Jordan faces budget quandary
AMMAN - Jordanian Finance Minister Umayya Toukan said the country’s public debt was expected to reach $31.6 billion at end of 2015 and rise to $33.6 billion in 2016.
Toukan said the percentage of public debt to gross domestic product (GDP) would reach 83.6% in 2015, lower to 83% in 2016, 81% in 2017 and 79% in 2018.
The astronomical figures were not really taken notice of publicly since they were overwhelmed by news that the minister resigned hours after their announcement without a clear reason.
That led to speculation that Toukan was sacked for divulging information that could scare off investors and citizens, causing a public commotion in a country grappling with a serious cash crunch.
Left out of the affluence of the neighbouring petroleum-rich Gulf Arab region, Jordan is saddled by an unprecedented foreign debt after it expanded borrowing domestically and externally to cover expenditures.
Now, the kingdom faces daunting challenges due to the regional instability, high unemployment, a dependency on grants and remittances from Gulf economies and continued pressure because of a lack of natural resources.
Jordan continues to rely on foreign aid to support its finances, most notably from the United States, Gulf states, the European Union, Japan, the World Bank and the International Monetary Fund, Arab financing funds and the Islamic Development Bank.
The vast differences in the amount of assistance given are subject to external regional developments and pose a danger to Jordan.
Adverse regional developments, in particular with the Syria and Iraq crises, remain the largest shocks affecting Jordan, as reflected in the large refugee influx, disrupted trade routes, lower tourism inflows and much higher security costs.
While fiscal policy remains tight through 2015, the Central Bank of Jordan (CBJ) maintains its expansionary monetary policy.
Real GDP growth is forecast at 2.5% this year, reflecting an unexpected deceleration in the first quarter.
It is imperative for Jordan to continue diversifying its energy supply needs in order to reduce the deficit and its macroeconomic vulnerabilities. Alleviating vulnerabilities at the central and local level will be crucial for Jordan to help reduce poverty.
According to figures from the inistry of Finance, the level of public debt in Jordan reached about $26.9 billion at the end of 2013, compared to $23.4 billion a year earlier.
International financial institutions warn that the rise could threaten the kingdom with exposure to austerity measures.
“A lot can be said against indulging in extravagant borrowing practices since there are many negative risks involved,” National Microfinance Bank General Manager Khaled Muhiesen said.
There was no shortage of warnings against too much borrowing but the government continues to guzzle up domestic and foreign loans simply because they are available, he said.
“Borrowing extends the life of the government but the real crisis, if this trend isn’t reined in, will happen sometime in the future under another government, and Jordanian citizens will be the biggest losers,” he warned.
The Ministry of Planning and International Cooperation estimated the cost of accommodating refugees from 2014 to 2016 at $4.1 billion.
Figures published by the Ministry of Finance indicate that the public debt has risen during the first five months of 2015 by $913 million, Muhiesen said.
“If this trend continues, public debt at the end of 2015 will be [$2.25 billion] higher, reaching a whopping [$31.1 billion], which is a huge burden to handle,” he said.
Debt is expected to grow by almost 8% in 2015, outpacing GDP growth, and the ratio of debt/GDP by the end of the year will rise from 80.8% at the end of 2014 to 83%-85% at the end of 2015, according to Muhiesen.
“In early November the kingdom’s debt/GDP was a slightly over 90% but has since dropped significantly after November 12th, when Jordan made a $750 million payment towards debt due on bonds issued in 2010,” he said.
Some non-recurring loan withdrawals and repayments will take place in the remaining months of 2015 and hopefully clearer, more positive data will help Jordan’s position, Muhiesen concluded.
“Borrowing and spending relieves the government of the difficult task of taking the right decisions that may hurt its popularity,” a government official said on condition of anonymity.
Interest on public debt payable in 2015 is expected to reach $1.4 billion, equal to 12.5% of total public expenditure of the central government’s budget or 3.7% of GDP, according to economist Fahed Fanek.
“In other words, had it not been for the interest that the government has to pay to the creditors, it could have achieved self-sufficiency and managed without foreign aid,” he wrote in the Jordan Times.
Jordan is rated BB- by Standard & Poor’s, three levels below investment grade.