Jordan enjoys robust growth but low GDP, oversized public debt

In its annual report on Jordan, Moody’s Investors Service said its Ba2 foreign currency government bond rating is underpinned by generally sound economic policies, robust growth and comfortable external liquidity but is constrained by low GDP per capita, an oversized albeit easing public debt, and the country’s vulnerability to exogenous shocks.

“Jordan‘s sovereign ratings are supported by the government’s generally sound economic policies, the impetus for which comes from King Abdullah himself,” said Tristan Cooper, a Moody’s Vice President-Senior Analyst.

“These have contributed to a vigorous rate of GDP growth and have spurred a dramatic increase in foreign investment in recent years.”

Indeed, inflows of FDI and other long-term private capital have enabled the central bank to continue to accumulate foreign exchange reserves in the face of a wide current account deficit.

“Despite an ongoing, low-level threat from Islamist militancy and rumbling discontentment about the rising cost of living, the domestic political situation is  essentially stable and conducive to investment under an effective leadership,” Cooper added. “Jordan also enjoys strong and improving relations with most of its regional neighbours, the US and other G8 countries.”

Jordan‘s ratings are constrained by a number of factors, according to the Moody’s report, foremost of which is the country’s vulnerability to exogenous shocks.

“The steep rise in international oil prices since 2003 coupled with a sharp fall in external grants has precipitated a marked deterioration in the external current account and raised underlying fiscal pressures.”, noted Cooper. While Jordan‘s strong international relations, particularly with the US, will ensure a degree of foreign support in times of economic difficulty, the level of support will remain unpredictable.

“The excessive, albeit declining, level of public and external debt also constitutes a negative factor, as does the country’s relatively low GDP per capita and high unemployment,” Cooper said.

“There is a risk that rapid credit growth in recent years could start to affect the financial strength of commercial banks. Finally, the tense regional political environment, especially the turmoil in Iraq, is a source of disquiet.”

The outlook on Jordan‘s ratings is stable. While Moody’s remains concerned by the size of the current account deficit, the agency notes that the deficit continues to be financed comfortably with non-debt creating sources. “We will continue, however, to monitor closely the nature and sustainability of capital inflows as well as the level of overall external liquidity. We are mindful of the fact that Jordan has a fixed exchange rate regime with a volatile balance of payments, and that around 60% of the large public debt stock is denominated in foreign currencies,” Cooper cautioned.