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IMF deal critical for Jamaica's rating-Fitch

Thursday, 20 August 2009 08:41

Source: Reuters

NEW YORK, Aug 19 (Reuters) - Fitch said on Wednesday the country of Jamaica needs to secure a $1.2 billion from the International Monetary Fund in order to avoid financial default due to a precarious fiscal situation.

The government of Jamaica is in the process of negotiating a stand-by agreement with the IMF to secure financial stability, fiscal consolidation and ease external liquidity pressures.

"The extremely weak fiscal profile amid a rising interest burden and recession is placing the government under financial stress and the risk of default is significant reflected in the current 'B' sovereign ratings with a negative outlook," Fitch said in a statement.

Jamaica's external accounts have been hit hard by the global financial crisis, as reflected by the Caribbean country's falling bauxite and alumina exports, tourism receipts and remittances from overseas while external private capital inflows have decelerated sharply, Fitch said.

"An IMF program is critical for providing support to Jamaica's balance of payments, assuaging investor sentiment, allowing the central bank to navigate the unfavorable external environment and potentially opening up the door to additional multilateral funds," said Fitch analyst Shelly Shetty.

The potential IMF agreement has helped stabilize the Jamaican dollar JMD= and allowed the central bank to cut interest rates in recent weeks, a process that needs to continue in order to alleviate fiscal pressures and support the economy, especially as inflation is falling, Shetty added.

"A significant delay or a non-approval of an IMF agreement would seriously undermine Jamaica's creditworthiness," she added.