Is Jordan a net debtor?

The reserve of the Central Bank of Jordan (CBJ), in foreign exchange and gold, declined during the first five months of this year to the extent of $783 million or 5.6 per cent, an average rate of little more than 1 percentage point a month, not a serious drop.

Ups and downs of this reserve give an important indicator that must be watched closely.

However, a rise or a drop of 1 per cent a month may not be considered economically significant. It falls under normal fluctuations that take place from time to time, especially when the available reserve is still more than enough to cover seven months of imports, or double the period considered sufficient and safe.

The CBJ reserve is always subject to seasonal fluctuations. Such fluctuations can be ignored as they are supposed to offset each other from time to time.

Other fluctuations may take place due to irregular timing of the flow of foreign grants and assistance, which is usually rather low during the first part of the year.

Transactions, such as the issuance by the Treasury of foreign currency bonds, withdrawals on foreign loans and repayments of installments by the Treasury have a direct influence on the state of the reserve.

Furthermore, a rising exchange rate of the dollar would reduce the value of certain components of the reserve, such as other currencies, gold and Special Drawing Rights — which actually is the case this time.

Had the reduction of the reserve been substantial, the central bank would have moved immediately. It has several measures under its disposal to protect the reserve. 

So far the CBJ thinks that the situation is normal and nothing needs to be done to halt the trend.

The CBJ reserve of gold and foreign exchange is a moving account. Big amounts are added to or withdrawn from the reserve on a daily basis. The reserve reached its peak in August 2016.

The level of the CBJ reserve at this time is described as comfortable. A relatively high reserve would assure the business community, because a sizeable reserve would secure the convertibility of the dinar, giving it the same strength of the dollar to which it was pegged some 20 years ago.

The International Monetary Fund admitted that pegging the dinar’s exchange rate to the dollar at a fixed rate served the Jordanian economy well. It strengthened the general confidence and encouraged the flow of Arab and foreign investments. Maintaining the fixed rate system is worth keeping as a constant policy.

In this respect, it must be noted that Jordan’s debt in foreign exchange has risen in recent years to reach around $13.3 billion, while the reserve of the CBJ in foreign exchange — even after the above mentioned decline — is still above $13.1 billion.

One, therefore, can assert that Jordan is still in balance with the outside world or that the Kingdom is not a net debtor to the world.

The bulk of public debt carried by the Treasury is local. Jordan is simply borrowing from itself.