of GDP. Considering expected declines in capital inflows globally, funding the shortfall could prove difficult. However, the agency says, Jamaican debt is held primarily by local institutions, giving the government a reliable funding source and local holders a significant incentive to collaborate with the government as it undertakes painful fiscal measures. Also, the government has entered into arrangements with multilaterals that could prove to be quite beneficial in a situation of extreme stress, Moody’s says.