Moody’s: recent rating actions reflect Jordan's high, though declining debt
In its annual report on Jordan, Moody's Investors Service says the country's recently upgraded speculative-grade ratings and stable outlook reflect a heavy, although declining, external debt burden, and a relative vulnerability to external shocks. The foreign currency ceiling for debt is Ba2, and Ba3 for bank deposits, stated a Moody’s release.
“An unstable geopolitical environment is constraining Jordan's full economic growth potential,” says Moody's analyst Adel Satel, author of the report. "The negative impact of the war in Iraq has been significant but the policy response has been well formulated and foreign aid has largely mitigated such an impact."
In its favor, says the Moody's report, Jordan has a stable and resilient political system and a developing economic structure with sound management "It has a perceived strategic importance that secures international financial and diplomatic support along with a solid, long-term maturity profile for its external debt," says the analyst.
Jordan's Baa3 local currency domestic debt rating reflects the government's high degree of manoeuvrability in debt management and the relatively low level of the government domestic debt. Although a substitution of domestic debt in favor of external debt is expected, the rating is supported by a law that keeps both domestic and external debt to within 60 percent of gross domestic product (GDP) and the combined total debt to no more than 80 percent of GDP.
Despite the political and military volatility of the region, Jordan's economy has demonstrated renewed strength with healthy average economic growth over the past few years, said Moody’s. A boom in the telecommunications sector and higher industrial production, especially exports from the qualified industrial zones, has driven this growth.
While Palestinian unrest in neighboring Israel does not seem to stifle economic growth in Jordan, Moody's believes the Kingdom's full potential for growth cannot be attained without a lessening of geo-political risks, particularly those caused by Iraq and the Israeli-Palestinian conflict.
The budget deficit remains manageable, says the Moody's report, mainly due to generous aid, primarily from the US, to compensate for the negative financial impact of the recent war. Following the start of hostilities in Iraq last spring, Jordan also received free oil from Saudi Arabia, Kuwait and the United Arab Emirates (UAE) to compensate for the war's negative financial impact on Jordan's economy, including the cessation of the Iraqi oil subsidies. — (menareport.com)
© 2003 Mena Report (www.menareport.com)