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10-year high

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10-year high

Fitch says cross-party support, fiscal council contributed to economic upgrade

BY BALFORD HENRY
Senior staff reporter
balfordh@jamaicaobserver.com

Friday, February 01, 2019

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Cross-party support as well as the move to create a council to monitor compliance and increase transparency in fiscal matters are among the key drivers that influenced an upgrade in Jamaica’s economic performance announced by international ratings agency Fitch yesterday.

In what is the island’s highest rating in over 1o years, Fitch upgraded Jamaica’s long-term foreign and local currency issuer default ratings to ‘B+’ from ‘B’, and revised the economic outlook from ‘positive’ to ‘stable’. The agency also upgraded the country’s ceiling to ‘BB-‘ from ‘B’.

Reacting to the development, Private Sector Organisation of Jamaica President Howard Mitchell told the Jamaica Observer last night that the lobby group is “encouraged and heartened” by the upgrade and said that it is a further sign that the country’s fiscal reform programme is working.

“We feel that while we keep this momentum going, in order to keep growth and development, we need to pay greater attention — as a country, not just the Government — now to human capital development and social structural reforms that are needed to take us into the fourth Industrial Revolution, and allow us to cope with the technological changes that are happening globally,” he said.

“We think we have set an excellent platform, and we congratulate the successive administrations for their success in fiscal reform, but we think it’s time that we now deal with social reforms,” Mitchell added.

In explaining the reasons behind the upgrades, Fitch — which ranks with Standard and Poor’s and Moody’s as the “big three” credit agencies — noted that there is “cross-party support for the country’s economic reforms that began with the International Monetary Fund (IMF) six years ago”.

Fitch said it assumed that the co-operation will be maintained when the current stand-by arrangement with the fund ends in November this year.

It also noted that the Government has proposed a number of reforms to strengthen the economic policy framework.

“It seeks to create a fiscal council that would monitor compliance with the fiscal rule and increase transparency on fiscal matters. The council has already been approved by the Cabinet and legislation is expected to reach Parliament in (2019),” the agency noted.

Yesterday, Finance Minister Dr Nigel Clarke said that the Government welcomes the rating upgrade by Fitch and is committed to the continuation of policies and programmes that enable a stable macroeconomic environment that facilitates the economic growth required for sustainable and inclusive development.

“The upgrade reflects Jamaica’s macroeconomic performance, in particular the track record of strong fiscal discipline reflected in sustained high primary surpluses over the last six years, which have contributed to the significant reduction in the Debt to GDP ratio,” Dr Clarke pointed out.

Opposition spokesman on finance Mark Golding explained that he had not yet read the Fitch report but reasoned that the decision to create a fiscal monitoring council, to replace the current Economic Programme Oversight Committee when the current IMF agreement concludes in November, would have significantly impacted the upgrade.

Golding also took credit for calling for the fiscal council in his last budget speech to take over the monitoring compliance with the fiscal rule and increase transparency on fiscal matters.

However, he pointed out that he has not been asked to become involved in the process of creating the council.

“I don’t know what format the council will take, although I have spoken to the consultant who is responsible for designing it, because I have not been included in the discussions,” he stated.

He, however, agreed that the progress the country has made under the current stand-by agreement is partly due to the fiscal policies of the previous Government, as well and the prudent management of the country’s fiscal policy over the past five years.

In his release, Dr Clarke said that the ratings were also supported by Jamaica’s structural strengths, such as relatively high income per capita and social indicators, policy consensus, and relatively strong institutional capacity.

He also noted that Fitch, in its press release, said that the positive performance indicators underpinning the upgrade in Jamaica’s credit rating included:

• strong performance of tax revenues increasing by 10.4 per cent (year-on-year);

• declining path of Jamaica’s public debt/GDP;

• decrease in the Government’s interest burden to an estimated 6.8 per cent of GDP in FY2018/19 from 8.0 per cent recorded in FY2014/15;

• reduction in the unemployment rate to an all-time low of 9.1 per cent in 2018 (annual average);

• strong external liquidity; and

• structural indicators such as governance, human development, and per capita income.

— Additional reporting by Karena Bennett

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