Our officials and economists are used to account for public debt as one amount, irrespective of whether it is local debt, denominated in Jordanian dinars, or external debt, denominated in foreign currency.
Strangely enough, IMF experts also dealt with Jordan’s public debt as one block, without distinguishing between local debt in dinars and foreign debt in dollars. This is not only wrong, but also risky, because it treats local and foreign debt as if they were all the same, even though the risk involved in foreign debt is high and serious, unlike local debt which means that Jordan is actually borrowing from itself and thus not answerable to any foreign power.
The general trend in recent years is for Jordanian governments to go foreign in their borrowing. They claim that the purpose is not to deprive the private sector of the possibility of getting credit from banks, despite the fact that liquid cash at local banks is in abundance, and deposited at the Central Bank without interest ready for lending if and when a qualified borrower comes forward.
During 2016, total gross public debt rose by 4.9 per cent or JD1,216.2 million, but if this amount is classified according to currencies, one shall find that three quarters of the new debt came from foreign sources, in foreign currencies, mainly dollars. Based on the above figures, it is clear that foreign debt, as a barometer of risk, has risen during the last year by 9.7 per cent.
The rate of foreign debt to total debt has risen from 37.7 per cent by the end of 2015 to 39.5 per cent by the end of 2016. At the same time, the rate of foreign debt to GDP in current prices rose from 35 per cent to 37.5 per cent. These are obviously high percentages that are set to get higher if the trend continues. There is no indication in the economic reform programme agreed upon with the IMF about this subject.
As far as the IMF is concerned, debt is debt, whether local or foreign. In fact, the difference is very important; countries do not go bankrupt in their own currencies simply because there is no limit to how much an independent country can print money. Countries are exposed to bankruptcy if they fail to pay on time due amounts in dollars to lending foreign banks, foreign countries and/or international funds and intuitions, because they cannot issue dollars.
They have to earn them through economic activities, such as exports. In our case, proceeds from exports hardly cover one third of the cost of imports; they are not a dependable source of funds needed to repay foreign lenders. It is for good reason that foreign currencies are described as hard currencies. Foreign debt is risky and should not be approached except with utmost care.