imf | The Liming House

Verbatim from rating agency Moody’s on Jamaica, highlighting mine:

The IMF, which has been negotiating the terms of a $1.2 billion stand-by facility with Jamaica for several months, said on Friday after fund officials spent several days in Kingston, that discussions would continue in Washington next week. The focus, said the IMF, is “on how to reduce the large fiscal deficit and put the debt on a clear downward path.” There was no clarification with respect to the timing for finalizing the discussions.

A delay in reaching an agreement with the IMF could have potentially adverse credit consequences given Jamaica’s continued fiscal underperformance. An agreement with the IMF is crucial to provide essential multilateral funding to strengthen Jamaica’s external position, shore up confidence and meet financing obligations.

A sizeable fiscal adjustment required to stabilize debt dynamics is presenting a major challenge to the government as the majority of expenditures are devoted to wages – which have already been frozen – and interest payments while revenues are declining amid depressed economic activity. This year’s fiscal deficit is projected at 8.7% of GDP and public debt is expected to reach some 120% of GDP.

The government has repeatedly expressed its commitment to service its obligations in both local and foreign currency and has a long track record of timely debt service even during difficult times. However, Jamaica’s limited resources relative to the size of the public debt raise the possibility of a debt restructuring in order to place the government financial position on a sustainable path.

Jamaica’s B2 rating, among the lowest assigned by Moody’s to a sovereign nation, already reflects significant concerns about the government’s ability to honor obligations given its limited policy options to deal with the effects of the on-going economic downturn. High levels of public debt and vulnerability to interest and exchange rate movements limit the country’s flexibility in meeting these challenges.

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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: