UPDATE 1-Moody's downgrades Jordan credit rating two notches to B1

Wed Jun 26, 2013 6:15pm EDT

NEW YORK, June 26 (Reuters) - Moody's Investors Service on Wednesday downgraded Jordan's sovereign foreign currency government bond rating by two notches to B1 from Ba2 citing a deterioration in the Middle East nation's fiscal metrics and rising government debt.

The outlook on the credit is stable, Moody's said in a statement.

"The first driver of today's rating is the dramatic deterioration in Jordan's public finances since 2009, due to a combination of lower economic growth and external shocks," Moody's said in a statement.

Jordan's general government debt levels as a percentage of gross domestic product are rising and expected to climb in the coming years.

The firm expects the debt-to-GDP ratio to hit 84 percent this year and reach close to 90 percent of GDP in 2014.

A drop in foreign exchange reserves and increased dollarization of deposits is also a growing concern, the firm said. A fall in reserves is a key credit concern "given the need to support the official exchange-rate peg."

While reserve levels have improved somewhat, Moody's said they remain at a weaker level.

"Moody's external vulnerability indicator, which measures upcoming external debt payments to available foreign reserves, will likely reach close to 190 percent by 2014, compared to the 88 percent median for B-rated sovereigns," Moody's said.

Jordan is rated one notch higher by Standard & Poor's at BB-minus with a negative outlook.

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