RIYADH: Fitch Ratings has affirmed Jordan’s long-term foreign-currency issuer default rating at “BB-” with a stable outlook.
This comes in the backdrop of the country showing macroeconomic stability, progress in reforms, and resilience in the banking sector while having a buoyant public pension fund.
The rating agency estimated that Jordan’s general government budget deficit declined to 2.7 percent of the gross domestic product in 2022. This was below its 3.8 percent forecast made in August due to continued growth in tax collection combined with expenditure restraint and reprioritization to accommodate temporary fuel subsidies phased out at the end of 2022.
“We forecast fiscal consolidation to gradually continue, with the deficit declining to 2.3 percent and 1.9 percent in 2023-2024,” said Erich Arispe Morales, primary rating analyst at Fitch, in the report.
“The sustainability of the current fiscal strategy will depend on the ongoing reforms aimed at lifting growth prospects and generating employment. Fiscal space is limited, given the high level of debt and a rigid expenditure profile,” added Morales.
However, the ratings were constrained by high government debt, weak growth, domestic and regional political risks, a sizable current account deficit, and net external debt higher than rating peers.
Fitch estimated that consolidated general government debt, including guarantees, peaked at 95.2 percent of GDP in 2022.
“We forecast debt to continue to maintain a slow decline, reaching 93.1 percent in 2024, balancing further fiscal consolidation against continued financial support to water and electricity sectors and remaining significantly above the projected 54.4 percent ‘BB’ median,” Morales added in the report.
But, Jordan continues to progress in the International Monetary Fund’s three-year extended fund facility. Amman completed its fifth review in December and is undergoing its sixth review.
The remaining disbursements total $218 million, of which $97 million could be disbursed in 2023.
According to the report, Jordan and the IMF are exploring a follow-up program to the current EFF, due to end in March 2024, to anchor fiscal consolidation and reform momentum.
Moreover, its macroeconomic and financial stability is supported by the longstanding exchange rate peg to the US dollar, adequate level of international reserves, low dollarization, which is about 18.7 percent of total deposits, and access to external financing.
Fitch expects average inflation to decline to 3 percent in 2024, below the forecast “BB” median.
