Kingdom of Jordan 'BB' L-T, 'B' S-T FC ratings affirmed on prudent policies; outlook stable

At the same time, the 'BBB' long-term and 'A-3' short-term local currency sovereign credit ratings were also affirmed. The outlook is stable.

"The ratings reflect the Jordanian government's continued prudent policies, as demonstrated in its good management of external shocks currently being experienced by the country," said Standard & Poor's credit analyst Luc Marchand. "The ratings continue to be constrained, however, by a high government debt burden and a weak economic structure, partially mitigated by strong economic prospects."

After a spike in the central government deficit in 2005, due to the large negative impact of increased oil prices and a substantial drop in external grants in 2005, it is expected to decrease to about 3.3% of GDP in 2006 from 5.7% in 2005. Consolidating a social security surplus of 1.1% of GDP, the general government deficit (including grants) is forecast at about 1.3% of GDP in 2006, down from 3.6% in 2005. The government plans to phase out oil subsidies completely by March 2007 and to continue tightening current spending. Standard & Poor's forecasts that this measure will decrease the central government deficit to about 3.1% of GDP in 2008 and, further still, to 2.9% of GDP by 2009. This will be despite an ongoing sharp reduction in external grants, which will decrease to 1% of GDP by 2009 according to our forecast.

Standard & Poor's expects that there will be further progress with economic and fiscal reforms, to face the challenge of a high fiscal deficit and debt burden. GDP growth, forecast at more than 5% per year in the medium term, provides a favorable setting for embarking on fiscal consolidation, reducing reliance on external financial support, and progressing with structural reforms, which are all vital to making the economy more resilient to external shocks.

"An improvement in the fiscal and external outlook beyond current expectations could lead to a positive rating action in the medium term," said Mr. Marchand. "Conversely, slippage in fiscal and economic reform implementation, further exacerbating the country's budgetary and external imbalances, could undermine the ratings on Jordan. In addition, any regional economic or political deterioration that significantly undermines Jordan's own prospects could place downward pressure on the sovereign ratings."