Jordan's fiscal consolidation efforts support its credit profile, says Moody's

The kingdom's economy is expected to expand at an average rate of 2.4% until 2022

TOPSHOT - Protesters raise their hands and wave flags near members of the gendarmerie and security forces during a demonstration outside the prime minister's office in the capital Amman late on June 3, 2018. Jordan's senate met on June 3 for a special session after another night of protests across the country against IMF-backed austerity measures including a draft income tax law and price hikes. Some 3,000 people faced down a heavy security presence to gather near the prime minister's office in Amman until the early hours of Sunday morning. / AFP / Khalil MAZRAAWI
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Efforts towards fiscal consolidation and commitment to structural reforms are supporting the credit profile of Jordan, whose economy is expected to grow moderately until 2024, according to Moody's.

The ratings agency rates Jordan B1 with a "stable" outlook. The kingdom's economy is set to grow at an average 2.4 per cent over three years until 2022, it said in its annual review of the country.

The agency, however, said Jordan continues to face credit challenges, stemming from weak growth, higher unemployment and public debt. Amman is trying to rein in public spending that has reached a record 94 per cent of gross domestic product, and is working under a three-year IMF programme to implement structural reforms.

"Jordan's weak fiscal fundamentals stem from its persistent fiscal deficits in the past and a very high government debt burden," said Alexander Perjessy, a vice president at Moody's said.

"Regional conflicts and political instability have contributed to subdued growth, while Jordan's comparatively weak external and fiscal positions have limited shock absorption capacity," he said.

Jordan's new finance minister cancelled new taxes in the 2020 budget in a bid to stave off protests that have rocked neighbouring Lebanon and Iraq. In May 2018, protests organised by trade unions erupted in Jordan after the government proposed a new tax law as part of IMF-backed measures to contain the country's public expenditure. The protests eventually forced then prime minister Hani Mulki to resign, and the tax bill was subsequently withdrawn.

With no new taxes planned over the course of the coming fiscal year, the government is looking for alternative ways to raise revenues. It also pledged cuts in public expenditure last week. Jordanian policymakersrejected any moves to raise water or electricity tariffs and proposed a reduction of sales taxes on essential food items to help poorer people struggling with rising levels of poverty.

Moody's said any upward revision of the country's sovereign rating was contingent on "a durable decline in the government debt burden", which it expects can be achieved through a combination of sustained primary fiscal surpluses as well as achieving higher economic growth rates. Increasing exports to boost Jordan's external position or lowering the energy import bill could also help the country lower its debt. Jordan imports hydrocarbons to meet around 98 per cent of its energy demand, making it particularly susceptible to volatility in oil markets.

Moody's also cautioned that a faster than expected decline in foreign exchange reserves leading to a weakening of the country's external position could lead to a downgrade in its sovereign rating.

Standard & Poor's maintains a rating of "B+" for Jordan with a stable outlook, while Fitch also has the same stable outlook but rates the country as "BB-".