Fitch affirms Jordan’s sovereign rating at BB- amidst a series of global downgrades

AMMAN — Fitch Ratings Agency has affirmed Jordan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at “BB-“ and revised the outlook to negative from stable, according to a statement from the global rating agency made available to The Jordan Times on Friday.

Fitch’s decision to affirm Jordan’s rating comes amidst a record number of sovereign credit rating downgrades by the agency in recent months due to the global economic downturn brought by the virus. Recently, sovereign credit rating downgrades have included Italy, Hong Kong, Sri Lanka and Argentina.

In Jordan’s favour was the government’s prompt response to the crisis, as well as forthcoming external financial support by the Kingdom’s allies, the global rating agency said.

The decision to revise Jordan’s outlook to negative stems from a series of concerns brought on by the coronavirus, both in terms of global and regional risks. This, however, is expected to improve in 2021 as the global economy begins to recover, and some of its impacts are partially offset by the availability of financial support from Jordan’s allies and supportive institutions to assist its economy given the challenging political context, read the statement.

The lockdown of economic sectors since March (which is now being lifted) is expected to hinder government revenue collection, and – combined with tax relief measures for businesses and individuals – will expand the government deficit. Although General Government debt is expected to jump to 91 per cent of GDP (from 81 per cent in 2019), but is expected to stabilise, as the economy begin to recover, the agency noted.

Helping Jordan’s reform process is the IMF Extended Fund Facility set in motion in March 2020, which was designed to tackle impediments to GDP growth such as the high cost of doing business in the private sector, as well as improving tax administration measures in order to improve progressiveness of collection, the statement said.

Despite impacts on Jordan’s government revenues, Jordan’s Finance Minister Mohamad Al-Ississ has ensured that spending must be redirected towards the necessary demands brought upon by COVID-19 such as health expenditure and social safety nets, but will be maintained in order to cushion the impact of the crisis on citizens and sectors to the largest possible extent.

In a recent televised interview, Al-Ississ insisted that mitigating the outbreak of the virus is not only necessary for the health of Jordanians, which remains a top priority, but also for the “health” of the Jordanian economy in the long term by allowing for gradual but stronger economic recovery.

In terms of external financing, Fitch report noted Jordan’s ability to borrow at concessional rates given global external borrowing challenges, owing to its strong relations with the international donor community, multilateral organisations and bilateral allies, including the US and the Gulf Cooperation Council.

In terms of domestic financing is another mitigating factor owing to a fairly large and liquid banking sector and the fact that 60 per cent of government external debt is owed to multilateral and official bilateral creditors who continue to provide Jordan with substantial financial support, according to the report.

One anticipated risk is to the current account deficit, as Jordan expects to see a 60 per cent decline in travel credits. However, lower oil prices and a decline in non-oil imports partially mitigate lower tourism revenue, and the Central Bank of Jordan’s reserves – although set to drop – will remain at a healthy 7.4 months of current external payments, the rating agency said.

Another anticipated risk has been regional geopolitics, which remain “volatile” and pose some risk of negative spillovers, exacerbated by rising unemployment rates. The agency noted, however, Jordan’s “weathering” of multiple regional shocks since 2011, as well as the maintenance of political stability.