In a report issued today, Moody's Investors Service says that Jordan's B1 rating reflects the country's (1) fairly low economic wealth and reduced growth prospects; (2) high and rising debt levels and continued fiscal deficits; and (3) increased political and policy risk deriving from regional turmoil.
The rating agency says that although domestic politics have been fairly stable, the government faces continued pressure to maintain social spending, while high energy prices negatively affect the country's fiscal and current account balances. The refugee influx from Syria and past Iraq conflicts have added further strains on the government of Jordan.
The rating agency's report is an update to the markets and does not constitute a rating action.
Jordan's credit challenges lie mostly in its fiscal and external accounts. Moody's estimates that continued fiscal deficits and social spending pressures will push the government debt-to-GDP ratio above 90 per cent in 2014, from 80.2 per cent in 2012, a level that is significantly higher than the peer median. Jordan's external position continues to rely on large and volatile foreign direct investment inflows to finance a large, albeit decreasing, current account deficit. The level of foreign currency reserves remains somewhat low compared with external debt payments, although the $2 billion, 36-month IMF Stand-By Arrangement approved in August 2012, has helped to bolster reserves from $7.9 billion at the end of 2012, to $13.8 billion as of April 2014.
However, Moody's says Jordan's credit support factors include a debt structure that poses low rollover risk, a history of external support in the form of grants and loan guarantees, and a comparatively strong institutional framework. According to the IMF, Jordan maintains one of the best data dissemination practices in the region.
