Standard and Poor’s cut Jordan’s local long-term and short-term currency ratings to BB+/B from BBB-/A-3 and revised the outlook on its long-term foreign currency and local currency ratings to negative from stable.

Moody’s downgraded the outlook on Jordan’s Ba2 foreign currency government bond to negative from stable, saying the new government may raise spending to deflect protests inspired by the uprising in Egypt.

The agency also downgraded Jordan’s local currency bond rating to Ba2 from Baa3 to align it with the foreign currency government bond rating.

S&P credit analyst Luc Marchand said its negative outlook on long-term foreign currency and local currency ratings reflected concern about social unrest in Jordan and the likely repercussions of regional conflicts on economic growth and fiscal revenue expectations.

“If unchecked, this trend could result in, on our current expectations, a one-notch lowering of both ratings this year or next,” Marchand said in a statement.

Moody’s said its moves reflect concern that “the fiscal and economic downside risks related to ongoing turmoil in the region have risen following events in Tunisia and Egypt”.

Jordan’s King Abdallah sacked his prime minister last week after weeks of anti-government protests, replacing him with a conservative former premier known for his hostility to the private sector.

The new prime minister, Marouf Bakhit, is likely to be sympathetic to calls for government spending to be maintained on subsidies and state jobs for the country’s influential tribes — despite Jordan’s large budget deficit.

“Moody’s points to the possibility that the new Jordanian government could significantly relax its fiscal stance as part of its policy response to such popular discontent,” the agency said in a statement.

Bakhit, who is expected to announce a Cabinet line-up in the next 48 hours, had pledged in talks with public sector unions to slow the pace of free market reforms that analysts credit for the  country’s  sound  macro-economic fundamentals.

“An economy driven by social considerations has become a necessity after the negative consequences of the free market,” Bakhit told state-run labor unions on Monday.

“The free market is not a destiny for Jordan and nor are the old means suitable to achieve the desired reforms,” he added.

The global crisis caused growth to slow sharply to 2.3 percent in 2009, the weakest performance since an economic crisis in 1989 when the country was forced to seek help from the International Monetary Fund. It picked up to 3.5 percent last year.

Analysts say last month’s $500 million package of social handouts, subsidies and salary increases that were announced to calm protests in the wake of regional political unrest could push 2011 the budget deficit close to the record $2 billion level it hit in 2009 — or 9 percent of GDP.

Before the package, Jordan predicted the overall budget deficit would narrow to 5 percent of GDP in 2011 compared to 5.75 percent last year.

Moody’s said Jordan’s gross government debt of around 60 percent of GDP meant its public finances were “in some respects weaker than those of Ba rating peers”.

The Ba2 rating could be downgraded “if there were disruptive political turmoil that threatened a structural weakening of Jordan’s credit fundamentals relative to ratings peers”.

Moody’s also said rising political risk had led to a “moderate deterioration in the operating environment for businesses and other entities based in Jordan”.