Fiscal control, future growth prospects reaffirm Jordans sovereign credit amid global coronavirus pressures

AMMAN - International credit rating agency Standard and Poor's (S&P) has maintained Jordan’s credit rating of B+/B, citing progress in the country’s reform effort.

The crediting agency said that growth prospects will likely gradually strengthen, albeit at the cost of higher fiscal deficits in the near term.

Flexibility and performance profile net general government debt levels will decline slightly starting in 2021, the agency said.

Praising the government's reform measures, the global rating agency said that, to tackle subdued economic activity and a high unemployment rate of 19 per cent, the government under Prime Minister Omar Razzaz has outlined a five-year economic plan to improve competitiveness, foreign investments and exports. This includes a new public-private partnership law.

The S&P rating commended the 2020 budget of Finance Minister Mohamad Al-Ississ and its focus on reinstating capital expenditure as a key component of maintaining economic growth.

“A new four-year IMF Extended Fund Facility [EFF] of $1.3 billion will support the government's efforts to revive investment and create jobs,” S&P said in its analysis.

Al-Ississ has previously stated that the new IMF EFF programme is based on putting Jordan on a sustainable path towards lowering its debt via growth-enhancing measures and fiscal discipline. These growth measures include deep structural reform that aims to lower the cost of doing business, as well as improving labour market accessibility for women.

“The 2020 budget incorporates several stimulus packages and a 33-per cent increase in capital expenditure in health, education and transport. Given the greater emphasis on growth-enhancing measures, we anticipate that the pace of fiscal reforms will decelerate,” the agency said.

S&P projected that Jordan’s real GDP growth will increase over the next four years to 3.0 per cent in 2023, from an estimated 1.9 per cent in 2019, and noted that it expects key growth factors will be public and private investment, supported by improvements in the business environment.

“The momentum in economic reforms started in 2019, as reflected by a significant improvement in Jordan's World Bank 2020 Doing Business ranking by 29 notches,” read the agency’s analysis.

The government's energy sector roadmap could be key to reducing energy import costs in the medium term, according to S&P.

Jordan aims to increase the use of renewable energy to 30 per cent of its energy mix by 2030, from about 20 per cent currently, noted the crediting agency.

Broadly stable current account deficits, along with rising external debt and foreign investment, will support a gradual increase in foreign exchange reserves, according to the analysis.

“We expect foreign currency reserves will continue to gradually rise on the back of higher debt inflows and FDI [foreign direct investment]. We forecast that current account deficits of about 5 per cent of GDP will stabilise external financing needs at a still-high average of 156 per cent of current account receipts and usable reserves over 2020-2023,” S&P said in its report.

There could be some upside to the forecasts given the fluctuations in oil prices, the agency said.

In its downside risks projections, the crediting agency said that the coronavirus pandemic adds a new threat across emerging markets, and specifically to Jordan's recent recovery in tourism.

“Regional instabilities, which are typically associated with lower foreign- and domestic-investment flows, are likely to persist over the forecast period,” the agency said.