Fitch revises Jamaica’s outlook to stable from positive
April 13, 2020
Jamaica’s sovereign credit affirmed at B+
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Fitch Ratings on Friday revised down its sovereign long-term foreign currency rating on Jamaica to stable from positive citing the expected negative shocks to tourism, remittances and its exports of bauxite and alumina because of the coronavirus pandemic.
While Jamaica was making progress in reducing its government debt-to-gross-domestic-product levels, which are still above its ratings peers, the firm expects the economy to contract by 4% in 2020 followed by a recovery of 2% in 2020. Jamaica’s B+ rating was affirmed.
“Fitch projects that tourism receipts will decline by 20% year-on-year in 2020, although this could well be steeper if an easing in the global pandemic does not materialize by the key northern hemisphere winter season,” the firm said in a statement.
Jamaica has 69 confirmed cases of COVID-19 with 4 deaths, as of April 11, according to the Johns Hopkins Coronavirus Resource Center.
In 2018, tourism receipts represented 20% of the economy, while remittances from the United States and United Kingdom are expected to decline due to deterioration in their respective labor markets. Overall remittances represented 16% of GDP in 2018 and are expected to fall by 10% year-on-year in 2010, the firm said.
The pandemic, which originated in the Chinese city of Wuhan, has caused a global shutdown of manufacturing as many nations and municipalities imposed stay-at-home orders or even more strict containment measures, affecting the demand for raw materials.
“Bauxite and alumina prices are facing downward pressures as manufacturing in China slowed down and demand weakens. Bauxite/alumina exports were 6% of GDP in 2018,” the firm said, noting that its base case projections assume most of the lockdown measures will be lifted in the second half of 2020.
In October, Jamaica’s central bank governor, Richard Byles, noted during an exclusive LatinFinance roundtable of central bankers, the downturn in commodity prices hit the economy and caused the closure of some of the bauxite and aluminum producing plants. However balancing against those negatives, Byles said, is the fall in the price of crude oil, a major import at 8 percent of GDP.
Jamaica was in the process of turning its economy around and establishing macroeconomic stability. The government was on a path of lowering inflation, reducing debt levels and increasing international reserves. Unemployment had sunk to a 10-year low by the end of last year. Byles pointed out in October how the efforts to improve the government’s balance sheet were limiting its ability to invest for growth.
“Fitch forecasts the general government balance to deteriorate to -2.5% of GDP for FY2020/2021 from 0.2% in FY2019/2020, which would still be moderate in the context of the severe economic shock and compares favorably with rating peers,” the firm said.
Jamaica has roughly $5.8 billion in US dollar-denominated debt outstanding, according to data provider Refinitiv. The long-dated 7.875% July 2045 issue last bid at a price of 107, yielding 7.26% or 591.2 basis points over the benchmark 30-year US Treasury bond.