Transcript Slide 1

2012: A Critical Year for the
Economy
December 2011
Economic pressure barometer
As we bid farewell to 2011 and
welcome 2012, we would like to
present our economic hot spots
for 2012.
These hot issues will be presented
on our economic pressure
barometer which ranges from the
most positive topic to the least
favorable one.
ECONOMIC
PRESSURE
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2012 LOCAL ECONOMIC THEMES
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Foreign grants still anchoring the budget
•
Foreign grants witnessed an unprecedented
surge in 2011, especially with the strong Saudi
support.
•
This extraordinary level of grants helped
finance the extra fuel and food subsidies
launched by the government in early February
2011.
•
In 2012, grants are expected to remain at a
healthy level of JD 870 million buoyed by the
Arab and US grants.
•
Moreover, the committed multi-year $2.5 bn
development fund enacted by the GCC to
boost economic growth in Jordan.
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2012 LOCAL ECONOMIC THEMES
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The Dinar is Just Fine
Depreciation
Appreciation
•
On an accumulated level, the JOD has depreciated by 2% since December 2010, This depreciation is within the
baseline scenario of the IMF and does not threaten the currency peg.
•
The pegged system is expected to remain stable throughout 2012, as long as FX Reserves cover more than 5
months of imports.
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JOD Export Weighted Index confirms the
stability
•
•
JOD Export weighted Index showed minor depreciation since the start of 2011, adding to the
stability of the JOD.
Kindly note that the volatility of the JOD export based index is expected to remain marginal,
anchoring the stability of the pegged currency regime, as the economic fundamentals for 2012
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still foster maintaining the peg.
Monetary Aggregates Support Stability
•
•
•
Dollarization ratios remained stable within the first three quarters of 2011, fuelled by the latest
increase in JOD benchmark interest rates.
Moreover, dollarization levels are expected to remain stable throughout 2012 buoyed by high
interest rate differential.
In the meanwhile, issued currency increased by 16% in the first three quarters of 2011.
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2012 LOCAL ECONOMIC THEMES
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FX Reserves under pressure, yet covering
healthy amounts of imports
•
FX Reserves are expected to remain
under pressure throughout 2012,
fuelled by the spreading geopolitical
unrest in the MENA region and its
downside effect on tourism activity
and foreign investments.
•
However, the IMF has forecasted in its
latest regional economic outlook that
FX reserves will remain above the
optimal range which covers more than
5 months of imports.
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2012 LOCAL ECONOMIC THEMES
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GDP Growth: Positive Albeit the Slow Pace
•
Real GDP has posted timid growth of 2.40% in the
first nine months of 2011. However, the current
growth rates are in line with IMF’s estimates of 2.5%
growth for 2011.
•
GDP is expected to grow by a modest 2.8% in 2012
given the repercussions of the global slowdown and
the turbulent geopolitical situation in the middle
east.
•
Moreover, inflation continued its increase reaching
4.6% in the first ten months of 2011 despite the
government’s economic relief package that
subsidized food and oil prices and stemmed their
increase. Nonetheless, inflation remains within
controllable ranges between 4-6% .
•
The IMF expected inflation to hover around 5.5% in
2012, while the Economist Intelligence Unit expect
inflation to hover around 6% next year especially if
the government partially lifted the subsidies.
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2012 LOCAL ECONOMIC THEMES
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FX Reserves under pressure, yet covering
healthy amounts of imports
•
Tourism sector was hard hit
throughout 2011 as a direct result to
lower touristic flow to the whole
MENA region
•
Tourism revenue declined by 17% in
the first ten months of 2011, while it is
expected to remain sluggish in 2012 as
early reservations for the first months
of 2012 remain subdued.
•
Jordan has showed less decline in the
tourism activity than many countries
in the MENA area, especially the
countries of the Arab Spring.
% Decline in the tourism sector in the 1st H of 2011
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Workers Remittances and foreign investments
face tremendous downside pressures
•
Workers remittances declined throughout
2011, given the geo-political situation in
the Middle East.
•
However, reversing this downward trend
in the vital workers remittances relies on
the outcome of the euro zone debt crisis,
whether it intensifies or gets a remedial
solution, in addition to how deep its
impact may be on the GCC economies,
where the bulk of our workers reside.
•
Nonetheless, foreign direct investments
continued their declining streak .
Their direction in 2012 remains somehow
vague, given the continued tension in the
Levant area but the prospects are slightly
brighter after the announcement of the
$2.5 bn development fund from the GCC.
•
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2012 LOCAL ECONOMIC THEMES
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Workers Remittances and foreign investments
face tremendous downside pressures
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As the government intends to roll over and
issue new local debt of nearly JD 5 billion,
stress is increasing on the government given
the unfavorable economic context.
•
Recently, we have also witnessed lower
appetite from local banks to participate in
Jordanian treasuries following S&P’s single
notch downgrade of local currency debt.
•
However, debt service has ballooned to nearly
50% of the budget deficit of 2011.
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2012 LOCAL ECONOMIC THEMES
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Current Account Deficit sends a serious alarm
•
Widening current account deficit is posing a
serious threat on Jordan’s credit ratings in
addition to exacerbating pressures on the
stability of the Jordanian Dinar.
•
Current account deficit is expected to exceed
10% of GDP in 2011 while posting nearly 8.6%
of GDP in 2012. In absolute values, current
account deficit is expected to reach an
unprecedented level of $2.6 billion in 2012.
•
This deficit is aggravated by the higher oil
import bill which Jordan had to pay in 2011 to
substitute disruptions in Egyptian gas and to
settle for higher global oil prices, coupled with
significantly lower foreign inflows.
•
In 2012, downward oil prices coupled with
unexpected recovery in foreign investments
and tourism income might help in partially
trimming the deficit
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2012 LOCAL ECONOMIC THEMES
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Fiscal Balance Boosted By Abnormal Grants
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Fiscal balance trimmed its deficit in the
first eleven months of 2011 reaching JD
740.5 mio vs. JD 800.9 mio in the same
period of 2011 thanks to the generous
Saudi grant.
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However, fiscal deficit (excluding grants)
continued to deteriorate by nearly 69%
as it reached JD 1841.8 mio vs JD 1089.5
mio in the same period of 2010.
•
The government expected deficit in 2011
to slightly deviate from the preliminary
estimates of JD 1160 mio to JD 1265 mio
representing nearly 6.2% of estimated
GDP in 2011.
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Rollercoaster of the Fiscal Balance
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Earlier on December, the government referred to the
Lower House the general budget draft law and the draft
law covering the budgets of independent public
agencies for the fiscal year 2012.
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The 2012 budget estimated the deficit including grants
to hover around JD1027 mio or 4.6% of estimated GDP
for 2012.
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However, the budget deficit excluding grants is
expected to trim to JD 1.897 million compared to JD
2.400 million.
•
The government estimated its total revenues in 2012 to
reach JD5.81 bn, of which JD 870 mio in the form of
grants. In the meanwhile, total expenses are expected
to be capped at JD 6.837 bn.
•
It is quite obvious that the major assumptions on which
the budget was prepared tend to be optimistic.
However, if the assumptions fail to realize and the
government was forced to issue subsequent
supplements, the fiscal situation will significantly
seteriorate posing a serious threat on the economy.
•
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2012 LOCAL ECONOMIC THEMES
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Yet, public debt on the rise nearing psychological
barriers
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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.
•
Yet, public debt edged rapidly higher ,
crossing the JD 13 bn mark, while constituting
64% of estimated GDP in 2011.
•
Public debt is expected to continue edging up
in 2012 given the increased dependence of
the government on local banks to bridge its
financing gap.
•
Debt service is on the rise as well, it is
expected to reach JD 545 mio in 2012
constituting nearly 50% of the expected
deficit.
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HAPPY NEW YEAR
Thank You,,,
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