Daraine Luton, Staff Reporter

FINANCE MINISTER Audley Shaw is predicting that 2009 will be "one of the most challenging in the history of modern Jamaica".

Responding to The Sunday Gleaner as to his expectation for the year ahead, Shaw said the deteriorating world economic climate would adversely affect the country.

"We expect that all sectors of our economy will be impacted to a greater or lesser extent by the deepening global recession that has been triggered by the international financial crisis," the finance minister says in a statement.

The finance minister says government will weather the economic storms in face of the global recession.

"We will calmly and resolutely implement measures proactively as well as responsively to the unfolding developments," Shaw says.

The finance minister is also expecting an halt in the free fall of the local currency in relation to its major trading partners, more so the United States.

Says Shaw, "For 2009, we expect that the demand pressures on the exchange rate will abate in response to the injection of over US$500 million into the economy, from December 2008 to the end of the fiscal year, from the multilateral loans that we have negotiated.

"As the foreign exchange pressures subside and inflation and inflationary expectations recede, we expect that interest rates will trend downwards."

He adds, "Adequate foreign exchange flows have been identified for the next fiscal year when debts due for repayment will be significantly less than was the case this year and hence the Government's own foreign-exchange needs will be much less than last year's."

Banks remain sound

On the banking side, the finance minister says he expects financial institutions to remain secure.

"Despite the fact that a few of our securities dealers were faced with margin calls as the liquidity crisis in the US pressed heavily on the value of Jamaican bonds, our banks remain sound and well-regulated," Shaw stated.

Meanwhile, Standard & Poor's is less optimistic about the future of the Jamaican economy. On Monday, Standard & Poor's ratings services affirmed its 'B' long-term and short-term foreign and local currency sovereign credit ratings on Jamaica.

"The negative outlook continues to reflect our heightened concerns about the deteriorating economic situation in Jamaica and its rising risk of spill over on the fiscal accounts," says the rating agency. "We expect that Jamaica's real GDP ( a measure of economic performance) growth will be flat in 2008 and 2009. Projections are for the general government deficit (including Bank of Jamaica losses) to widen to 6.7 per cent of GDP in fiscal 2008 from 4.1 per cent in 2007 and to come down only marginally to 5.5 per cent in 2009."

The ratings agency added that "the negative outlook reflects the rising risks the Government will face over the next 18-24 months to keep the fiscal deficit under control while preserving the social safety net."

It adds, "On the economic side, the risk pertains to a sharper-than-expected slowdown in the economic activity, especially in the export-related sectors."