Fitch Ratings has downgraded Jamaica to 'B' from 'B+', saying shocks from global financial turbulence and the expected US recession have heightened the country's downside credit risks.

The agency cited Jamaica's "modest and deteriorating" international liquidity, large current account deficit and comparatively high public debt burden as factors in the decision.

"The recent depreciation pressures on the Jamaican dollar, as well as sales of international reserves, signal rising challenges facing the island due to the worsening international environment," said Shelly Shetty, senior director in Fitch's Sovereign Group.

The agency recognised the government's "strong willingness" to service its debt in a timely manner, but said it wasn't matched by its capacity to respond to shocks.

Import cover

In October, Bank of Jamaica lost nearly 20 per cent in international reserves, which fell to US$1.8 billion, a more than US$400 million decline. This has pushed the country's import cover below 2002/03 levels, Fitch said.

The central bank also set up a US$300 million facility to assist the financial system with external margin calls on certain Jamaican bonds.

Fitch says Jamaica's international liquidity ratio is projected to fall to 111 per cent in 2009, from 141 per cent in 2007, whereas its 'B'-median rating requires a position of 184 per cent.

Its outlook on the island is 'negative', suggesting further downgrades, if conditions do not improve.

The agency expects the Finance Ministry to face difficulty in financing a €200 million bond maturity in February 2009, under conditions where capital has all but frozen in international capital markets.

On the plus side, however, the agency said there is a possibility that the government's "pro-active engagement with multilaterals" could be an alternate source of capital.

Fitch also said that Jamaica's macroeconomic environment is challenged by stalled economic growth, double-digit inflation and a large current account deficit.

"Although falling commodity prices are likely to provide some relief on external accounts and inflation in the coming months, weakening global demand and lower capital inflows increase the risk of a sharper macroeconomic adjustment in 2009," said Shetty.

"Jamaica's fiscal indicators, such as Government debt of over 100 per cent of GDP and nearly 400 per cent of revenues, compare quite unfavourably with the 'B' median," the agency said in its statement.

"The GOJ has consistently missed its fiscal targets in recent years and chose a rather unambitious goal of a 4.5 per cent of GDP deficit for the current fiscal year."

Rising domestic interest rates, it said, could add to debt-servicing costs.

In addition, slowing economic growth, falling alumina prices, hurricane-related reconstruction costs and increasing wage demands, by public sector employees, could further challenge fiscal accounts.

business@gleanerjm.com

The new ratings

Long-term foreign Issuer Default Rating (IDR) to 'B' from 'B+';

Local currency IDR to 'B' from 'B+';

Country ceiling to 'B+' from 'BB-';

Senior unsecured debt 'B/RR4' from 'B+/RR4'.

Short-term Foreign Currency IDR now 'B'.

The Rating outlook is negative.