Jordan outlook downgraded to negative

24 April 2016

Grim outlook triggers revision of rating from stable to negative 

Standard & Poor’s (S&P) has revised its long-term outlook on Jordan’s economy while at the same time allocating a BB-/B rating on the kingdom’s long- and short-term foreign and local currency sovereign credit ratings.

“We have revised downward our economic growth projections and now expect wide current account deficit,” the rating services agency said in a statement.

Factors underlying the country’s rating revision include the enormous pressure arising from ongoing regional conflicts, which negatively impact Jordan’s economy on many fronts. The influx of refugees and increase in population is exerting huge expenditure pressures on government finances contributing to the high stock of government debt.

Based on the results of the latest census, Jordan’s population has nearly doubled within a decade, reaching 9.5 million by end 2015. This is about 34 per cent higher than the population reported in 2011.

This has meant the country’s GDP per capita has been drastically reduced by about $1,000 in 2015, to about $4,000.

S&P also said it now expects lower regional growth due to lower oil prices. A lower regional growth is expected to have a knock-on effect ranging from lower foreign direct investment (FDI), remittances and other transfers, putting further upward pressure on debt.

“In our opinion, the government’s ability to respond to further shocks without external support has become more tenuous.” S&P said.

The company, however, added the it expects external support for Jordan to remain strong and help offset the pressures.

S&P said Jordan’s economy grew by 2.4 per cent in 2015. While this growth was slower than S&P’s expectations, it nevertheless reflected continued expansion in the finance, insurance, transport and communications sector.

S&P attributed the slower growth mainly to the closure of a major border with Iraq midway through 2015. Iraq is understood to be the destination of 16 per cent of Jordan’s total exports.

Domestic politics could also negatively impact growth, due to run-up to the elections starting in late 2016 to early 2017. High unemployment rates, which is understood to be at 12 per cent as of 2014, and which is inextricably tied up to the vast surge in Jordan’s migrant population, is expected to heighten the population’s discontentment.

S&P pointed out a few bright areas in Jordan’s economy, including improved headline fiscal performance due to lower transfers to Nepco, the electricity company, due to lower oil prices as well as new liquefied natural gas (LNG) feedstock that came online in 2015.

Key risks remain including Jordan’s external financing needs, which remain “very high” and include a ”high proportion of short-term debt related to financial institutions that contain a high-proportion of non-resident deposits.”

Jordan began a new round of discussions with the Washington-based International Monetary Fund (IMF) regarding a new facility called Extended Fund Facility (EFF) recently, following the release in August 2015 of the final instalment of the previous aid worth $2bn.

Infographic: The region’s population challenge

Economic data: Jordan

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