Rating agency says Jamaica less risky than before

Business reporter

Friday, August 24, 2018

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R ating agency AM Best on Wednesday improved Jamaica's rating tier 4 — up from country risk tier 5 — following assessments of its economic, political and financial system.

The risk category now places Jamaica in line with Trinidad and Tobago, Antigua and Barbuda, and Barbados but still behind The Bahamas and the Cayman Islands which are rated at country risk tier 3 and country risk tier 2 respectively.

Venezuela, which is now faced with hyperinflation, power cuts, and food and medicine shortages has been placed in country risk tier 5 by the ratings agency along with Honduras, Nicaragua, and Suriname.

According to AM Best, Jamaica, at country risk tier 4, represents moderate levels of political risk and high levels of economic and financial system risk. It added that with gross domestic product growth projected to reach 2.0 per cent in 2018 and 2019, led by growing external demand and the US economic expansion, sectors such as construction and manufacturing have benefited from the country's growth in tourism.

“Inflation will remain low despite higher oil prices, owing to low food prices and domestic demand,” it said.

Looking positively at the country's political system, AM Best added that Jamaica's government is currently focused on making fiscal reforms and improving the efficiency of the taxation system, which resulted in a significant increase in the income tax threshold, along with tax rates for the high-income population.

“Meanwhile, income tax for low-income households has been removed, while the corporate income tax remains broadly stable. This leaves six per cent of the nation's population subject to personal income tax,” it said.

The report noted that the International Monetary Fund- arranged successor standby programme with Jamaica in 2016 have met all criteria to date; while tourism, the island's main sector, followed by the mining and quarrying industry, is closely associated with global demand for metals and minerals.

“The government is a stable parliamentary democracy led by the Jamaica Labour Party, which holds a narrow majority. The party is facing more organised opposition following the appointment of Peter Phillips as the opposition leader of the People's National Party,” it said.

AM Best, however, warned that violent crimes and drug trafficking remains high, and that Jamaica also faces elevated emigration rates, especially among college-educated professionals and students, leaving shortages of skilled labour in some sectors.

As for financial system risk: “One main bank in Jamaica no longer accepts remittances from some money transfer services. Should this grow to a larger scale, Jamaica's foreign exchange market could be disadvantaged,” the ratings agency said.

“High debt, equivalent to around 110 per cent of the country's GDP, combined with the reliance on tourism, increases non-payment risk. In the past four years, Jamaica's current account has been rising, although it was still negative as of 2017. It is expected to reach a surplus of 1.1 per cent in 2018,” it continued.

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