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Euromoney Country Risk

Jamaica's crisis grinds on

Caribbean island receives new IMF loan to avoid default.

Analysts participating in the ECR survey will be assessing how a new loan arrangement with the IMF will bolster Jamaica’s economic stability and strengthen its debt-sustainability programme.

ECR contributors painted a bleak outlook of the country’s economic assessment in Q1, after analysts lowered both its economic outlook and government finances indicators by 0.2 points.

Jamaica’s government finances score of 2.4 points (out of 10) reflects the country’s tortuous debt crisis, which poses a looming threat of default.

It sought urgent assistance from the IMF in Q1, in an attempt to restore some form of financial stability and growth potential in the economy. The IMF approved a 48-month $932 million extended arrangement on May 1.

The new programme seeks to “address long-standing structural challenges by implementing an aggressive, front-loaded and comprehensive reform agenda”, according to an IMF press statement.

“The success of this programme crucially depends on full and timely policy implementation by Jamaica of a coordinated set of reforms to strengthen the public finances, restore debt sustainability, enhance growth and bolster the resilience of the financial sector.”

The country’s prospects appear bleak at best. The IMF forecasts the economy to grow by only 0.5% in 2013, while Jamaica’s burdensome debt load is expected to reduce only moderately.

Public debt soared to 146.6% of GDP in 2013, from 141.5% in 2012, while the current-account deficit stood at 1.8% in 2012, according to IMF estimates. The country’s dismal fiscal position imploded in the aftermath of the 2008 financial crisis, which cut revenue streams and intensified financial distress.

Jamaica’s growth prospects are constrained by the country’s high reliance on remittances and tourism revenues. Slower growth is a source of concern for Moody’s and a factor that could make fiscal consolidation efforts more difficult.

“Jamaica’s growth rate is among the lowest of all countries rated by Moody’s, averaging just 0.5% annually in the last 10 years – GDP growth was negative in four of the last five years,” notes a report by Moody’s.

“Low growth is the result of a series of structural factors, including high reliance on a mature industry (tourism) and limitations including high energy costs.”

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