Executive Insights: Jordan Central Bank Governor Ziad Fariz

The governor of the Central Bank of Jordan talks with Global Finance.

Global Finance: How was 2020 for Jordan?

Ziad Fariz: Jordan’s economy, like most economies in the world, is projected to witness negative growth in 2020, which would make it the first time to happen in 30 years. We are expecting GDP to record a 5% contraction, compared to a pre-crisis growth forecast of 2.1%. At the same time, we are forecasting a rebound in 2021, driven by a lower energy bill, the resumption of macroeconomic and structural reforms and a gradual recovery in external demand. We also envisage a recovery in workers’ remittances and travel receipts.

GF: What was your response to the Covid-19 crisis?

Fariz: The pandemic resulted in exceptional challenges, with deep socioeconomic consequences. These challenges drew extraordinary response. The CBJ has undertaken a comprehensive set of measures of 2.5 billion Jordanian dinars ($3.53 billion), or 8% or GDP, aimed at supporting banks’ liquidity, enhancing economic activity and preserving jobs.

The CBJ measures allowed banks to postpone installments due and restructure loans to their clients without charging any extra commissions or delay interest, reducing regulatory reserve ratios to 5% from 7%, cutting interest rates on all monetary policy tools by 150 basis points and activating various tenors of repo repurchase agreements up to 12 months. Moreover, allowing banks to postpone dividend payment for fiscal year 2019 was aimed at strengthening their capital buffers.

The CBJ took an additional JOD1.2 billion of measures to support vital economic sectors, through improving lending conditions with the CBJ’s refinancing program. In particular, lowering lending rates to reach 1% for projects inside the Amman governorate and 0.5% for projects in other governorates; expanding the repayment period to 10 years, of which two years are a grace period; raising the financing ceiling for each projects to JOD3 million for all targeted sectors, while keeping the ceiling for both renewable energy and transportation sectors at JOD4 million; expanding the program’s coverage to allow financing of operating expenses including payrolls, in addition to working capital; and finally, including export financing among the objectives of the program.

Likewise, the CBJ has launched a new financing program amounting to JOD500 million during April 2020. The program is designed to finance the operating expenses and working capital of SMEs [small and medium-size enterprises] sector, including professionals and craftsmen. The program’s disbursements until the end of August 2020 were JOD430 million, of which 40% was directed to payrolls.

GF: What are the lessons learned from this crisis?

Fariz: The pandemic has changed our perception of many issues, including the importance of self-reliance, digitization of the economy and financial transactions, financial inclusion, the problem of the informal economy, as well as the importance of having appropriate margins to hedge and mitigate the impacts of unexpected shocks, whether for government or financial institutions.

The crisis has revealed potential economic opportunities where Jordan has a comparative advantage. Among these are information technology, food industries, logistics and consulting services and pharmaceutical industries. More focus can be placed on these sectors to support economic growth.

GF: Aside from Covid-19, what are the biggest challenges for the Jordanian economy?

Fariz: The geopolitical tensions continue to impact our economy, including the influx of Syrian refugees, the unstable flow of energy sources, and declining domestic exports and foreign direct investment inflows. The tensions have created considerable financial and economic burdens, leading to a slowdown in economic growth and job creation, which in turns pushed the unemployment rate up to 19.1% at the end of 2019. Instead of reverting to protectionist trade policies, the current situation requires greater international cooperation and coordinated monetary and financial policies.

GF: Where do you see opportunities for Jordanian banks?

Fariz: The banking sector in Jordan is sound and resilient, supported by strong financial indicators, including a high capital adequacy ratio, a comfortable level of liquidity and a low ratio of nonperforming loans.

In fact, the pandemic has revealed several opportunities, including the importance of the adopting wise, dynamic and conservative business models. We need to leverage technological innovation, accelerate digital transformation, activate electronic banking channels and expand our pool of targeted financial consumers to achieve financial inclusion, and thus contribute positively to economic growth and development.