| 12 Mar 2010 |
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Hashemite Kingdom of Jordan Long-Term LC Rating Lowered To 'BBB-'; Long-Term FC Rating Affirmed At 'BB'; Outlook Stable
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Hashemite Kingdom of Jordan's government debt is rising and fiscal flexibility is weaker.
We are lowering our long-term local currency sovereign credit rating on Jordan to 'BBB-' from 'BBB'. At the same time, we are affirming our 'BB/B' foreign currency ratings, and the 'A-3' local currency short-term rating.
The stable outlook reflects our expectation that recovering GDP growth in the medium term, along with a stable political system, should enable the government to achieve significant fiscal consolidation and progress with structural reforms.
LONDON (Standard & Poor's) March 12, 2010--Standard & Poor's Ratings Services said today that it lowered its long-term local currency sovereign credit rating on the Hashemite Kingdom of Jordan to 'BBB-' from 'BBB' on weaker fiscal flexibility and rising government debt. At the same time, we affirmed the 'BB/B' long- and short-term foreign currency sovereign credit ratings, and the 'A-3' local currency short-term rating. The transfer and convertibility assessment (T&C) has been lowered to 'BBB-' from 'BBB'.
"The rating actions are based on our view of the Kingdom's weaker medium-term fiscal flexibility and the associated rise in government debt," said Standard & Poor's credit analyst Luc Marchand. Primarily because of the global economic slowdown and a decrease in external grants, the general government deficit (including the social security balance and local government) increased to an estimated 7.8% of GDP in 2009, from a broadly balanced position during the previous five years. We believe that despite planned fiscal restraint in 2010, the Kingdom's net borrowing requirements have structurally increased as a result of lower grant revenues, and increasing--mostly inflexible--expenditures. We expect this will reverse the trend of a declining debt burden that had prevailed through to 2008. Our forecast is that by 2012 the Kingdom's gross government debt ratio will be around double that of the 'BB' median. This differential is less pronounced on a net debt measure, but here it also appears to be falling behind its 'BB' rated peers.
The ratings are also constrained by our view of regional security, which, however, is partly offset by a stable domestic political environment, prudent monetary policies, and relatively good economic prospects--although we believe these prospects are weaker than in previous years. We expect growth to average just under 5% per year in 2010-2013, better than the trough of around 3% in 2009 (around zero on a per capita basis), but well below the 2004-2008 average of over 8% annually, which was underpinned by strong FDI and inflows of remittances from Arab countries. The new government's reformist agenda could help to prop up investor confidence, but this positive impact on the Kingdom's growth potential would take time to fully materialize.
"The stable outlook reflects our expectation that recovering GDP growth in the medium term, along with a stable political system, should enable the Kingdom to achieve significant fiscal consolidation and progress with structural reforms, which we believe are vital to making the economy more resilient in the face of external shocks," added Mr. Marchand.
Deeper fiscal adjustment measures, well beyond our current expectations, could support a positive rating action in the medium to long term if they led to the convergence of the public debt ratio with the 'BB' median. Conversely, any further slippage in fiscal and economic reform implementation beyond our current expectations could undermine the foreign and local currency ratings on the Kingdom, as could significantly increased regional political and security challenges.
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