PARIS: Standard & Poor's lowered Jordan's long-term credit rating on Monday by one notch to 'BB-' with a negative outlook due in part to the conflict in neighbouring Syria.
"The downgrade results from our view of Jordan's weakened external and fiscal profiles in the wake of reduced foreign grants and weaker terms of trade in 2011 and 2012," said S&P in a statement.
It noted that foreign grants fell to 1.5 percent of the country's total economic output -- the lowest in over a decade -- from 5.9 percent in 2011.
"High oil prices in 2012 made things worse by further increasing the country's energy import bill, while the cheaper Egyptian gas supply remained largely disrupted," it added.
It noted that fiscal and structural reforms undertaken by the government plus a stand-by agreement with the IMF had helped prevent a balance of payments crisis, but warned the situation in the current account is set to worsen given rising financing needs.
Nevertheless, S&P said it believed Jordan would keep a pegged exchange rate for the dinar as it had survived the trials of declining foreign reserves and devaluation speculation last year thanks to transfers from regional partners and a key fuel subsidy reform helping maintain investor confidence.
It said the negative outlook on the rating was due to the risk of "adverse developments, particularly emanating from the conflict in Syria," again significantly raising Jordan's financing needs.
"While external pressures may be dissipating, Jordan remains vulnerable to factors that could again worsen external and fiscal balance sheets," said S&P.
Rival ratings agency Moody's has Jordan rated one notch higher at Ba2. That rating has been on negative outlook since February 2011, although it is not currently on watch for a downgrade.
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