A fragile advantage

External debt in foreign exchange is the opposite of the Central Bank reserve in foreign exchange.

If the rising reserve is welcome and a reason for confidence in the financial position of the country, the rising foreign debt is unwanted and a reason to worry.

In this respect, the ideal state of affairs in any country is to see the central bank reserve in foreign exchange rise and external debt in foreign exchange decline.

However, this ideal situation is admittedly unrealistic, too ambitious and unattainable in Jordan under the present circumstances.

Therefore, it is satisfactory in our case, at this time, to have the balance in favour of the reserve; the foreign debt of the Treasury should not be allowed to rise more than the growth of the Central Bank’s reserve of foreign exchange.

Let us see what happened in the first five months of this year. Figures issued by the Central Bank regarding foreign exchange reserve and data published by the Ministry of Finance regarding foreign debt indicate that the reserve has risen in five months by $1.3 billion, while foreign debt has risen at the same period by $643 million.

The net position of the country in foreign exchange improved by $647 million, i.e., at the rate of $130 million a month.

If this trend continues, businesses and investors will be reassured.

Understandably, the government likes to remind us repeatedly that the Central Bank reserve in foreign exchange is rising steadily, an indication that the government is leading the country in the right direction.

By contrast, a critic of the government may like to point out the fact that the net external debt in foreign exchange is also rising, and is expected to gain momentum, an indication that even though the country is going in the right direction, more caution is needed in the field of public finance to prevent the trend from being reversed.

So far, figures are available only for the last five months of this year. The big picture, however, looks even better.

At the end of May 2014 Jordan had in its Central Bank more foreign exchange than its debt in foreign exchange, a healthy and comfortable position.

Foreign debt at the end of May stood at around $10.8 billion, while the Central Bank reserve at the same time was around $13.3 billion, a net balance of around $2.5 billon.

This is obviously a good state of affairs. It means that Jordan is a net lender to the outside world in foreign exchange.

The government needs to maintain and protect this formula by not going too far in borrowing from external markets, especially since the cushion of $2.5 billion is rather thin and can disappear in no time if the government continues to give priority to foreign loans over domestic borrowing.