Debt under IMF programme

There is a wrong impression that the reform programme supervised by the IMF aims at reducing public debt.

In fact, the programme allows debt to rise as borrowing will exceed repayments during each one of the coming five years. The end result will be that outstanding debt will rise in absolute figures year after year, only perhaps at lower speed than used to be the case.

The programme came into effect at the end of 2016, when Jordan’s gross debt was estimated at JD26.3 billion. It is now projected to reach JD29.4 billion after five years, i.e., in 2021. Debt will increase during the period, and under the IMF watch, by JD3.1 billion.

What the reform programme cares about is that debt be allowed to rise at a rate lower than the rate of GDP growth. That way, debt will decline as a ratio of GDP even though it will have risen in absolute figures.

The IMF realised that GDP in current prices will not rise during the first year as originally anticipated, which is the combination of real growth rate and inflation rate measured by GDP deflator. Therefore, the IMF lost hope that the final target for 2021, which is reducing the debt ratio to GDP in 2021 to 77.2 per cent, will be reached, so it decided to postpone it for one year, to 2022.

This is the first sign that amendments are needed to push forward the deadlines. 

This is, of course, bad, especially as it is happening in the first year of the programme, when local and regional circumstances do not change.

Let us hope that more setbacks are not in store for the coming three years.

Some observers, me included, believe that the real debt we should worry about is foreign debt. Foreign currency, which is now around JD10 billion ($14.2 billion), is almost equal to the reserves of the Central Bank in foreign exchange.

Local debt in dinars is simply an internal affair. Jordan would be lending itself.

Tables and figures quoted by the programme were issued during 2016, when regional circumstances were equally bad. The challenges were high, growth low. 

Hopefully the situation will improve in the coming three years when an active government can exceed the objectives of the programme.

There is not serious popular resistance to the programme. However, there is not enough support for pushing for the reform to be implemented as soon as possible beyond the Ministry of Finance.

Many, in fact, call for extending the reform measures beyond the present deadlines. They want the reform to take place slowly, over a longer period, to help the people tolerate the needed sacrifices.