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NEW YORK, USA -- Following completion of the national debt exchange (NDX), Fitch Ratings has upgraded Jamaica's sovereign ratings to 'CCC'. The country ceiling is affirmed at 'B-' and international senior unsecured debt instruments at 'CCC'. However, a 'CCC' rating implies that default is still a real possibility.

The upgrade of Jamaica's sovereign ratings reflects the following key rating factors:

With a participation rate above 98% of eligible securities, Fitch considers that the NDX has been materially completed and the default event cured in line with Fitch's distressed debt exchange (DDE) criteria. Fitch determined that the NDX constituted a DDE, as the debt exchange adversely impacted the original contractual terms of domestic bondholders.

Jamaica's 'CCC' ratings reflect continuing concerns about public debt sustainability and still high external financing needs (estimated at 172% of international reserves in 2013) reflected in a large current account deficit, sizeable external debt payments and low international reserves.

The extension of maturities and reduction of coupon payments on domestic debt achieved through the NDX will result in lower interest payments and reduced financing needs over the forecast period. Nevertheless, Jamaica's large government debt burden, estimated at over 130% of GDP in fiscal year (FY) 2012, rigid expenditure profile and record of growth underperformance represent challenges for achieving medium-term debt sustainability. Maintaining high primary surpluses and stronger growth will be essential to put public debt/GDP on a convincing downward trajectory.

The completion of the NDX represents further progress towards the implementation of an Extended Fund Facility (EFF) with the International Monetary Fund (IMF). The government of Jamaica has still to reach an agreement with public sector workers' unions consistent with medium-term fiscal targets under the IMF program. Fitch believes that IMF support is critical to stabilize investor confidence, support the balance of payments and reduce the sovereign's present financing constraints. Implementation risks will remain for Jamaica even if it gets access to the IMF facility given its past erratic record on meeting targets set under previous IMF programs.

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