Jordan rated B+ by S&P, but challenges remain

(Photo: S&P Global Ratings Twitter)
AMMAN — Standard & Poor’s (S&P) credit rating for Jordan stands at B+ with stable outlook, despite a global uncertainty caused by Russia’s war on Ukraine, which sent jitters across the world, sending the prices of fuel derivatives through the ceiling and casting doubt of the availability of certain food products as early as this year.اضافة اعلان

The Kingdom received a B+ in the Global Sovereign Ratings Outlook 2022 issued by S&P in April 2022, which is bound to impact the future of loans and investments the country seeks to obtain.

The S&P report assesses the sovereign credit risks of countries to determine their ability to cover their financial obligations. A country’s credit rating determines its ability to access funds both internationally and domestically, and the credit rating affects the cost of any country’s borrowing.

The B+ credit rating reflects the “noticeably variable” rank.

S&P sovereign credit analysis is based on five pillars: institutional assessment, economic evaluation, external evaluation, financial evaluation, and monetary evaluation.

These are measured using several indicators: the per capita growth of GPD, investment growth, unemployment rate, inflation, budget deficit-to-GDP ratio, state revenue, short-term public debt to GDP, foreign currency debt to GDP, and many more.

The key takeaways from the report are that the COVID-19 pandemic continues to pose a major risk to sovereign ratings; governments’ capacity to implement revenue and spending rebalancing measures is limited by fragile social context and political polarization; rising global interest rates will pose an additional challenge to emerging markets primarily dependent on external funding, like Jordan.

Jordan issued $650 million worth of Eurobonds in the global financial markets on June 8. The Central Bank of Jordan’s governor said that the high demand for the issuance of said bonds reflects the confidence of global investors in Jordan’s financial and monetary policies.

However, according to political economy specialist Zayyan Al-Zawaneh, “the S&P report unveiled and exposed Jordan’s economic truth to the world, when it called Jordan’s ratio of public debt to GDP a high risk.”

He said that Jordan is in a tight debt trap that is impossible to fix at the moment and that “would drive away from Jordan any sane investor”.

He said that “Jordanian officials consider the Eurobond loan an excellent achievement, when in fact, the country has to pay an extremely high interest rate, that stands at 7.75 percent, which means that the international market is aware of how risky Jordan’s situation is, and in the future, any loan will either come with a high-interest rate or a decreased amount.”

State loans, he said, are made for political reasons, while international market loans are purely for financial gains.

Economic analyst Mazen Irsheid told Jordan News that the rating that Jordan received in the S&Ps report is not surprising, since Jordan’s debt is increasing.

“The report shows how the country’s economy is encumbered by debt,” he said. 

Irsheid noted that “Jordan pays its debts by borrowing another loan”.

“It does not pay its debt using its revenues, it is only paying the interest on the loan with its revenues,” he said.

Irsheid forecasts that Jordan’s rating will be lower and weaker in the coming years, “since the Kingdom could be knocked out by an inflationary recession, there are hikes in interest rates, and the economy is in recession, in addition to the Russian-Ukraine war”.

“The situation is not hopeful,” he said, stressing that while it is not promising for the global markets in general, “we feel it more in Jordan because Jordan imports most of its needs, paying high international prices”.

Economic writer Salameh Darawi told Jordan News that the high-risk rating is due to the decline in economic growth, “besides the internal, regional, and international repercussions on the national economy”.

Added to that is the “decrease in the refugee support provided to Jordan and the urgent expenses that the government had to pay, like during the pandemic”, he added.

While Jordan “has a good relationship with lenders and the donor community, the lack of an economic plan could increase the level of risk” when a lender wants to lend money to the Kingdom, which will likely result in high-interest rates or in the country to “be lent a smaller amount than it requests”.

Jordan’s economic situation and S&P rating may place it in a better position than that of neighboring and regional countries, Jordan still “has many challenges”, Darawi said.

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