Fitch revises Jordan’s outlook to stable; affirms at ‘BB-’

After two quarters of growth, GDP fell by 1.8 percent between January and March, national statistics office Destatis said in a statement, revising down its initial prediction of a 1.7 percent drop. (P
(Photo: Jordan News)
AMMAN — Fitch Ratings revised its outlook on Jordan’s progress on fiscal consolidation and post-pandemic recovery, the US credit rating agency said on Tuesday. Fitch’s expectation was that continued fiscal and economic reforms will ultimately result in stabilization and then reduction of government debt/gross domestic product (GDP).اضافة اعلان

The agency said that strong revenue collection will drive a narrowing of Jordan’s fiscal deficit this year, and that it expects Jordan’s general government (GG) deficit to narrow to 4.6 percent of GDP in 2021 from 5.3 percent in 2020. Revenue, according to Fitch, is being driven by a cyclical rebound as well as continued efforts to combat tax evasion and streamline the tax system. These revenue gains are expected to help offset an increase in mostly pandemic-related spending, despite efforts towards spending control in other areas, including an ongoing freeze on civil-service hiring and bonuses.

At the central government (CG) level, Fitch forecasted a deficit of 6 percent of GDP in 2021, from 7 percent in 2020. The agency attributed the narrower GG deficit to a surplus of the Social Security Corporation (SSC) and the netting out of government interest payments to the SSC. Fitch’s GG deficit estimate included transfers and advances to the Water Authority and several water distribution companies.

The credit agency expected the GG deficit to narrow to 3.2 percent of GDP next year and 2.3 percent in 2023, driven by further improvements in revenues/GDP and a gradual unwinding of pandemic-related support measures. These measures include the March 2021 stimulus package of 1.4 percent of GDP.

Fitch did not believe the planned budgetary CG deficit of 5 percent of GDP in the draft budget approved at the end of November will be fully realized, despite a 1 percent of GDP increase in capital spending.

Under the credit agency’s baseline scenario, GG debt, including guarantees, peak at 94 percent of GDP 2022–2023, with the subsequent decline aided by a return to growth and primary surpluses. It added that guarantees relate principally to the water and electricity sectors and are at high risk of being called; the government already services the Water Authority’s debt.
Consolidated GG debt is below central government debt, as the SSC holds government debt worth 21 percent of GDP.

The National Electric Power Company

Fitch’s GG debt projections assumed that the National Electric Power Company (NEPCO) will incur just short of 1 percent of GDP a year in new guaranteed debt in 2021–2023 to cover a renewed widening of its operating deficit. However, the agency said that a number of developments stand to improve NEPCO’s position. The new oil-shale power purchase agreement driving higher operating losses is not being commissioned on schedule due to technical challenges, and is undergoing arbitration that may reduce the costs to NEPCO.  Furthermore, authorities expect an agreement with the World Bank on a financing facility starting 2022 to improve financial viability, increase the reliability of electricity supply, and strengthen NEPCO’s governance. Long-term gas purchase agreements also shielded NEPCO from higher global energy prices.

Finally, Fitch said it expected GDP to recover by 2 percent in 2021 and 2.5 percent in 2022–2023, buoyed by a recovery in global trade and the gradual resumption of tourism. In 2020, GDP contracted by 1.6 percent, due to a decline in tourism, which previously contributed about 5 percent of GDP before the pandemic. The credit agency warned that in the short-term, further COVID-19 variants in Jordan and elsewhere could pose a risk to growth, despite Jordan’s relatively young population, well equipped health system, and 40 percent vaccination rate may mitigate the risk, it said.

Fitch added that the government is working on a wide range of reforms, including a new tariff reform plan to be implemented by the first quarter of next year that will reduce electricity tariffs on productive sectors, which the agency said would be offset by tariff hikes for wealthier households.

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