Finally, some good economic news from the Arab world.
Jordan secured a $2 billion loan from the International Monetary Fund last week, a vital barometer of reassurance for international donors. Moody’s said the move was “Credit Positive” (Full research note: Jordan Reaches Preliminary Stand-By Arrangement with the IMF, a Credit Positive)
After all of Egypt’s dithering over it’s own $3.2 billion agreement with the IMF, Jordan’s exceptional feat got a round of applause from Moody’s.
Jordan’s economic problems are similar to Egypt’s woes. Both rely on imports, both have used up large amounts of foreign reserves and both countries are stuck in a vicious subsidy cycle that shelters a big chunk of the population from higher energy prices, keeping demand artificially high.
“Jordan imports almost all of its hydrocarbon needs. Throughout 2011, saboteurs repeatedly damaged the gas pipeline that links Egypt to Jordan, requiring Jordan to seek alternative energy sources. Because Egypt’s gas is cheaper than oil imports, those alternatives created negative balance of payments for Jordan. Compounding the situation is that Jordan’s subsidy system shelters much of the population from higher energy prices, thereby keeping demand artificially high. Increased external payments have reduced official reserves, raising Jordan’s external debt metrics.”
Even though the $2 billion loan package covers only a little more than one month of imports – not necessarily enough to make a decisive difference to the country’s balance of payments – it is an important turning point and vote of confidence that will encourage other donors to come through on their aid pledges.
“As is always the case, we will play the catalyst role that we always play,” said Christine Lagarde, head of the IMF in April, regarding Egypt’s agreement with the IMF.