World Bank Group report warns of looming debt crisis in Jordan

AMMAN — Jordan's business loans are expected to increase given the predicted decline in sales to be seen among businesses operating in the Kingdom, according to a World Bank Group report.

The World Bank Group issued the World Development Report 2022: Finance for an Equitable Recovery on Tuesday.

The report charts a roadmap designed to tackle the financial vulnerabilities created by the COVID-19 crisis.

According to the report, the global public health crisis triggered by COVID-19 quickly turned into the “largest global economic crisis in more than a century”, resulting in major setbacks to growth, increased poverty rates and deepened inequality.

“Sales in businesses are expected to decline by almost 50 per cent in Jordan,” the report stated.

The report added that the pandemic has had a huge impact on businesses in the Kingdom, resulting in a significant decline in sales.

Furthermore, almost 45 per cent of businesses are expected to become indebted in the Kingdom.

The report highlighted that loan defaults could now sharply increase and private debt could quickly become public debt, as the government provides support.

“In Jordan, the percentage of corporate debt at risk after a 30 per cent shock to earnings is almost 20 per cent,” the report said.

Globally, the response by governments has included a combination of cash transfers to households, credit guarantees for firms, easier liquidity conditions, repayment grace periods for much of the private sector and accounting and regulatory forbearance for many financial institutions.

Although these actions have helped to partially mitigate the economic and social consequences of the pandemic, they have also resulted in elevated risks. These include public indebtedness, increased financial fragility and a general erosion in transparency, as stated in the report.

“Developing countries like Jordan are expected to witness an increase in interest rates and currencies will likely depreciate,” the report added.

According to the report, higher interest rates make debt service more expensive, reinforcing the trend of recent years and weaker currencies make the debt service more burdensome relative to the size of the economy.

Moreover, liquidity problems could suddenly morph into solvency problems.

“Share of enterprises in debt or expecting to fall into debt within six months is almost 55 per cent,” according to the report.

The report stated that emerging economies have made extensive use of debt forgiveness programmes.

In the past, such programmes have often damaged credit discipline and the ability of creditworthy borrowers to obtain loans in the longer term.

As for Jordan’s foreign debt restructuring and time spent in default, the report says that Jordan spent around five years in the default phase, while the restructuring took place around 1994.

According to the report, in order to reduce sovereign debt, particularly external debt, alongside fiscal consolidation, lower expenditures and higher taxes are needed improve government revenue.

The report added that increased levels of sovereign debt need to be proactively managed in an orderly and timely manner.