Fiscal consolidation this year to lift Jordan’s credit profile, Moody's says

Rating agency also expects the overall fiscal deficit to narrow

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Jordan's credit profile will gradually become more resilient with the resumption of fiscal consolidation this year and proposed structural reforms by the the government, Moody's Investors Service said.

Fiscal consolidation efforts in Jordan, which has struggled with an economic slowdown amid the growing burden of caring for more than a million Syrian refugees, slowed last year as overall deficit rose amid social spending pressures. However, Amman is expected to pursue its reform agenda this year and next, gradually setting the debt ratio on a declining path, Moody's said in its latest report on Jordan.

"Jordan's 2019 budget anticipates a return to fiscal consolidation, supported by the new income tax law and reduced defence spending, among other measures," said Alexander Perjessy, a Moody's vice president  and senior analyst. "Although we expect the government to fall short of its budget targets due to weak growth, we still expect the overall fiscal deficit to narrow, assuming the government reins in its off-budget spending."

Structurally large external deficits will remain a longer-term challenges, for the country, the rating agency added.

Moody's forecast follows its earlier report, which said the credit profile of the country is constrained by higher level of public debt and external imbalances.

Jordan faces "moderately high external vulnerability", underscored by current account deficits, which will likely remain a source of potential pressure on central bank foreign exchange reserves, according to the report.

Nevertheless, Moody's expects Jordan's external deficits to decline in the medium-term as the recovery in exportsand a pick-up in tourism receipts continue at a time of improving regional security and as oil prices remain moderate.

A successful restructuring of the state-owned National Electric Power Company will make the public finances more resilient to potential global energy price increases, the rating agency said in its latest report.

Last month Fitch rating agency gave Jordan a stable long-term foreign-currency issuer default rating of BB-.
Fitch attributed the rating to the Jordanian track record of fiscal and economic reforms.

"Jordan has built up a track record of reforms that have substantially reduced the budget deficit and stabilised government debt to gross domestic product (GDP) after being hit by multiple shocks and a slowdown in economic growth since 2011", Fitch said in its report.

The agency forecasts that the central government budget deficit will narrow to 2.2 per cent of GDP this year, from 2.4 per cent in 2018, helped by a contentious income tax law that came into effect in January. The forecast is constrained by further increases in interest payments.

Fitch estimates an "almost balanced" budget in 2019.