Moody's issues annual sovereign credit report on Jordan

It is also reassuring that the domestic banking system does not seem to have been significantly affected to date by the global financial turmoil, says Moody's Investors Service in its new sovereign credit report on Jordan.

However, Moody's cautions that Jordan's sovereign rating is constrained by a low level of economic strength that is exacerbated by weaknesses such as a high reliance on oil imports and a very wide current account
deficit that creates a dependency on potentially volatile inflows of private capital.

The high level of inflation is a concern as is the public debt which, although well-structured and declining, remains large.

"Jordan's economic strength is quite weak. Compared to other countries that we rate globally, Jordan has a low level of GDP per capita.

Although the economy is relatively well diversified, it is small and has structural weaknesses, which limits its robustness," says Tristan Cooper, a Moody's Vice President and Senior Analyst.

The quality of governance and institutions in Jordan continues to improve gradually but lags that of higher rated countries.

The government does however display a strong willingness to repay its obligations, illustrated by its recent external debt buyback.

Jordan has a moderate level of government financial strength.

Although the central government deficit (excluding grants) is wide, the overall general government is close to balance owing to substantial external grants and government agencies' surpluses.

Notwithstanding a recent debt buyback, the public debt is comparably large.

The government's shrinking external debt has a favourable structure, an important consideration in light of the country's balance of payments vulnerabilities.

Jordan's susceptibility to event risk is also considered to be moderate.

While Moody's considers the risk of serious domestic political upheaval to be low, the volatile regional political environment is unsettling.

As Mr Cooper explains,

"The main economic risks are the high level of inflation and the very wide current account deficit. We are wary of the
balance of payments' heavy reliance on potentially changeable inflows of private capital. Although it is comforting that these are largely in the form of FDI from wealthy oil-exporting countries and that the authorities
have a large stock of foreign exchange reserves at their disposal."

"Jordan's banking sector remains in relatively good health and does not seem to be exposed significantly to the current turmoil in global
financial markets, although strong domestic credit growth in recent years could be a source of vulnerability in the event of an economic downturn, especially if domestic real estate prices were to slide",concludes Mr
Cooper.

The issuance of this credit report by Moody's Investors Service is an annual update to the markets and is not a formal action to alter the
credit rating of the issuer.