This is bad. S&P had previously assigned a rating of B- to Jamaica. In financial parlance, a B- rating sovereign rating suggests that the country is perceived as “high risk” by would-be lenders; in a word, “junk”.

By downgrading Jamaica to triple-C, S&P is saying the island is ” currently vulnerable and dependent on favorable economic conditions to meet its commitments.”

In other words, if economic conditions in Jamaica and the Caribbean get much worse, the country is going to have a hard time meeting its outstanding debts.

Here’s the statement from the rating agency:

Jamaica Downgraded To ‘CCC+’; Outlook Remains Negative

–Jamaica has a vulnerable fiscal profile and faces difficult financing conditions.

–We have lowered our long-term foreign and local currency ratings on Jamaica to ‘CCC+’ from ‘B-‘.

–The outlook remains negative, reflecting the possibility that the government may undertake a distressed debt exchange.

NEW YORK, Aug. 5, 2009–Standard & Poor’s Ratings Services said today it lowered its long-term foreign and domestic currency ratings on Jamaica to ‘CCC+’ from ‘B-‘. We kept the recovery rating at ‘4’. We also lowered the T&C assessment to ‘B’ from ‘B+’. The outlook on the ratings remains negative.

“The downgrade and the negative outlook reflect our view that Jamaica’s vulnerable fiscal profile, combined with difficult financing conditions, may compel the government to undertake a debt exchange that we could regard as a distressed debt exchange,” said Standard & Poor’s credit analyst Roberto Sifon Arevalo.

Jamaica’s fiscal accounts, which were already under pressure before the international financial crisis started last September, have deteriorated even further this year. We project the government borrowing requirement for the fiscal year 2009 (ending March 31, 2010) to be 20% of GDP. The debt profile is weak. Variable-rate domestic debt constitutes 58% of total domestic debt. One-quarter of total domestic debt matures within one year. One-half of gross government debt (external plus domestic) is foreign-currency denominated or foreign-exchange indexed. As a result, general government interest is estimated at 60% of 2009 government revenue, up from 48% in 2008.

“We project that gross general government debt will rise to 120% of GDP at fiscal year-end 2009,” said Mr. Sifon Arevalo. The vulnerabilities in the government’s debt profile may give it incentives to negotiate with its creditors, particularly its resident creditors, to extend maturities at below-market prices. In the government’s last debt issue, it placed two-year debt at a 21% coupon.

“While the government’s engagement with the IMF is a positive effort to stabilize external pressures and going forward to address the long-standing structural issues,” added Mr. Sifon Arevalo, “the negative outlook on the ratings signals the risk that a debt exchange, if undertaken by the government, could be an event of selective default under our distress debt exchange criteria.”