In its annual report on Jordan, Moody's Investors Service says the country's Ba2 rating and stable outlook reflect a high-but-decreasing debt burden and a significant dependence on foreign aid despite economic reforms.
"We expect Jordan's economic fundamentals to continue to strengthen gradually as the government proceeds with measured structural reforms, but the economy will remain exposed to potential bouts of regional instability, though cushioned by foreign economic support," said Moody's Vice President Tristan Cooper, author of the report.
Jordan's high, albeit declining, level of public debt constrains the country's rating, according to Moody's. The government's gross direct debt, which is mainly external, stood at around 90% of GDP at end-2004, says the report.
The Jordanian economy's reliance on oil imports exposes fiscal and external current accounts to the volatility of international oil prices.
Although Jordan's strong international relations ensure foreign support in times of economic difficulty, the level of support remains unpredictable. "To its credit, Jordan's government has displayed a proven commitment to structural reforms, including a recent hike in domestic oil prices in July 2005 to reduce the government's large oil subsidy," said Mr. Cooper.
"Other recent reforms include measures to raise taxation, improve revenue collection, and contain non-productive fiscal expenditure." Exports from the country's Qualified Industrial Zones have also contributed to an improved balance of payments and a healthy accumulation of official foreign exchange reserves, the analyst added.
Jordan has also been making an effort to reduce its large implicit oil subsidy, since a marked reduction in grants from Saudi Arabia in May 2005 made the issue urgent, says Moody's report. In an effort to reduce the oil subsidy, the Jordanian government raised domestic oil prices by a considerable margin in July 2005 as part of a plan to eradicate the oil subsidy by 2008.
The rating agency's report, "Jordan: 2005 Credit Analysis," is a yearly update to the markets and is not a rating action.
