The Liming House

Good to see you again. Glad you enjoy the Limes.

Usain Bolt, by Richard Giles, via flickr/tagaroo

Just one month after rating agency Standard & Poor’s released a downbeat assessment of the outlook for Jamaica comes an equally – if not more – negative take from Barclays Capital Research.

The research note issued today by a New York-based BarCap analyst is unequivocal:

we believe that Jamaica is approaching the point of no return and that it will take more than fiscal adjustments to regain sustainability for the long term. For 2009, we expect interest payments to be 16.0pts of GDP, or more than 60% of revenues. Fiscal sustainability in Jamaica has been under pressure for the past ten years, but we believe that at this time, the IMF is more willing to help Jamaica restructure its debt than to prolong its agony.

Elsewhere in the note, which also examined El Salvador, Panama, Costa Rica, the Dominican Republic and Guatemala, the analyst is even less sanguine about Jamaica’s financial prospects:

Of particular concern, Jamaica’s fiscal deficit could reach around 20% of GDP (with more than 15% of GDP in interest payments). We think it is extremely unlikely that any reform program will be able to put the country on a sustainable medium- to longer-term fiscal path and believe that the IMF is weighing whether it would be costlier to allow (and maybe help) the country to restructure its debt or to give the Jamaican government the USD1.2bn that is soliciting in order to postpone its agony.

Unfortunately, we believe that Jamaica may have already passed the point of no return and that for the IMF, as well as for the country in the long term, it would be more convenient to assist in a restructuring of debt.

As the three tables below – also from the note – illustrate, Jamaica is in dire straits both in absolute terms and as compared with other countries in Central America and the Caribbean:

BarCap

My day job has kept me so busy I haven’t yet had time to read beyond the headlines of the latest budget, but it seems that whatever Karen Nunez-Tesheira put together pleased Standard & Poor’s. Although the devil, as ever, is in the details.

The rating agency issued the following statement on Monday (any emphasis mine, as are the bracketed comments):

Republic of Trinidad and Tobago Ratings Taken Off CreditWatch And Affirmed; Outlook Stable

(CreditWatch negative is ratings agency speak for “we’re concerned about this country, and we may lower our rating on it in the not-too-distant future, unless its economics improves)

–Although Trinidad and Tobago’s bailout of the CL Financial Group could cost up to 6% of expected 2009 GDP, its solid fiscal and external position support its policy flexibility.

–In addition, the government’s debt profile and burden limit external vulnerabilities.

–As a result, we have taken the ratings off CreditWatch negative, affirmed them, and assigned a stable outlook.

NEW YORK, Sept. 14, 2009–Standard & Poor’s Ratings Services said today that it affirmed its ‘A/A-1′ foreign-currency and ‘A+/A-1′ local-currency sovereign credit ratings on the Republic of Trinidad and Tobago. Standard & Poor’s also said that it removed these ratings from CreditWatch, where they were placed on Feb. 3, 2009, with negative implications.

The outlook is stable.

In addition, Standard & Poor’s affirmed its ‘AA’ transfer and convertibility risk assessment on the republic.

“We removed these ratings from CreditWatch after evaluating the possible consequences and the cost associated with the government bailout of one of Trinidad’s largest financial conglomerate: the CL Financial Group,” explained Standard & Poor’s credit analyst Roberto Sifon-Arevalo. “Assuming no recovery from any asset sales, we estimate a potential gross loss for the government of about TT$9 billion, which is 6% of expected 2009 GDP.” At the same time, Trinidad and Tobago’s solid fiscal profile, which has resulted from several years of high-energy prices, gives the government the fiscal and external flexibility needed to manage this potential debt burden as well as the current international financial crisis without materially weakening public finances.

The government is responding to these shocks through countercyclical fiscal measures. In this context, Standard & Poor’s expects the general government will have a deficit of 4.5% of GDP in 2009, down from a surplus of 6.3% of GDP in 2008. In 2010, we expect the deficit to be at about 3.5% of GDP as the government continues with its public infrastructure program aimed to mitigate the impact of the world economic crisis in Trinidad.

Standard & Poor’s does not expect the government to contribute nor tap into the Heritage and Stabilization Fund (HSF) to finance the expected deficit in 2009 or in 2010, keeping the fund’s balance at about 11% of 2009 GDP. We believe that the government will finance the deficit with debt, mostly domestic. As a result, we also expect net general government debt to reach 7% of GDP in 2009 and 12% in 2010, which compares favorably with 28% and 31% for the medians of ‘A’ rated peers in the same respective periods.

“Improvements in transparency, governance, and regulation in the financial industry–and among public-sector enterprises, in particular–could further strengthen Trinidad and Tobago’s creditworthiness over the medium term,” Mr. Sifon-Arevalo added. “Conversely, a higher-than-expected fiscal deterioration because of higher-than-forecasted costs associated with the government bailout of CLFG as well as slippages in the pace of restructuring government-owned entities could lead to an unfavorable rating action.”

Are you listening, Mr Manning?

“Dude, you hear how much Curepe doubles is cost these days? Is all kinda $4, $5 people paying for one doubles.”

I don’t know if I can afford to live in Trinidad – and by that I mean, I don’t know if I will be able to afford the same standard of living to which I have grown accustomed after six years overseas.

The extent of the food price inflation is shocking, and I’m not just talking about the fact that $1 will only get you two pholourie these days.

Every time I go home I marvel at the rising cost of staples like bread, milk, chicken, vegetables.

How do people live? How is it that we, as a nation, seem to be able to absorb these price shocks without so much as batting an eyelid or giving up our weekly forays to Zen, Space, insert-name-of-trendy-club-here?

How do we afford all those cars on the road? How do we afford to pay rents that are increasingly being quoted in US dollars?

I don’t understand it. Explanations welcome.