Public debt will rise in 2015

A recent report by the International Monetary Fund expects Jordan’s public debt to stabilise during this year and start to decline as of next year.

The subject is, of course, the ratio of debt to the gross domestic product. Stability or reduction of debt in absolute figures is not a possibility this year or in the coming year.

Figures depicting debt movement during the first five months of this year do not support the IMF’s optimistic statement. Figures published by the Ministry of Finance indicate that the public debt has risen during the first five months of 2015 by JD649 million, at the rate of JD130 million a month, or JD6 million every working day, or close to JD1million per hour!    

If this trend continues throughout the remainder of this year, public debt at the end of 2015 will be higher by JD1.6 billion to reach JD22.1 billion.  

In order for the debt to stabilise this year as a ratio of GDP, as the IMF projected, the debt should not be allowed to rise by more than 5 per cent, which is the expected rate of GDP growth this year, calculated in current prices, as a result of 3 per cent real growth and 2 per cent inflation rate as predicted. 

Unfortunately, the trend suggests that the debt is expected to gain 7.6 per cent in 2015, confirming that it will continue to rise faster than the GDP growth rate this year.

Things being so, the ratio of debt/GDP by the end of this year will rise from 80.8 per cent at the end of 2014 to 82.7 per cent at the end of 2015, a net rise of 1.9 percentage points. What is more worrying is that the portion of debt denominated in foreign exchange will rise from 39 per cent to perhaps 45 per cent of total debt, a move not in the right direction.  

Two arguments may be presented to doubt the above calculations:

First, the first five months of the year may not be a good base to measure the growth of debt in the year as a whole, as some non-recurring loan withdrawals and repayments that will take place in the remaining seven months may change the picture.   

Second, the government is currently in the process of issuing relatively big amounts of Eurodollar bonds under the American Treasury guarantee, along with a variety of medium-size loans and Islamic sukuk. The government will also have to repay a sizeable maturing debt in Eurodollars, which makes it difficult indeed to reach accurate estimates of the net result of all these transactions.

The only source of information that can tell, with high confidence, what the net outstanding debt will be at the end of this year is the Ministry of Finance. 

The above tentative exercise, which I conducted is based on moving assumptions and, as such, is subject to change. However, the exercise may serve as a precaution and early warning against rising debt, at least not to disappoint the high expectations of the IMF experts.