A not unexpected move from Standard & Poor’s, which has been deeply negative on Jamaica for some time now. Rival rating agency Fitch issued a similar downgrade, cutting the island’s local currency rating to ‘C’ from ‘CCC” on Thursday.

It’s not all bad news though – the debt exchange that triggered the rating actions will significantly improve Jamaica’s fiscal footing, and affects virtually all of the country’s J$ denominated outstanding debt.

And as an IMF official quoted by Reuters pointed out, the country is likely to have its ratings *upgraded* once the exchange has been successfully completed – as defined by rating agency criteria.

Here’s a line from Fitch on the prospect of an upgrade:

“In the event that the successful conclusion of the upgrade is followed by approval of an IMF program in support of the government’s fiscal and economic program, Jamaica’s ratings will likely be raised into the single ‘B’ category.”

According to the anonymous IMF official, S&P had also “acknowledged they would raise Jamaica’s credit rating by a number of notchratingses once the debt restructuring was complated,” Reuters said.

The S&P statement:

Jamaica has announced a domestic debt exchange program that officially launches today.

We consider this exchange to constitute a default, so we have revised the foreign- and local-currency sovereign credit ratings on Jamaica to ‘SD’ from ‘CCC/C’ and the ratings on the exchanged bonds to ‘D’.

NEW YORK, Jan. 14, 2010–Standard & Poor’s Ratings Services said today that it revised its foreign- and local-currency sovereign credit ratings on Jamaica to ‘SD’ from ‘CCC/C’.

Standard & Poor’s also said that it revised its ratings on the rated bonds that are included the sovereign’ proposed domestic debt exchange to ‘D’.

The ratings on the government securities not included in the debt exchange remain at ‘CCC’. The recovery rating remains at ‘4’.

…

“These rating actions follow Jamaican Prime Minister Golding’s announcement yesterday of the domestic debt exchange and its official launch today,” explained Standard & Poor’s credit analyst Roberto Sifon Arevalo. The offer seeks to exchange all categories of the Jamaican domestic debt except Treasury bills. It does include foreign-currency-denominated domestic debt, which carries foreign-currency ratings, which is why we have revised the foreign-currency credit rating to ‘SD’. External debt is excluded from this transaction

“Overall, the domestic efforts, together with the ongoing multilateral support, should help Jamaica manage its long-standing fiscal and structural problems going forward,” Mr. Sifon Arevalo added. “In this context, we expect to assign a ‘B-‘ sovereign credit rating and ‘B-‘ debt ratings to the new bonds upon the completion of the debt restructuring and issuance of the new bonds, which is scheduled for Feb. 16, 2010.”

Other Jamaica-related limes are available in the archives.