Daily Times

The Central Bank of Jordan (CBJ) reserve of foreign exchange, gold not included, has declined during the first nine months of this year by 9.4 per cent, down to $12.6 billion at the end of September. This is a substantial decline that should attract the attention of those concerned.

Observers blamed a decrease in expatiate remittances by 2.8 per cent during the first eight months of this year, and the decrease of tourist receipts at a similar rate in the same period, but these two slightly negative factors are not enough to explain this steep decline of the CBJ reserve.

Despite the decline in the reserve during the past 12 months, it is still sufficient and acceptable. The International Monetary Fund’s mission described it last month as comfortable. It remains OK as long as it is enough to cover at least six months of imports. However, the negative growth at any rate of the reserve is not welcome, especially when the trend may continue for quite some time.

Factors that influence the reserve are not confined to expatriates remittances and tourists receipts, other factors are not less important if not more, such as: withdrawals by the Treasury on foreign loans, repayment of foreign debt instatements, receipts of Arab and foreign aid and grants whether delivered to the Treasury or spent directly on economic and developmental projects agreed upon between the authorities and donor countries. Exports and imports have also a major positive or negative impact on the reserve as the case may be. Obviously the above-mentioned factors do not fall under the control of the CBJ; they are determined by the circumstances and the local and regional economic developments. However, the CBJ has its own ways and means to intervene if necessary, using monetary policy instruments under its disposal, such as raising interest rate on the dinar.

The CBJ did not use any of its available instruments to influence the situation. It seems that it is of the opining that there is no need to take measures at this stage, with all the side effects that come with it. It is only normal for the foreign exchange reserve to be subjected to seasonal fluctuations and be influenced by the changing circumstances.

At this time, the CBJ is not expected to intervene and take some exceptional measures as long as the reserve remains above the level of $10 billion. Certain factors causing the decline of the CBJ reserve may be desirable, such as the reduction of import costs due to lower prices of petroleum, and the reduction of foreign borrowing.

Foreign debt did not rise during the first nine months of this year except by a small amount of $83 million or a fraction of 1 percentage point. The CBJ foreign exchange reserve must be watched closely, not only by the bank officials, but by all those responsible for the management of the factors that influence the reserve, as named above.