Local Economic Recap Uncertainty amid Growing Imbalances
3 Inflation increased by 4.7% in the first seven months of 2011, compared to 4.9% in the same period of 2010. 2 1 GDP grew at an average 2.26% in the first quarter of 2011, compared to 2% in the 1 st quarter 2010. Mining and extraction sector outperformed, growing by an impressive 43% 3 Fiscal balance achieved an after grant surplus of JD 313.2 million compared to a deficit of JD 288 million. This surplus was achieved thanks to the huge increase in grants which topped JD 1.024 billion Local Economy: Imbalances Amid Uncertainty Public debt reached JD11.88 billion in July, compared to JD11.46 billion end of 2010, where public debt for July reached 57% of GDP. 4 5 Gross official reserves reversed their declining trend, posting an increase of 8.9% to reach JD 8.26 billion covering around 7.1 months of imports Jordan started talks to join GCC. The talks primarily hovered around applying 5 year economic adjustment plan so that the economy corrects its imbalances and benefit from the aids. 6
4 GDP Growth: Positive Albeit the Slow Pace Real GDP posted growth by 2.26% in the first quarter of 2011, slightly up from the 2% achieved in the 1 st quarter 2010. However, the Minister of Finance downgraded growth expectations for the whole year to reach 3%, from a previous 3.3%. Moreover, the outlook for GDP growth in 2012 remained at 3.5%. Moreover, inflation continued its increase reaching 4.7% in the first seven months of 2011 despite the governments economic relief package that subsidized food and oil prices and stemmed their increase. Nonetheless, inflation remains within controllable ranges between 4- 6%
5 Fiscal Balance Boosted By Abnormal Grants The Ministry of Finance posted the summary of the central governments budget till July 2011. The numbers showed a huge increase in foreign aids and grants after the new grants from France, Germany and Saudi Arabia. The fiscal surplus after grants reached JD 313.2mio at the end of July 2011, compared to a deficit of JD280.5 in the same period of 2010. However, the alarming part remains the budget deficit before grants which edged up to JD 710.9 mio in July 2011, compared to JD 488.3 mio in the same period of 2010. It is noteworthy to mention that the budget supplement of JD 586 mio has not been incorporated in the budget balance, which will trigger further widening in the fiscal deficit before grants surpassing the JD 1 billion barrier.
6 Rollercoaster of the Fiscal Balance Primary Deficit in Focus Primary deficit deteriorated substantially throughout the years with domestic revenues covering only 87% of expenses.
7 Yet, Public Debt on the Rise Foreign grants reached an unprecedented level this year, with the Saudi grant that topped $1.4 billion alongside with other grants from USA, Germany and France. Public debt also edged higher, reaching the JD 12 bn mark, yet constituting 57% of estimated GDP in 2011.
8 The Dinar is Just Fine On an accumulated level, the JOD has depreciated by 2.26% since December 2010, This depreciation is within the baseline scenario of the IMF and does not threaten the currency peg. On a different note, CBJ governor HE Faris Sharaf highlighted the importance of the peg system as an anchor to financial stability despite the rising volatility following the US downgrade. Depreciation Appreciation
9 JOD Export Weighted Index JOD Export weighted Index showed minor depreciation since the start of 2011, adding to the stability of the JOD.
10 Monetary Aggregates Support Stability Dollarization ratios remained stable within the 1 st H of 2011, fuelled by the latest increase in JOD benchmark interest rates In the meanwhile, issued currency increased by 8.4% in the first half of 2011.
11 Foreign Tbills and Tbonds Jordans portfolio of foreign sovereign tbonds and tbills are nearly worth JOD 4.4 bn, comprising nearly 58% of our outstanding gross official reserves. Although, the level of diversification is not fully disclosed, yet it is highly expected that the major chunk of this portfolio is invested in US treasuries
12 Value of Gold Reserves Surge 24% Jordan has 410 thousand ounces of gold reserves since 2006. The value of these reserves have soared by 24% in the first 8 months of 2011 given the increase in global gold prices. Although calculated separately, gold to FX Reserves stand at only 7% despite the tremendous increase in gold prices.
13 Interest Rate Review Interest rates on deposits edged up slightly in the first seven months of 2011, while lending rates stabilized during the same period, thus. the spread between lending rates and deposits rates declined slightly in the second quarter of 2011. Real Interest rates on deposits continued in the negative zone despite the Central banks rate increase in June 2011.
14 Deposits vs. Loans The banking sector continued to post healthy performance, with credit facilities growing by 9.17% and deposits growing by 9.7%. Moreover, overall credit extended by the banking system remains well situated at 74% of GDP in 2011
16 GDP Comparison Jordan is considered a small economy with limited resources. Its size is slightly bigger than the Bahraini economy
17 GDP Per Capita No need to comment, the difference is quite obvious
18 Is Jordan to GCC Like Belgium to GCC Jordan Jordan is an indebted country with its public debt approaching 60% of GDP, while the GCC average debt to GDP does not exceed 15%. Moreover, GCC enjoy huge current account surpluses while Jordan runs a current account deficit of 9% to GDP
20 Well, we can compete in terms of RGDP Growth
21 The Emirati top the list with JD 10 bn (including zayed port in Aqaba) followed by Kuwait with JD 9 bn. 2 1 GCC invests nearly JD 25 billion in Jordan in various aspects whether in the real estate sector or in infrastructural project, or in the financial sector. 3 Saudi Arabia is the major donor for Jordan with average grants reach JD 500 million annually, while this year grants doubled to an unprecedented level of JD 1 billion Jordan and the GCC The Jordanian economy participates in GCC economies by relocating skilled labor. There are nearly 600,000 jordanian workers abroad, the majority in KSA and UAE. 4 5 Tourists from the GCC area constitute around 20% of total tourists coming to Jordan.
22 Inter trade with GCC Jordan exports nearly 23% of its exports to GCC area. Major exports are vegetables, pharmaceuticals and Potash We also import 27% of our total imports from GCC. The major imported commodity is crude oil.