Jordan faces budget quandary

Friday 20/11/2015
General view of the Central Bank of Jordan in downtown Amman

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.