Capital Intelligence has raised Jordan's long-term foreign currency rating to BB from BB- and affirmed its short-term foreign currency rating at B. The rating agency also assigned a long-term local currency rating of BBB- to the sovereign and a short-term local currency rating of A3. The long-term outlook is stable.
The upgrade reflects the authorities' commitment to structural reform, including trade liberalization and fiscal reform, which have visibly strengthened the economy in recent years. Economic growth and debt repayment capacity are both expected to rise over the medium term, provided the reform momentum is maintained.
The public finances have improved in recent years and the government is committed to delivering a sustained reduction in the public debt burden over the medium term. CI expects ongoing fiscal consolidation, including tax reform, debt swaps and debt buybacks using privatization receipts to drive the government debt-gross domestic product (GDP) ratio down to around 96 percent by end-2006 from 117 percent in 2002. Net debt is expected to decline to 50 percent of GDP in 2006 from 64 percent in 2002.
Although government external debt is high at around 80 percent of GDP, associated debt service is relatively modest, averaging just over 11 percent of current account receipts in 2000-2002. This is largely due to six rounds of Paris Club debt rescheduling between 1989 and 2002. The most recent Paris Club agreement in July 2002 rescheduled debt service payments of $1.2 billion out of two billion dollars due to Club members in the period July 2002 to end-2007.
International liquidity has improved in recent years as a result of successive balance of payments surpluses and a reduction in pressure on the fixed exchange rate. Gross official reserves have more than doubled since 1998, reaching $4.8 billion in mid-2003, and afford Jordan with a moderate degree of insulation against external shocks in the short term.
Notwithstanding the improving trends, the Jordanian government is severely indebted and foreign grants will continue to be required for several more years in order to keep the central government budget deficit within safe financing limits. Fiscal flexibility is particularly lacking on the expenditure side with over 50 percent of current spending going towards wages, pensions, and interest payments. Add in politically-sensitive defense spending and the ratio rises to over 80 percent. Fiscal rigidities and the large debt stock constrain the capacity for timely adjustment in the face of political and economic shocks.
Jordan is also very vulnerable to exogenous shocks that can adversely affect public and external debt dynamics. These include regional political developments, changes in both workers' remittances and grants from official donors. In addition, the evolution of public debt is sensitive to slippage in the government's fiscal adjustment program. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
