Fitch affirms Jordan’s credit rating at BB- with a stable outlook

In a report issued on Wednesday, Fitch Ratings affirmed Jordan’s credit rating at “BB-” with a stable outlook.

In the report, which it reviewed, the agency said:The kingdom“Reforms and flexible financing support Jordan’s ratings through a record of progressive financial and economic reforms, flexible financing linked to the banking sector, and international support.

It added that the ratings were constrained by high government debt, weak growth, risks from domestic and regional politics and large external financing needs.

She noted that “Jordan has been largely shielded from the repercussions of the Russo-Ukrainian war by long-term gas supply agreements, large strategic wheat reserves, high fertilizer exports and a strong recovery in the tourism sector.

– Reduction of the budget deficit –

The report said, “Despite the reduction in subsidies, strong revenue collection will narrow Jordan’s fiscal deficit this year,” and expects Jordan’s general government deficit to shrink to 3.8% of GDP in 2022, from 4.3 % of GDP in the year 2021.

He noted that the revenue gains will help offset the increase in spending on fuel subsidies, despite the lack of implementation of capital spending and efforts to control spending in other areas, including the ongoing freeze on civil service hiring and bonuses.

The report expected that the decrease in unemployment and the increase in labor force participation would also contribute to the rise in the surpluses in the General Organization for Social Security, and in return some of these financial gains would be consumed due to the high costs. of debt service.

– Strong international support –

According to the report, foreign grants and concessional support loans totaled more than $3 billion in 2021; (73% of GDP, slightly higher than 2020).

Most of the $1.1 billion in budget support grants comes from the United States, while the World Bank, the International Monetary Fund and countries and institutions of the European Union remain the main lenders.

In July 2022, US President Joe Biden announced his intention to enter into a new memorandum of understanding on providing assistance to Jordan, with a commitment to provide at least $1.45 billion annually in economic and military aid between 2023 and 2029 (grants) to provide, which is an extension and an increase previous memorandum of understanding.

– The correct path of the IMF program –

The IMF Board approved the fourth review of the Expansion Fund Program in Jordan in June 2022, increasing payments in 2022 by $165 million (to more than $500 million), including increasing access by $100 million.

The program is scheduled to run until March 2024, with payments remaining in 2022-2024, amounting to approximately $570 million (more than 1% of GDP).

Jordan has strong relations with the International Monetary Fund, and its programs have provided a policy anchor.

– Peak public debt –

The report said: “Under Fitch’s baseline scenario, debt will peak at around 94% of GDP in 2022 with the subsequent decline aided by a return to growth and primary surpluses.”

– revival of growth –

And theFitch expects Jordan’s GDP to grow by 2.3% in 2022 and by 2.5% in 2023-2024, supported by manufacturing, tourism and information technology services, in addition to strong domestic demand.

Monetary tightening and geopolitical risks pose risks to growth, though higher oil prices that could create positive spillovers for Jordan from the GCC countries, which are a major source of tourism, investment and remittances.

To boost growth potential in the medium term, the government is working on a set of structural reforms, including measures to boost labor force participation among women and youth, and to strengthen governance and competitiveness more broadly. Electricity tariff reform implemented in early 2022 lowers tariffs on productive sectors (opposed by higher tariffs for wealthier households).

The agency expects Jordan’s current account deficit to fall to 6.6% of GDP ($3.1 billion) in 2022 from 8.8% of GDP in 2021, as the recovery in travel income offsets the rise in imports of oil products counteract, especially that trade and tourism links with Russia and Ukraine are insignificant.

In February 2022, Jordan had 15 months of wheat reserves and higher exports of potash, phosphates, fertilizers and related chemicals offset higher costs for food and agricultural commodities, with long-term agreements implying small price increases for gas imports.

The kingdom

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