Fitch Downgrades Jamaica's IDRs to 'CCC'; Outlook Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Jamaica's long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B'. The Outlooks on the Long-Term ratings remain Negative. Jamaica's Country ceiling has also been lowered to 'B-' from 'B+' and the short-term foreign currency IDR has been downgraded to 'C' from 'B'.

The downgrade reflects the country's increased macroeconomic pressures and a sharp fiscal deterioration, which has resulted in unsustainable debt dynamics and heightened the risk of some form of debt restructuring. While the current account deficit has improved, the capital account of the balance of payments is highly dependent on disbursements from the IMF and multilaterals. Delays in negotiating a critical IMF stand-by continue to weigh on investor confidence.

'While the government's willingness to service its massive debt burden has traditionally been high, its capacity to do so is being seriously jeopardized by the magnitude of the macroeconomic and fiscal shocks the country faces,' said Shelly Shetty, Senior Director, Fitch Ratings. 'Limited policy options to meet the fiscal challenges raise the possibility of some form of debt restructuring.'

The Jamaican authorities are negotiating an IMF Stand-By program to buttress its external accounts and international liquidity position. A successful conclusion of the IMF negotiations will be critical for increasing multilateral disbursements and restoring investor confidence. However, even with an IMF program, Fitch believes that the government will still need to implement a credible fiscal consolidation plan to place its heavy debt burden on a downward trajectory. In light of Jamaica's crushing debt burden, restoring debt sustainability could involve some form of debt restructuring.

A sizable revenue shock due to the weak economic environment, a rigid spending profile as well as a heavy and increasing government interest burden has resulted in a sharp fiscal deterioration. The upward revision in the fiscal deficit target for 2009/10 as per the supplementary budget highlights the authorities' difficulty in cutting spending owing to its growing rigidity. Fitch projects that the fiscal deficit could reach over 9% of GDP compared to the original budgeted target of 5.5% of GDP for 2009/10. Fiscal solvency ratios such as general government debt as a percent of GDP and revenues are already very high and are expected to increase even further due to the deterioration of fiscal accounts, economic contraction and the depreciation of the JMD. General government debt could reach over 120% of GDP in 2009/10 while the interest burden could exceed 55% of revenues highlighting the challenging fiscal situation confronting Jamaica.

Prospects for future GDP growth are highly uncertain due to the sluggish recovery expected in the U.S. as Jamaica is highly dependent on this country for its tourism and overseas workers' remittances. In addition, some alumina companies in the country have closed. While the current account deficit has declined due to lower commodity prices and weak economic activity, the global credit crisis has led to a decline in private capital inflows as well. Fitch projects current account deficit to decline to close to 10% of GDP in 2009 and increase to approximately 13% in 2010. In the current global environment, Jamaica's external accounts remain vulnerable and the authorities will have to secure multilateral funding to finance its external funding gap.

Fitch would deem a potential debt restructuring involving a change in the terms on existing market debt that leads to a material loss for creditors a Coercive Debt Exchange. Upon completion of such an exchange, Jamaica's ratings would be downgraded to a default category.

Additional information is available at 'www.fitchratings.com'.

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