Experts see Fitch’s Jordan credit rating as positive indicator

AMMAN — Economic experts have praised Fitch’s credit rating of “BB-” for Jordan’s long-term sovereign credit, noting that this evaluation will allow the Kingdom to access domestic and foreign sources of financing.

“There is high prestige associated with this rating, especially for a small country such as Jordan. Many economic, financial and industrial sectors have contributed to this stability of credit ratings,” said Bashar Zoubi, professor of finance.

He added that the global rating agency Fitch’s bond rating is “one of the important macroeconomic indicators,” and that “this classification is positive despite the continuing partial closure of a number of sectors”.

Zoubi noted that the financial measures undertaken by the Central Bank during the pandemic has “helped many sectors and individuals, and this has been reflected in the relative economic stability”.

Fitch forecasts that the general government (GG) budget deficit would widen to around 5 per cent of GDP in 2020 and that the real GDP would fall by 5 per cent in 2020, given the “nationwide lockdown to contain the spread of the virus from mid-March, which has been gradually easing from mid-April, the halt to tourism and the weaker external demand”.

The company also expects that the reduction in GDP and tax relief measures will cause a “sharp decline in budget revenue,” adding that the government is “reprioritising spending and will find some savings in the 2020 budget, but it also plans to maintain spending levels to cushion the crisis.”

The GG debt is expected to jump to 91 per cent of GDP, from 81 per cent in 2019, a percentage that was described by Fitch as “far higher than the current median for ‘BB’-rated peers of 58 per cent of GDP”.

“We expect that this will largely stabilise in 2021. The availability of domestic financing owing to a fairly large and liquid banking sector, and the fact that 60 per cent of the government external debt is owed to multilateral and official bilateral creditors who continue to provide Jordan with substantial financial support, are mitigating factors,” added the rating agency.

Financial analyst Adly Qandah said in a statement that the credit rating of Fitch is still “positive in light of the difficult circumstances that the pandemic has had on Jordan’s economy and the world”.

“The consistency of the BB- rating indicates that the reforms undertaken by the government, in agreement with the International Monetary Fund, have prevented the deterioration of the economy,” Qandah added.

He pointed out that “international classifications are important in terms of helping Jordan obtain aid, loans and access to international markets”.

The expert also noted that “all policies must be restructured in light of the exceptional situation imposed by the coronavirus crisis, as unconventional policies are required in order to ensure the continuity of economic stability, given the partial closure of many economic sectors and the low availability of cash liquidity”.

“The new government must take into account that unemployment levels are on the rise,” he said. “There should be no control over expenditures in the 2021 budget regarding this issue,” added Qandah.

Fitch expects a “partial economic rebound” in 2021, with real GDP growth of 5 per cent, which will help narrow the GG deficit to around 3 per cent of GDP.

“We expect that Jordan will continue to focus on improving revenue mobilisation as the economy returns to growth and following the approval of a USD1.3 billion Extended Fund Facility (EFF) by the IMF in March 2020,” said Fitch.

It also added: “Prior to the coronavirus crisis, Jordan was working to improve the implementation of the recent income tax reform, the tax administration and tax collection through limiting exemptions. The EFF also seeks to remove impediments to the GDP growth, through reforms of labour markets and of cross-subsidies that are damaging for the private sector.”