S&P has affirmed Jordan’s global rating at BB-/B with outlook negative.
“The negative outlook reflects the risks that exogenous factors, such as regional instability, will continue to pose to Jordan’s public and external finances over the next six months,” S&P in a statement said.
“We could consider lowering the ratings if fiscal or external balances diverge significantly from our expectations, growth is lower than we currently expect,
foreign and official funding becomes less forthcoming, or financing needs widen beyond the scope of available external assistance.
“We could revise the outlook to stable if Jordan implements key political and structural reforms that support more sustainable economic growth and further
ease fiscal and external vulnerabilities, for example, through the IMF program. We could also consider revising the outlook to stable if we observe a significant improvement in the regional security environment, which could diminish the threat of further shocks.
“Jordan continues to face enormous pressures from ongoing regional conflicts. The refugee influx since 2011 has markedly pushed up government expenditures and contributed to rising government debt. According to the Office of the United Nations High Commissioner for Refugees about 630,000 Syrian refugees have registered in Jordan, including approximately 80,000 living in the large Zaatari refugee camp. Still, most estimates suggest that there is a much larger refugee population in Jordan generally, including refugees from Iraq and Libya. Furthermore, with slower regional growth because of lower oil prices, the outlook for foreign direct investment (FDI), remittances, and other transfers remains uncertain. In our opinion, the government’s ability to respond to further shocks, absent external support, is tenuous because of its elevated debt burden. However, we continue to expect that international support for Jordan–for instance through budgetary and non-budgetary grants, concessional lending, and donor flows, among other channels–will remain strong, helping to offset these pressures.”
“Despite its challenging environment, Jordan has preserved relative economic stability. Real GDP grew on average by 2.7% over 2011-2015. However, given the
45% increase in Jordan’s population–to 9.5 million in 2015 from 6.7 million in 2011–we estimate that GDP per capita decreased to $4,000 in 2016 from $4,500 in 2011. This represents a cumulative reduction of 30% in real terms.”
“Real GDP growth decelerated to 2.4% in 2015 from 3.1% in 2014, prompted by the closure of a major border with Iraq about halfway through the year. Jordan exports 16% of its total goods to Iraq. In the first half of 2016, the economy grew by 2.6% in real terms, supported by the construction, electricity, water, transport, and communications sectors, as well as financial services. We project real GDP growth of 2.8% in 2016 and 3.4% on average in 2016-2019, underpinned by steady consumption growth, new infrastructure developments, and the implementation of projects financed by foreign funds and a relatively resilient financial services sector. We also expect growth will be supported by reforms aimed at the business sector, developed alongside a fresh program from the International Monetary Fund (IMF). One possible upside to export growth could come in the form of greater exports to the EU following an agreement in recent months between Jordan and the trade bloc on simplified rules of origin, and another could follow the re-opening of the Iraqi border crossing. We do not include either of these scenarios in our projections, however.
“After the conclusion of the previous standby arrangement in 2015, the IMF executive board approved an extended fund facility (EFF or program) for Jordan in August of this year. The program will make $723 million (1.8% of estimated 2016 GDP) available to Jordan over three years and aims to support the authorities’ economic and financial reforms under the Vision 2025 program. One important goal under this program is to reduce public debt while minimizing the fiscal drag of the consolidation effort on the economy and on social
spending. The program aims to achieve this through a mix of revenue- and expenditure-side measures. On the revenue side, measures include reducing tax exemptions, changing the income tax code, raising corporate tax rates, and lowering the personal income tax exemption, alongside efforts to improve tax administration. The program also envisages better management of current expenditures, mainly by curbing growth of the public sector wage bill.”
