NEITHER PRIME Minister Bruce Golding nor Finance Minister Audley Shaw would have been surprised by Jamaica's rating downgrade by Standard and Poor's (S&P), except for the awkwardness of its timing with the country's application for US$1.2 billion in credit still before the International Monetary Fund (IMF) and likely to be approved next month.

Indeed, in March, S&P pushed its rating on Jamaica's 'sovereigns' one notch down the junk bond ranks from B to B- and left little doubt about the country's prospect in the absence of a fiscal turnaround. What has happened is a deterioration of Jamaica's broad macroeconomic situation in the face of the near collapse of the alumina sector, soft tourism earnings, less inflows from Jamaicans living abroad and job losses in domestic industries.

Over the first two months of the fiscal year, government revenues - outside of borrowings - were more than $5.5 billion, or 12.6 per cent below what was projected. This meant that even though the Government contained its spending - excluding amortisation - to five per cent below projection, its fiscal balance was more than $2 billion or 10 per cent worse than programmed. Overall, after loan receipts and amortisation, the deficit was nearly 136 per cent worse than Minister Shaw projected.

What all this suggests is that the Government, without some tough action, will have a hard time meeting the target of a fiscal deficit of 5.5 per cent of gross domestic product (GDP) - a measure of economic performance - that Mr Shaw set in April. The expectation is that the deficit will be closer to seven per cent of the value of the output of goods and services.

Indeed, S&P expects that the Government's borrowing requirement will this fiscal year be 20 per cent of GDP and the debt stock, which was lowered recently, will be back to 120 per cent of GDP. Hence, the agency's decision to rate the country's bonds to CCC+ down from B-.

The practical impact of S&P's move may be immediately negligible, assuming that the Government has no immediate plans to go to the private debt market for loans, although the increasing integration between Jamaica and the rest of the world means that local markets and foreign ones may act in concert. Jamaican lenders, therefore, notwithstanding the recent lowering by the central bank of benchmark rates, might ask for premium on any rollovers that Mr Shaw might have to bring to the market.

Obligations

Three things are, therefore, in order.

First, the Government must seek to conclude an agreement with the IMF as quickly as possible to ensure the materialisation, not the promise, of support to meet its external obligations. That will help to calm markets that might jitter at the S&P downgrade.

Second, while we understand it is a dirty concept to the laissez-faire marketers, we will still believe that the Government should accelerate its engagement, even through back channels of domestic holders of government instruments for a restructuring of the terms of these debts to ease the payment burden. There should be predictability on this front.

Third, and more important than anything else, Mr Golding, in his role of chief mobiliser, must engage Jamaicans frankly about the hard choices at hand, paint the vision of the future and beg, harangue and coax the country into a coalition for change. Mass mobilisation is necessary.

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