Jordan faces looming debt crisis: World Bank Group report

Jordan's business loans are predicted to increase due to a decline in business sales, according to a report from the World Bank Group. The World Bank Group recently released the World Development Report 2022: Finance for an Equitable Recovery.  This report provides a roadmap addressing the COVID-19 crisis-related financial vulnerabilities. 

Jordan faces looming debt crisis: World Bank Group report

COVID-19 triggered a public health crisis that quickly became the "largest global economic crisis in more than a century", resulting in slowing growth, increased poverty, and increased inequality, according to the report. Jordan is expected to see a 50 percent decline in business sales, the report indicated. The report stated that the pandemic had a huge impact on businesses in the Kingdom, resulting in a significant drop in sales. 

Nearly 45 per cent of businesses in the Kingdom are expected to become debt-ridden. According to the report, loan defaults could now increase sharply, and private debts could become public debts as the government provides support. Almost 20 percent of Jordanian corporate debt is at risk after a 30 percent shock to earnings, the report says. 

Governments have responded worldwide with cash transfer programs to households, credit guarantees for companies, easier liquidity conditions, repayment grace periods and regulatory forbearance for many financial institutions. 

Developing countries, such as Jordan, are expected to experience a rise in interest rates and a devaluation of their currencies, according to the report. Increasing interest rates make debt service more expensive, reiterating the trend from recent years, while weaker currencies make debt service more burdensome relative to the economy's size. Finally, liquidity issues could suddenly result in solvency issues.

In regards to Jordan's foreign debt restructuring and default period, the report notes that Jordan spent around five years in the default phase, while the restructuring occurred around 1994. According to the report, fiscal consolidation, lower expenditures, and higher taxes are needed to reduce sovereign debt, particularly external debt.  Additionally, the report recommended getting a handle on increasing levels of sovereign debt in an orderly and timely manner.