Good news: CBJ reserves up again

There is at last some good news that is worth mentioning. 

The steady decline of the central bank’s reserves in gold and foreign exchange came finally to an end. A substantial rise in the outstanding balance took place last November, the nearest month with available data.

The accumulated decline at the end of October last year was 11 per cent of the balance at the end of 2015, more than one percentage point a month.

This percentage of decline came down from 11 per cent to 7.6 per cent by the end of November.

The reserves gained $832 million, a positive growth of 6.2 per cent above the previous month.

This is obviously a major step forward and it took place in only one month.

It represents a reversal of the trend. It is a sort of recovery.

The slow decline in Central Bank of Jordan (CBJ) reserves that took place during the first 10 months of 2016 caused some worry, even though the shrinking reserves were still enough to cover seven months of imports, double the safety mark.

In this respect, one has to notice that the dinar is getting stronger due to two factors.

First, the dinar is pegged to the dollar, which rose against all major currencies, especially the euro and the sterling pound.

Second, the central bank balance sheet carries more than enough reserves to support the dinar and guarantee its transferability in all circumstances.

It is desirable for the national currency to rise and get stronger; it is an indication that the economy is solid and the general confidence is high.

However, a strong currency has its own down side. Some negative results can follow that must be taken into account.

A strong dinar will encourage imports and discourage exports. It causes trade deficit to rise. No wonder Jordan’s exports dropped last year (2016) by 9.6 per cent, while expatriates’ remittances and tourists’ receipts declined by 3 per cent.

The strong dinar lowered the cost of living. The cost of the consumers’ basket did not rise in 2016 as used to happen every year. It declined, a good opportunity to raise customs taxes to absorb the extra value, and curb imports and reduce the negative effects of a strong dinar.

Increasing customs taxes at this time is needed for two reasons: the Treasury needs more revenue to reduce budget deficit; the domestic industry needs more protection from sweeping imports.

Let us not forget that the volume of imports is equal to 250 per cent of exports, an unacceptable state of affairs that is not sustainable and should not be allowed to continue.

It is expected that the CBJ reserves will make more gains in December, as late grants were received.

Let us hope that the reserve will recover in the last two months of 2016 all the losses incurred during the first 10 months of the year.