Jordan's banking sector remains stable even as analysts continue to downgrade the country's economic prospects in light of regional tensions.
The combined assets of the country's commercial banks stood at JOD 44.1 billion (USD 62.2 billion) in the first six months of 2014, up 7.3% year-on-year and 3% from the end of 2013, according to the Central Bank of Jordan .
While resident private sector loans rose 2.7% to JOD 17.7 billion from end-2013, credit facilities to the non-resident private sector fell 45.6% to JOD 445million, resulting in a marginal increase in overall private sector lending in the first half of 2014.
Deposits of non-bank financial institutions rose 35.3% to JOD 376 million, while government deposits stood at JOD 1 billion, up 40.6% from end-2013.
Reserves at Central Bank of Jordan increased 15.7% to JOD 6.6 billion, which is considered low given the country's external debt payments.
Ratings agency Moody's Investors Service believes Jordan faces "reduced growth prospects, elevated and rising government debt level, persistent fiscal deficits, low economic wealth, and increased political and policy risks from regional turmoil."
Credit information consultancy Dun & Bradstreet downgraded Jordan's country risk rating by one quartile to 'DB5b' from 'DB5a'. The consultancy now considers Jordan a 'high risk' country.
While the country's internal stability has remained fairly stable, the government faces continued pressure to maintain social spending, while high energy prices negatively affect the country's fiscal and current account balances.
Moody's notes that Jordan's credit challenges are mostly related to its wide fiscal and current account deficits, with government debt level to exceed 90% of GDP in 2014 compared to 80.2% of GDP in 2012, reflecting the persistent fiscal deficit and social spending pressures.
An influx of refugees from Syria and Iraq has further strained financial resources.
ECONOMIC PRESSURES
Jordan had posted a 3.2% growth in GDP in the first quarter of the year – it's best economic performance in four years, despite the war in Syria and the recent Gaza conflict.
But the economy remains vulnerable amid new regional tension as militants seize territory in Syria and Iraq.
Iraq is a key trading partner for Jordan with bilateral trade standing at JOD 304.6 million in the first four months of the year.
Dun & Bradstreet believes militants' control of the border between Iraq and Jordan could restrain trade between the two countries.
Reduced trade activity could weigh on the cash flow of Jordanian companies that trade with Iraq and the rise of the Islamic militants near the Jordanian border could also constrain investment flows to the country in the short-to medium-term.
Jordan continues to depend on foreign direct investment inflows to finance its wide current account deficit.
Tourism could also be hurt after the sector had made a strong showing in the first half of the year. Travel receipts rose 13.6% during the first half of 2014, compared to the same period in 2013 to reach JOD 1,599.8 million. Overnight visitors rose 3% during the first seven months of the year.
Gulf and international funds will likely be needed to ensure Jordan's economy remains afloat. The country is planning to launch projects worth USD 5 billion funded by Gulf states as part of a 2011 aid programme, according to local media.
Until regional tensions lessen, the kingdom is unlikely to meet targeted economic growth of 6% needed to tackcle high unemployment and chronic deficits.
The feature was produced by alifarabia.com exclusively for zawya.com.
Zawya
9 September
