S&P maintains Jordan’s credit rating, stable outlook

AMMAN — Standard & Poor’s (S&P) affirmed its “B+/B” credit rating for Jordan, with a “stable” outlook due to a number of domestic and regional factors, according to a report released on Friday. 

“We expect Jordan’s net debt position to broadly stabilise, supported by grant financing from bilateral and multilateral partners and gradual implementation of fiscal reforms…We are therefore affirming our foreign and local currency sovereign credit ratings on Jordan at ‘B+/B’ and the outlook remains stable,” The New York-based organisation said in the report posted on its website.

The global rating agency affirmed the “B+” long-term foreign currency issue rating on the sovereign-guaranteed bond of senior unsecured debt issued by the Development and Investment Projects Fund of the Jordan Armed Forces-Arab Army.

The agency expects that donor funding will continue to support public finances and low interest costs against the risk that the government will reverse planned fiscal consolidation to alleviate social and economic challenges.

It said it could lower its ratings on Jordan if strong bilateral and multilateral donor support were to diminish, or the pace of fiscal consolidation were to slow significantly, which could result in higher debt accumulation by the central government and/or state owned enterprises like the National Electric Power Company, and raise government debt-servicing costs.

“We could raise the ratings if Jordan’s external imbalances were to significantly narrow for a sustained period, or if terms of trade were to stabilise. We could also raise the ratings if the economic outlook were to markedly improve,” it said in the report.

The agency said the ratings on Jordan are constrained by its high public debt levels and the economy’s large external financing needs, which are driven by large current account deficits. 

Ongoing pressures from regional conflicts have significantly increased the country’s population through refugee inflows, while slowing the country’s growth trajectory, the report noted.

“The ratings are, however, supported by the authorities’ efforts to implement fiscal consolidation and measures to reduce losses in state-owned enterprises, which we expect will result in gradually falling government debt levels over the forecast horizon through 2021. International assistance from the US and the Gulf Cooperation Council (GCC) continue to support the ratings,” it indicated.

In June, Saudi Arabia, Kuwait and the UAE pledged $2.5 billion in support for Jordan’s economy. Days later, Qatar announced that it would provide 10,000 jobs for Jordanians in the Gulf state, in addition to a package of investments in infrastructure projects in Jordan valued at $500 million.

The agency noted that social pressures are high, anticipating the government to only gradually implement planned fiscal measures, adding: “ We expect donors to continue to support Jordan through grants and concessional funding to maintain political stability.”

The agency indicated that it forecasts the economic growth to be low, averaging 2.5 per cent over 2018-2021, compared with 6.5 per cent over 2000-2009.

“We expect international support for Jordan to remain strong. Jordan is one of the most politically stable countries in the region, and maintaining this relative stability in the region is an important foreign policy objective for the US and the GCC,” it added.

Commenting on the report, Zayyan Zawaneh, an expert in political economy, said: ”This is a positive thing because it will help to reassure foreign investors about Jordan and the financial markets from where we borrow.”

“It is a reassuring message to all lenders, especially as Jordan has already announced that it intends to borrow from international markets in 2019,” he told The Jordan Times on Saturday.

Although positive, there are other indicators that lenders take into account, he said.

“Lenders and investors also look at the economic situation in Jordan and take other factors into consideration such as the increase in public debt, rise in debt service, high poverty and unemployment rates,” Zawaneh added, underlining the need for tangible reforms.

The total public debt amounted to JD28.118 billion, constituting 96.1 per cent of the estimated gross domestic product (GDP) at the end of July 2018, compared with JD27.269 billion, constituting 95.9 per cent of the GDP in 2017, according to the Ministry of Finance.

The Kingdom’s after-grant budget deficit amounted to JD659.7 million at the end of July compared with JD539.7 million for the same period of 2017, according to the figures.