External and Domestic Indebtedness in Jordan during the First Half of 2018

9-8-2018

· A Tough Test!

- Despite an increase in domestic revenues of about 87.9 million dinars during the first seven months of the current year, i.e. by 2.2%, to register 4,054.4 million dinars, compared with 3,966.5 million dinars during the same period of 2017, where tax revenues increased by about 48.6 million dinars, and non-tax revenues increased by 39.3 million dinars... grants from abroad also increased during the first seven months by 3.2 million dinars compared with the same period of 2017... however total expenditure... rose by 210.5 million dinars during the first seven months of the current year compared with the same period of 2017... an increase of 4.5%... current expenditures increased by 286.2 million dinars, and capital expenditures decreased by 75.7 million dinars (they increase at year-ends).

· Surplus / Or Deficit

- In light of the foregoing developments, a fiscal deficit was recorded in the general budget during the first seven months of 2018, after receipt of grants, of about 659.4 million dinars, compared with a fiscal deficit of about 539.9 million dinars during the same period of 2017, noting that the government is working to achieve the deficit estimated in the general budget law of 523 million dinars at the end of 2018.. and it is expected to fall according to estimates by year-end to reach the targeted levels, with the arrival of most grants, especially the American grant..

- These financial data were published in a statement issued by the Jordanian Ministry of Finance the day before yesterday, Tuesday 7-8-2018, and were circulated by all local and international media, despite the fact that the Ministry of Finance’s website displayed only the semiannual financial statements - June - 2018, which I will refer to below..

· External and Domestic Indebtedness

- As for external and domestic indebtedness, and following the developments witnessed by internal and external indebtedness, total public debt at the end of July 2018 reached about 28.22 billion dinars, equivalent to 39.7 billion dollars, or 96.4% of the gross domestic product estimated at the end of July 2018, compared with 27.27 billion dinars, equivalent to 38.4 billion US dollars, or 95.9% of GDP in 2017....

- In light of the above data, and although Jordan’s public debt in 2008 equaled 60% of gross domestic product, the figures indicate that Jordan’s domestic and external indebtedness is continuously rising, alongside increasing amounts of public expenditure, and the continued existence of a recurrent budget deficit despite receipt of external grants... which attempt to reduce the deficit.. therefore, faced with the continuously rising budget deficit and the monthly rise in internal and external indebtedness, the Jordanian government is cornered and finds itself compelled to obtain funds to pay external debt installments and their interest (debt service), which equal more than one third of the country’s public revenues, reaching 38.7% in April past... up from 21.1% at the end of 2017, in addition to the need to reduce the 2018 budget deficit, which was estimated in the budget at about 523 million dinars... In the Jordanian government’s efforts to seek funds for repayment and reduction, it faces difficult options, including working to increase revenues from tax collection in all its forms, and thus imposing new tax bracket rates, or increasing domestic borrowing, noting that domestic debt reached a level whose indicators point to the danger of such debt, because it exceeded more than 50% of gross domestic product... Also any possible intervention by the Central Bank of Jordan regarding raising interest rates, or intervening in the open market, and intervening through its usual instruments and increasing the money supply in the Jordanian market, remains of uncertain outcome!! For using that would expose prices to rise, and increase the rate of inflation, and consequently raise the unemployment rate, which is approaching 20% these days, as has been disclosed. In addition, any government action to restructure and rationalize expenditure will be accompanied by discontent among middle and poor classes in Jordanian society... which will affect social programs by cutting them, or reducing jobs.... The government may resort to relying on requesting more grants and international assistance... in order to alleviate this heavy burden on it.. or this government may try to negotiate via the International Monetary Fund with creditors to write off part of Jordan’s outstanding external debts in exchange for its efforts and bearing of refugee issues from neighboring countries. The government’s options are not broad, and it is in a difficult predicament.. if this drain and accumulation of external and internal debts continue to rise continuously,... which has begun to touch the sovereignty of the state... in its internal and external dealings, where the country’s economic situation has rendered it captive to surrounding circumstances, whether political or economic.... However there is a crude tool that the International Monetary Fund always resorts to to impose its vision of a solution, and it is among the solutions proposed in such intractable situations, which is devaluing or floating the national currency... and this is one of the most disliked solutions for countries and their experiences in this field, and it is difficult to predict what such a step will produce subsequently, domestically and externally; is there any guarantee of increasing exports for example? if the country’s currency is devalued as they claim, and imports are reduced to increase foreign currency reserves, will the prices of goods and services remain as they are? This measure may be more effective than other means and instruments, as some experiences of other countries that took this measure and devalued or floated their currency produced negative results in the short term, then some positive results emerged that improved the economic position over the long term.... it is a very bitter situation, if other options are closed...

- I reviewed the Jordanian Ministry of Finance’s data for the first half of 2018, and it appeared that total public debt owed by Jordan rose by 2.4% on a half-year basis during the first six months of 2018. The Ministry of Finance issued in July 2018 a statement saying that public debt reached 39.381 billion US dollars... up to the end of June past, representing 96.1% of the estimated GDP for the same period... a slight increase over total public debt at the end of 2017, which amounted to 38.449 billion US dollars... or 95.9% of GDP...

- Public debt is expected to reach 93.6% of GDP in 2018, then fall to 90.3% and 86.2% in 2019 and 2020 respectively, according to estimates in Jordan’s budget project... Economist "Hossam Ayesh" said in his analysis that government revenues are no longer sufficient for public expenditure requirements... which are increasing faster than revenues and grants... which reached Jordan in the past period... were not sufficient to confront the burdens of the budget deficit... "Ayesh" added during his appearance on Alghad News channel that the rise in prices of oil derivatives, and oil in general, by about 25% in the first 4 months of the current year, which continues to rise, contributed to raising the overall cost to the kingdom, and increasing the loans granted to the electricity and water companies, which raised the debt of the two companies to 3.7 billion dinars, aggravating the problem of public debt.. As for the net domestic debt of the kingdom, it reached 15 billion dinars at the end of June past... where Jordan’s net public debt reached 91.4% of GDP.

- Any monthly look at the numbers in this year starting from January 2018 through July 2018 shows continuous increases in public debt figures... which in 2008 were at the level of 60% of GDP, rising gradually in recent years... so the country’s net public debt was about 90.7% of GDP... and net domestic debt, which represents the larger burden, was 50.2% of GDP, compared with external debt at 40.6%...

-        It is worth noting that Jordan obtained, on 24-6-2016, the approval of the International Monetary Fund for a 3-year financing program in the amount of 723 million dollars to support structural reforms in the country, to support the National Program for Economic and Financial Reform, and to benefit from the (تسهيل الصندوق المحدد) which targets reducing public debt to 77% of GDP by 2021. The program aims to give a push to the fiscal consolidation process to progressively reach a reduction in public debt, and to carry out wide-ranging structural reforms that improve prevailing conditions to achieve more inclusive growth, more attentive to social considerations. (Inclusive growth .....is based on the principle of the participation of all segments of society in development efforts and in reaping their fruits, so that everyone feels it, and it is a growth that combines high growth rates and the social dimension that is related to the equitable distribution of opportunities among citizens and regions in the country in question)... it is development to reduce inequality in the concerned societies. And especially in the societies of developing countries.......

-        For the remainder of this year, and during its remaining months, Jordan will be in an economic situation that raises fear of many possibilities and scenarios to address this drain and the steady increase in external and domestic debt. The intervention of the International Monetary Fund and the World Bank in Jordan’s arena will have economic and political repercussions... it urges upon us the necessity of rallying and communicating with the government, to stand together by all means to avoid the entry of the ill-reputed Fund into producing results for us that we in Jordan do not accept.