Standard & Poor's Ratings Services has raised its long-term foreign currency ratings on the Hashemite Kingdom of Jordan to 'BB' from 'BB-', and its long-term local currency ratings to 'BBB' from 'BBB-'. At the same time, Standard & Poor's affirmed its 'B' foreign currency and 'A-3' local currency short-term ratings on Jordan. The outlook is stable.
"The upgrade reflects the expected gradual decline in the net general government debt, to 63.5 percent of Gross Domestic Product (GDP) in 2006 from the current 84.5 percent, as a result of favorable debt treatment, debt swap operations, and moderate fiscal deficits," said Standard & Poor's credit analyst Serge Ghanem.
"Furthermore, the Paris Club exit agreement signed in July 2002 will lead to an improvement in Jordan's debt-service ratio, with external debt service declining to 9.8 percent of current account receipts in 2006, from 11.1 percent in 2002."
Despite the current regional problems, the authorities' commitment to accelerating the pace of structural reforms in the context of the Plan for Social and Economic Transformation, aided by generous external grants and a stable monetary environment, will underpin economic growth prospects of 5.5-six percent from 2004, which should lead to a gradual reduction in unemployment.
Coupled with the resumption of parliamentary life, this should bolster political stability and reduce any resistance to the structural reforms.
"In 2003, generous grants amounting to 10.6 percent of GDP will ensure a moderate central government deficit of 1.4 percent and a general government surplus of 2.5 percent, underpinned by increasing tax revenues and a move toward more productive expenditure," said Ghanem.
"These measures are part of a medium-term fiscal consolidation program that should lead to a gradual reduction in the primary deficit excluding grants, to four percent in 2006 from 5.8 percent in 2002. An expected steady decline in grants in 2004-2006 will lead to moderate central government deficits of 3.6-4.4 percent and a general government deficit of 2.1 percent in 2006," he added.
Jordan's external liquidity is also strengthening, as a result of favorable balance-of-payments developments, such as steady grants and strong export growth to the US, in the context of the US free trade agreement. Reserves are estimated to cover approximately 91 percent of the current account deficit plus long- and short-term principal payments in 2003, up from 84 percent in 2002.
"Rating improvements would be supported by the implementation of further structural reforms and fiscal consolidation, which are required to ensure the decline in the debt burden," concluded Serge Ghanem. "Failure to implement such reforms over the medium term, or an unexpected intensification of violence in neighboring countries, could put downward pressure on the ratings." — (menareport.com)
© 2003 Mena Report (www.menareport.com)
