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Dinar wins in 2013

Dec 31,2012 - Last updated at Dec 31,2012

Many ask economists what their expectations are for the next year. As American management consultant, educator and author Peter Drucker said: “The best way to predict the future is to create it.”

I believe that a good year is in the making. One thing I am already sure of is that the Jordanian dinar will remain strong for years to come, which is an assertion, not a prediction.

The dinar will remain strong and maintain its exchange rate based on the following:

— The government committed to the IMF, in its $2 billion Stand-by Arrangement (SBA), to maintain the peg at $1.41, and given that Jordan always safeguards it commitments, the dinar is as safe as the US dollar. — The government has already received more than $900 million in aid from Kuwait, Saudi Arabia and the US, which boosts the foreign reserves at the Central Bank of Jordan. 

— The economy is going to receive over $1 billion in grants to top off the usual aid in the coming four years that will be directed at, among other things, megaprojects in energy and renewable energy development schemes, which will decrease energy demand and the import bill.

— The Kingdom is to receive its full share of agreed gas from Egypt after the recent round of negotiations and the visit of the Egyptian premier, so there will be less demand for oil imports to substitute for a fall in gas supply, as in the recent past, which germinated and caused a fiscal crisis in Jordan. 

— Iraq has agreed to supply Jordan with 15,000 barrels of oil per day at a discount, which should further reduce the energy import bill.

— The government is tendering several large energy-saving projects, including a gas liquefying plant in Aqaba, which permits Jordan to import gas from sources other than Egypt, should the need arise.

— Oil prices are expected to fall as new large suppliers enter the market (the US is expected to replace Saudi Arabia as the world’s largest exporter) and world demand is not expected to rise, which should bring oil prices down and further decrease the Jordanian import bill.

— With the fall in oil prices, commodity prices will also fall, again decreasing food import prices to more than reasonable levels, which is expected to continue as a trend.

Given that the current level of reserves covers over four months of imports, a level that was hailed as comfortable by the IMF to maintain the exchange rate, the foreign reserves will most likely expand even further to cover additional import months, especially once the above-mentioned factors come into play, starting with 2013.

Hence, the confluence of all these factors should assure Jordanians and investors of the strength of the exchange rate of the dinar, but this is not all.

The future, we are reminded by Drucker, is what we create; therefore, one has to look at the institutional set up in an economy before making assertions.

The Central Bank showed strong and proactive leadership last year, and took several steps aimed at maintaining and even boosting confidence in the dinar. Such leadership is commendable and will create more confidence in the dinar and the overall economy in the years to come.

As to the rest of the economy, I believe that the influx of all those funds will lead to an economic boom in the coming three to four years, provided, of course, that the economic managers maintain a positive, pro-active momentum.

Happy New Year!

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