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Expropriation Risk: 41 41 41 45 ▲ Political Violence Risk: 59 59 58 59 ► Terrorism Risk: 45 45 46 46 ► Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 66 66 75 66 ▼
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
In 2021, Jordan raised its greenhouse gas emission reduction target of the business-as-usual scenario from 14% to 31% by 2030. The reduction target is divided into an unconditional reduction target of 5% and a conditional target of 26%. The cost of mitigation actions to reach the 31% target is estimated at USD7.54 billion, of which Jordan would contribute USD565 million through the Jordan Renewable Energy and Energy Efficiency Fund and Jordan Environment Fund. The country aims to increase the share of renewables in its power mix to 35% by 2030 (from 14% in 2019) and to improve efficient energy consumption in all sectors by 9%.
In 2018, Jordan was ranked as having the third-most-attractive environment for renewable energy investment among developing countries by the Bloomberg Climatescope Index. However, the fast pace of Jordan’s development of renewables has been matched by a rising number of challenges, which, in early 2019, led to the kingdom temporarily halting the implementation of large-scale renewable energy projects and limiting the wheeling policy to 1-megawatt projects. Hence, the country’s ranking dropped to sixth in 2019 and to eighteenth-most-attractive environment for renewable energy investment in 2021.
Structural issues have played a significant role in hindering the sector’s ability to upscale renewables. First, a lack of coordination on energy policy meant that conventional thermal power plants developed under the independent power producer model and operating within fixed power purchase agreements (PPAs) have slowed the development of utility scale renewable energy projects. Jordan now has an excess of electricity which cannot be consumed, with its reserve margin currently at 37%.
Second, by maintaining the single-buyer model in the electricity market, NEPCO- the state-owned utility and sole off-taker- is obliged to purchase all the electricity produced. Under long-term and poorly designed PPAs, both the thermal and the renewable energy power plants are bound to expensive take-or-pay agreements, with NEPCO required to purchase all deemed or virtual electricity even if the grid cannot handle it or it is not consumed by the end-user. The result is that the government is buying electricity that it cannot necessarily sell, maintaining high financial losses.
To mitigate its excess of electricity, the government has been negotiating selling a portion to neighbouring countries Lebanon and Iraq. An agreement has been signed with Iraq for a direct interconnection, although linking the two countries’ grids is still underway with Iraq also being eyed by Saudi Arabia.
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Investment law includes guarantees for national and foreign investors against expropriation, including that no economic operations can be expropriated directly or indirectly unless this is undertaken in the public interest and provided that the investors concerned are fairly and speedily compensated, in a convertible currency.
The only case in which expropriation is likely to take place is in the interest of national security; it usually amounts to confiscation of land. There have been no expropriation cases against foreign investors in Jordan, at least in the past five years, and the expropriation risk remains low.
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There is likely to be an increase in political violence in coming months, as discontentment and protests in urban and rural centres rise across the country, driven by continuing dissatisfaction with government’s pandemic responses and the deteriorating standard of living (a long-standing issue that COVID-19 has exacerbated). The security forces will likely adopt a more robust response to protestors, that will lead to skirmishes and possible standoffs, especially in tribal areas.
There is a persistent medium risk of terrorism in Jordan, given its proximity to conflicts in neighbouring Iraq and Syria where terrorist groups such as Islamic State (IS), al-Qaida and al-Qaida-linked outfits operate. Moreover, Jordanian communities, notably in Zarqa and Maan, have hosted sympathisers who have joined and led terrorist groups operating in neighbouring states and have, themselves, staged large-scale attacks in Amman. The US-led 2021 evacuation from Afghanistan and the complex attacks staged by Islamic State of Khorason Province could inspire local sympathisers in Jordan.
The security forces, however, have proven effective at mitigating planned terrorist attacks and benefit from efficient intelligence services, which operate in Jordan and are embedded in neighbouring states. Nevertheless, terrorism continues to pose a threat. The last significant attacks were carried out in December 2016, with IS-claimed shootings in Al-Karak city in southern Jordan.
Jordan's liberal foreign exchange law entitles foreign investors to remit abroad, in a fully convertible foreign currency, foreign capital invested including all returns, profits and proceeds arising from the liquidation of investment projects. Non-Jordanian administrative and technical employees are permitted to transfer their salaries and compensation abroad.
The Jordanian dinar will stay pegged to the US dollar. The large current account deficit will be partly financed by inward foreign direct investment, debt inflows and donor support. Foreign reserves are rising and in July 2021 were equivalent to 9.2 months of current external payments, which should provide sufficient support to maintain the peg.
External conditions and political resistance to further austerity remain challenging. Jordan will retain US loan guarantees and access to foreign borrowing at concessional rates from multilateral institutions, and it will be able to meet its repayments fully. The rating is constrained by wide fiscal deficits and high public debt, but the government is trying to address these issues.
Jordan's re-opening of its border with Syria and its call for other states to normalise with the Assad regime opens the kingdom to the risk of sanctions, especially as Syrian goods transit onwards to the Gulf states. However, King Abdullah was careful to secure implicit support from the White House before re-opening the border and assurances that the provisions of the Caesar Syria Civilian Protection Act of 2019, also known as the Caesar Act, would not include Jordanian businesses or personnel.
Nevertheless, given that the Caesar Act enjoys non-partisan support in both Houses, Jordan will depend upon both the White House and goodwill amongst its supporters in Congress to ensure that Jordanian businesses are not subject to sanctions.
The flow of narcotics, especially Syrian-produced Captagon, poses a significant challenge to Jordanian customs and immigration on the Syrian borders. Its penetration of Gulf markets means that it will remain a high-profile issue and one that draws the attention of US policymakers and, therefore, keeps Amman on the sanctions radar.
In November 2020, Moody's affirmed Jordan's B1 credit and maintained the stable outlook. They also affirmed the long-term sovereign credit rating at 'BB-'. Although the government deficit stands at USD1.97 billion in the 2021 budget (5.8%), it is expected gradually to narrow to 2.6% in 2022, as revenue recovers with the economy, pandemic-related tax reliefs, and as the government maintains expenditure restraint.
In June 2021, Fitch affirmed Jordan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a negative outlook. The ratings are supported by a record of gradual fiscal and economic reforms and resilient domestic and external financing linked to the liquid banking sector, public pension fund and funding from Jordan's external partners. However, the negative outlook reflects the risk that government debt deteriorates further amid an uncertain recovery and a difficult social context following COVID-19.
Jordan's general government deficit widened to 5.4% of gross domestic product in 2020, from 1.4% in 2019, driven by a 40% collapse in non-tax revenue, despite a 6% increase in tax revenue due to government efforts to improve tax collection. Spending growth was contained at 4%, reflecting a modest pandemic support package and offsetting measures towards expenditure restraint, including a freeze on civil service hiring and bonuses.
Jordan's credit challenges, including high government debt and social pressures stemming from weak growth and high unemployment, have been aggravated further by COVID-19. These will continue to constrain Jordan's creditworthiness, although the government's commitment to structural reforms, medium-term fiscal consolidation planning and international support for Jordan from the United States and Gulf Arab states mean that near-term negative trends will likely reverse over the next few years.
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