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S&P downgrades Jordan rating, keeps outlook stable

Syrian refugee crisis will continue to curb growth, agency says

By JT - Oct 21,2017 - Last updated at Oct 21,2017

AMMAN — International credit rating agency Standard and Poor’s (S&P) has downgraded Jordan’s rating to B+, from BB-, citing poor performance on external debt, among other factors. 

According to a report S&P posted on its website late Friday, Jordan’s external vulnerabilities have increased and the structure of the public debt stock has weakened and will remain high, while the pace of fiscal reforms “will likely be slower than we had previously anticipated due to the weak macroeconomic environment and social pressures”.

“We are therefore lowering our long-term foreign and local currency sovereign credit ratings on Jordan to ‘B+’ from ‘BB-’. We are affirming the short-term rating at ‘B’,” the report read.

“The downgrade reflects our view of Jordan’s weakening debt profile amid low growth and implementation pressures related to fiscal reforms, and higher external risks,” the statement explained.

Meanwhile, the agency said that stable outlook “balances greater risks from a slower pace of fiscal consolidation than we previously expected against continued support from bilateral donors, at a rating of ‘B+’”.

Explaining the rationale behind the downgrade, the agency said that due to the very high debt burden (around $37 billion at the end of the first third) and the large financing needs, “Jordan has increased its exposure to foreign currency debt and commercial funding”.

The agency expects the country to continue implementing fiscal reforms, yet projecting a slower pace of implementation than the International Monetary Fund programme had anticipated. Moreover, S&P expects the state-owned power generation company, NEPCO, to keep facing challenges as the enterprise has returned to making small losses this year. 

“In our view, the government is likely to prioritise social stability and growth in the current domestic and external environment, with potential trade-offs as to the scope of fiscal reforms.”

Overviewing the Kingdom’s institutional and economic profile, the rating agency expects a low economic growth of an average of 2.7 per cent over 2017-2020, compared to 6.5 per cent over 2000-2009, citing, among other reasons, fiscal pressures resulting from Syrian refugee inflow.

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Jordan policy has been to rely on debit instead of economic growth to move the economy. This is the result of such policies and its a downward spiral. The only way to stop this, is for the government to see businesses and investors as partners for improving the economy, instead of the current policies for milking them.

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