Fitch sets Jordan’s credit rating at BB- with ‘stable outlook’

AMMAN — International credit rating agency Fitch Ratings on Thursday set Jordan's long-term foreign-currency issuer default rating (IDR) as BB- with a stable outlook, according to a statement from the agency.

Fitch said that Jordan's ratings are supported by a track record of fiscal and economic reforms and the “resilient” availability of domestic and external financing linked to the liquid banking sector a growing public pension fund and funding from Jordan's external partners. 

The agency noted, however, that the Kingdom’s ratings are constrained by high government debt, weak growth and risks stemming from domestic and regional politics, large external financing needs and GDP per capita that is lower than the BB median.

Economists said that the rating is positive for Jordan and will enable the Kingdom to get grants and secure loans at very low interest rates and will help boost the investment climate.

"Such a rating by a reputable rating agency is a testimony to Jordan's continued fiscal reforms," economist Wajdi Makhamreh told The Jordan Times. 

"Jordan is capable of reducing its debt and is working on a clear plan to reduce the debt to GDP ratio,” he said, citing recently secured loans with low interest rates to pay ones with higher interest rates.

"The donor community and international organisations reiterated their support to Jordan at the London initiative with commitment for providing concessional loans, which is good news," Makhamreh added.

“The rating by Fitch agency is an indication of strong reforms. It is positive for Jordan and for the Kingdom’s ability to attract investments,” he said.

Economist Hosam Ayesh agreed.

“This is good for Jordan, taking into account the conditions and challenges it is facing”, Ayesh said.

“This is a big support at this stage; it reflects the international financial community’s commitment to provide more support to Jordan to go ahead with economic reforms,” he added.

“Jordan has built up a track record of reforms that have substantially reduced the budget deficit and stabilised government debt/GDP after being hit by multiple shocks and a slowdown in economic growth since 2011,” Fitch Ratings said in the statement.

The agency noted that public finances remain a core rating weakness for Jordan, despite the fiscal consolidation in recent years, adding however that they project a gradual reduction in government debt over the medium term, assuming Jordan maintains fiscal discipline. 

“Availability of domestic financing owing to a fairly large and liquid banking sector and the fact that half of government external debt is owed to multilateral and official bilateral creditors are mitigating factors,” the statement highlighted.

The agency forecast that the budget deficit will narrow to 2.2 per cent of GDP in 2019, helped by the new Income Tax Law, which came into force in January and could add 0.7 per cent of GDP in revenue, but is constrained by further increases in interest payments. 

Fitch’s estimates indicate an almost balanced budget in 2019 owing to the substantial annual surplus of the Social Security Corporation (SSC), “but this does not give a good indication of the government’s financing needs, as the SSIF [Social Security Investment Fund] cannot invest more than 60 per cent of SSC assets in [government] securities”, the statement added.

Jordan’s external financing flexibility is a rating strength, underpinned by strong relations with the international donor community, multilateral organisations and bilateral allies, including the US and partners in the GCC, according to Fitch.

Low inflation is another rating strength for the country,the statement said, stressing that Jordan has preserved macroeconomic stability, albeit with slowing GDP growth (to 1.9 per cent in 2018), despite multiple and severe shocks since 2011, including heightened regional instability, violent conflicts in neighbouring Syria and Iraq, the closure of important trade routes and markets in those countries, and an influx of Syrian refugees.

Fitch forecasts growth to improve but remain moderate, at 2.3 per cent in 2019-2020, given fiscal constraints and only gradual improvements in trading and investment conditions in the region.