The downgrade of Jamaica's sovereign bonds by rating agency, Moody's, hardly came as a surprise to local analysts, who say that the country's weakening economic fundamentals were already being factored into the price of the securities.

The greater danger, they warned yesterday, would be if the country suffers further downgrades, either by Moody's or other rating agencies, like Fitch's or Standard & Poor's, whose review is pending.

"The more worrying thing is if this should be followed by a further downgrade by other rating agencies," said Nigel Sinclair, senior risk/research analyst at Guardian Asset Management Ltd.

"The downgrade is not a shocker to market players given the fundamentals," he said.

Moved ratings

In its latest review of Jamaica issued on Tuesday, Moody's, which months ago raised concerns about the island's economy, moved its rating on the government's foreign currency bonds to B2 from B1, while the local currency denominated instruments moved to Ba2. The foreign currency ceiling for deposits slipped a notch to B3.

Moody's said the decision was driven by its concern that Jamaica's macro-economic environment, with the country facing a fiscal deficit of nearly five per cent of GDP and double digit inflation, could deteriorate further this year.

Moody's action appeared not to have immediately affected the price of Jamaica's bonds, which traded steady yesterday.

No fallout expected

That, in the circumstance, is understandable, according to Sinclair.

"Most players would have already done their analysis and factored this into their pricing so no significant fallout is expected," he added.

Any selling off or price decline, therefore, would, in the short-term, be minimal.

Going forward, the issue, according to Mark Croskery, CEO of Stocks and Securities Ltd, is whether this, or any other downgrade will block Jamaica's access to international capital markets, already clogged by the global credit crisis.

"Even though global credit markets are closed to Jamaica already, this would make it even harder to raise funding, or (make it more) expensive," Croskery said.

It was important, he said, for the Government to do the kinds of things, both in communication and policy management, to build confidence.

The good thing for Jamaica is that having last month cleared a euro-bond issue and received support from multilateral lending agencies - which have either loaned or committed around US$1 billion - Finance Minister Audley Shaw has no immediate need to head to the markets. When he does, however, the attitude of the rating agencies could be pivotal, the analysts suggest.

"Though immediate financing needs may have been secured through various multilateral disbursements, the timing of future payouts may largely determine future ratings actions," said Rex Shettlewood, senior research manager at Mayberry Investment.