Standard & Poor’s Ratings Services has raised its long-term foreign currency ratings on Jordan to ‘BB’ from ‘BB-‘, and its long-term local currency ratings to ‘BBB’ from ‘BBB-‘. At the same time, S&P affirmed its ‘B’ foreign currency and ‘A-3’ local currency short-term ratings. The outlook is stable.
“The upgrade reflects the expected gradual decline in the net general government debt, to 63.5% of GDP in 2006 from the current 84.5%, as a result of favourable debt treatment, debt swap operations, and moderate fiscal deficits,” says S&P’s credit analyst Serge Ghanem. “Furthermore, the Paris Club exit agreement signed in July 2002 will lead to an improvement in Jordan ‘s debt-service ratio, with external debt service declining to 9.8% of current account receipts in 2006, from 11.1% in 2002.”
Despite the current regional problems, the authorities’ commitment to accelerating the pace of structural reforms in the context of the Plan for Social and Economic Transformation, aided by generous external grants and a stable monetary environment, will underpin economic growth prospects of 5.5-6.0% from 2004, which should lead to a gradual reduction in unemployment. Coupled with the resumption of parliamentary life, this should bolster political stability and reduce any resistance to the structural reforms.
“In 2003, generous grants amounting to 10.6% of GDP will ensure a moderate central government deficit of 1.4% and a general government surplus of 2.5%, underpinned by increasing tax revenues and a move toward more productive expenditure,” says Ghanem.
“These measures are part of a medium-term fiscal consolidation program that should lead to a gradual reduction in the primary deficit excluding grants, to 4.0% in 2006 from 5.8% in 2002. An expected steady decline in grants in 2004-06 will lead to moderate central government deficits of 3.6%-4.4% and a general government deficit of 2.1% in 2006,” he adds.
Jordan ‘s external liquidity is also strengthening, as a result of favourable balance of payments developments, such as steady grants and strong export growth to the US , in the context of the US free trade agreement. Reserves are estimated to cover about 91% of the current account deficit plus long and short-term principal payments in 2003, up from 84% in 2002.
“Rating improvements would be supported by the implementation of further structural reforms and fiscal consolidation, which are required to ensure the decline in the debt burden,” concludes Ghanem. “Failure to implement such reforms over the medium term, or an unexpected intensification of violence in neighbouring countries, could put downward pressure on the ratings.”