Standard & Poor's upgrades Jamaica's rating 

The Financial Gleaner , Friday May 4, 2001.


RENOWN US composite index and financial rating institution Standard & Poor's has upgraded Jamaica's local currency Sovereign Credit rating from B+ to B++.

The rating assigned to the country's long term foreign sovereign credit was upgraded from B to B+. The outlook for the economy was adjudged to be "stable".

Standard & Poor's attributed the new rating to the Jamaican Government's efforts to rehabilitate the financial sector and the country's improved prospects for macroeconomic stability.

Commenting on the upgrade, Minister of Finance & Planning, Dr. Omar Davies, said that he welcomed the news and stated that it represented an additional indicator that financial analysts recognised the significant advances made in the management of the economy. He added that this upgrade will undoubtedly have a positive impact on interest rates and should increase investor confidence.

Yesterday Bear, Stearns & Company acted as sole lead manager and book runner in a US$275 million issue of 10 year fixed rate notes for the Jamaican Government.

The notes carry a semi-annual coupon of 11.75 percent and were priced at 98.545 percent to yield 12 per cent, more than the 5 per cent on the US Treasury note due on February 2011.

The issue was well timed benefiting from a favourable external environment after weeks of volatility.

This deal was announced on Monday, April 30 with preliminary price guidance in the 12 per cent to 12.25 percentage range and a minimum issue size of US $200 million as reported in the Gleaner's Wednesday Business section this week. Due to exceptional demand, the transaction was well over subscribed by the official launch on Wednesday, which allowed Bear Stearns to increase the issue size to US$275 million while pricing the notes at the tight end of the range.

The issue was distributed to more than 50 US and European institutional accounts, many of which had never participated in a Jamaican transaction before; twice as many accounts participated in this transaction compared to Jamaica's US$225 million 12.75 per cent issue due 2007 placed last August. 

Editor's comment

The Standard & Poor's rating though a sign of encouragement should not be construed as an indication that the country's economic woes are abating. There is a debt mountain (both internal and external) well in excess of $400 billion to be dealt with. There will be less funds for infrastructure projects, education, local Government and the much vaunted technology revolution.

The rating comes on the back of the multilaterals indicating their approval of how the current administration has gone about the task of rehabilitating the financial sector largely on a massive divestment programme which is a short term panecea and not a long term solution.

In December 2000, Standard & Poor's gave Jamaica a B long term sovereign rating. Then the outlook was revised to positive from stable. At the same time, Standard & Poor's assigned single B short term foreign and local currency sovereign currency ratings. It also assigned a single B plus long term local currency rating.

The rating was granted on the basis that the country reflected better prospects for improved credit worthiness due to progress made in restructuring the country's financial sector in tandem with continued tight fiscal policy. The top rating agency said this combination with steps to strengthen the country's policy framework could set the stage for economic recovery and a gradual reduction of its very high public debt burden. At the time the cost of the financial crisis, approached 40 percent of GDP with the total public sector debt in excess of 140 per cent of GDP.

Standard & Poor's rating in 2000 was at least a grade below that of rival agency Moody's Investor Service. The rating was constrained by a high debt burden and severe fiscal inflexibility, projected to remain above 130 per cent of GDP at the end of the year. The gross general government debt burden was that year one of the highest for rated sovereigns exceeded only by Lebonon. So with negative growth in the last five years, and the national debt far outpacing GDP, does the country's progress merit a positive upgrading. Is the economy indeed stable?