Moody's Investors Service has affirmed Jordan's sovereign B1 rating and changed the country's outlook to positive from stable, owing to the government pressing forward with structural reforms and the economy's improved growth prospects.
The “strong commitment” of Jordan's government to implement wide-ranging reforms and a track record of effective implementation on the fiscal front, have “the potential to raise the resilience” of its credit profile, the rating agency said.
Widening government revenue provides greater fiscal flexibility against a backdrop of rising global inflation, while recent economic and administrative reforms may increase the economy's growth potential and strengthen its ability to absorb shocks, Moody's said.
“Jordan has established a track record of fiscal reform implementation and prudence, which will likely contribute to a further narrowing of its fiscal deficit and decline in government debt over the next few years, despite global headwinds,” Moody's said.
The rating agency expects the government's fiscal deficit to narrow to around 2-2.5 per cent of gross domestic product in 2023-24, compared to 3 per cent in 2021 and around 5 per cent in 2020.
Moody's fiscal forecasts assume that the government's debt burden will decline over the next few years to pre-pandemic levels of around 78 per cent of GDP by 2026, although it remains high compared to similarly rated peers. Government debt likely peaked at just above 90 per cent of GDP at the end of 2021.
The narrowing of the deficit will be driven by revenue gains, as reforms increase tax compliance and upcoming changes to the goods and services tax law further reduces the scope for tax evasion, Moody's said.
Government revenue is forecast to rise 9 per cent this year after increasing 16 per cent in 2021.
Jordan, which has limited natural resources, imports more than 90 per cent of its energy needs and relies on foreign aid and grants to finance its fiscal and current account needs. The kingdom is trying to overhaul its economy and cut state subsidies amid high public debt and unemployment that is above 20 per cent.
Moody's said it expects the wider structural reform agenda mainly comprising the recently announced Economic Modernisation Vision and Public Sector Modernisation Roadmap to be more robust with a greater likelihood of tangible outcomes over the medium term compared to past attempts.
The EMV aims to boost growth to around 5.7 per cent by 2033, create one million jobs, and attract more than 40 billion dinars ($56 billion) in foreign investment, equivalent to about 116 per cent of GDP.
Jordan's economy is likely to expand between 3 and 3.5 per cent over 2023-24, according to Moody's. The International Monetary Fund expects the economy to grow by 2.7 per cent this year, revised up from 2.4 per cent, due to increased tourism and positive regional spillovers from GCC countries.
“Effective implementation of the structural reforms has the potential to raise Jordan's medium-term growth performance beyond Moody's current expectations and help reduce unemployment,” the rating agency said.
“Clearer indications that growth will step up to higher levels, thereby raising the Jordan's resilience especially to social risks stemming from unemployment, will be consistent with stronger credit quality and greater shock-absorption capacity.”
Jordan's B1 rating is underpinned by its solid and credible macroeconomic policymaking institutions, strong international support and access to sizeable domestic savings that contain liquidity and external vulnerability risks, Moody's said.
But the kingdom still faces challenges posed by the government's high debt levels, structural rigidities contributing to low economic growth over the past one and a half decades, high unemployment and social pressures, and a volatile regional geopolitical environment, the rating agency said.
Earlier this week, the IMF and Jordan reached a preliminary staff-level agreement that will boost the total assistance to the kingdom to about $2 billion over the 2020-2024 period. The agreement is subject to approval by the IMF’s management and the executive board.
The economy stands to benefit from the kingdom's industrial partnership with the UAE and Egypt, Moody's said.
The three countries forged the agreement in May with the aim of boosting growth and investment in priority sectors that include petrochemicals; metals, minerals and downstream products; textiles; pharmaceuticals; and agriculture, food and fertilisers.
A $10 billion investment fund, allocated and managed by Abu Dhabi's holding company ADQ, will accelerate work on the partnership across the five priority sectors.
The initiative will establish large joint industrial projects, create job opportunities, contribute to increasing economic output, diversify the economies of the three countries, support industrial production and increase exports.