VZCZCXRO2336
RR RUEHDE RUEHDH RUEHDIR
DE RUEHAM #1942/01 2391135
ZNR UUUUU ZZH
R 271135Z AUG 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 5823
INFO RUEHLB/AMEMBASSY BEIRUT 3089
RUEHEG/AMEMBASSY CAIRO 4130
RUEHDM/AMEMBASSY DAMASCUS 4230
RUEHJM/AMCONSUL JERUSALEM 5619
RUEHTV/AMEMBASSY TEL AVIV 1837
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 AMMAN 001942 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA AND EEB 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV JO
SUBJECT:  EXPAT REMITTANCES AND OTHER ECONOMIC INDICATORS FALL; 
RESERVES AND LIQUIDITY STAY STRONG 
 
REFS:  A) Amman 1646 
 B) Amman 1378 
 C) Amman 1177 
 D) 08 Amman 2799 
 E) 07 Amman 4207 
 
¶1. (SBU) Summary:  The global economic crisis continues to hit 
Jordan.  Jordanian remittances fell 4.4% during the first half of 
¶2009.  Other economic indicators, including foreign direct 
investment, imports, and exports, are also all down for the first 
half of 2009.  Jordan's currency reserves and liquidity remain high, 
giving Jordan the option to raise funds locally, in theory. 
However, Jordan's internal borrowing has caused the net central 
government domestic debt to reach an all-time high of USD 7.73 
billion.  End summary. 
 
Remittances Fall 
---------------- 
 
¶2. (U) Central Bank of Jordan (CBJ) officials confirmed to EconOffs 
that remittances from Jordanians living and working outside of the 
country have gone down significantly.  Omar Zubi, CBJ Executive 
Director of Research, reported that remittances in the first six 
months of 2009 stood at USD 1.74 billion against USD 1.82 billion 
during the same period in 2008, a 4.4% drop.  The drop was more 
pronounced, however, when comparing the June 2009 12.1% (USD 334 
million) decrease with June 2008, which saw a 20.6% or USD 380 
million increase from the previous year.  Remittances historically 
amount to about 20% of Jordanian GDP (ref E). 
 
¶3. (SBU) Zubi linked the decline in remittances to the general 
decline in global economic activity, arguing that Jordanians in the 
Arabian Gulf were earning less, thus saving less, and were also 
keeping more money close at hand instead of sending it home to 
Jordan.  Zubi denied a common perception on the Jordanian street 
that there has been a drastically high number of Jordanians 
returning from the Gulf after losing their jobs.  He claimed 
Ministry of Labor research through Jordanian Embassies abroad has 
not shown mass layoffs of Jordanian workers in the Gulf.  Zubi did 
concede, however, that the overall picture of Jordanian expats in 
the Gulf could become worse and informed EconOffs that an 
interagency committee including members from the CBJ and from the 
ministries of Finance, Labor, and Planning and International 
Cooperation has been formed to analyze the economic plight of 
Jordanian expats. 
 
Slow Growth Now, Bigger Budget Shock Next Year 
--------------------------------------------- - 
 
¶4. (SBU) Zubi further informed EconOffs that the Government of 
Jordan (GOJ) has also established a crisis committee to monitor the 
overall effects of the global economic crisis on Jordan's economy. 
While touting Jordan's economic stability, Zubi fears that the worst 
is yet to come.  He reported that GDP growth in the first quarter of 
2009 was 3.2% and he expects it to stay between 3% and 4% for the 
rest of the year, compared to 7.9% in 2008 and 8.9% in 2007. 
Jordan's budget deficit has ballooned and Zubi expects the budget 
situation to look even worse in 2010 because the slight growth in 
government revenue from taxes on individuals and businesses that 
Jordan saw in early 2009 was based on a good 2008 economic climate 
which will not be replicated in 2009 (ref A). 
 
Economic Indicators Down 
------------------------ 
 
¶5. (SBU) According to Zubi and Central Bank figures, the main 
economic indicators are all currently negative, a direct result of 
the world economic crisis. 
 
-- Foreign Direct Investment (FDI) is down in Jordan and throughout 
the region.  In 2008, Jordan's first quarter FDI reached 
approximately USD 1.97 billion while in the first quarter of 2009, 
it only reached USD 219 million.  The Central Bank projected that 
FDI would be down by more than 30% by the end of 2009. 
 
-- On the fiscal side, the budget deficit continued to grow (ref 
A). 
 
-- In addition to the inflow of remittances being down 4.4% during 
the first half of the year, the outflow of remittances from Jordan 
by foreign nationals sending money to their home countries is also 
 
AMMAN 00001942  002 OF 003 
 
 
down for the first quarter of 2009, amounting to USD 111.6 million 
in comparison to USD 124 million in the first quarter of 2008, a 10% 
drop. 
 
-- Exports from January to June 2009 were down 11.7% to USD 3.3 
billion compared to USD 3.7 billion during the first six months of 
¶2008.  The year-on-year decline for June 2008 to June 2009 was 
30.5%, dropping to USD 385 million from USD 554 million. 
 
-- Imports slowed 24.5% in May 2009 compared to May 2008, and total 
imports in the first five months of the year decreased 22%, totaling 
USD 5.4 billion as opposed to USD 6.9 billion in 2008.  Zubi 
explained that the drop in imports was driven mainly by the 
reduction in fuel imports, both in terms of value and quantity. 
Aggregate demand is another important factor hurting imports, as the 
reduced number of orders at garment factories has affected both 
exports and imports (Ref C and septel). 
 
Strong Reserves and Liquidity 
----------------------------- 
 
¶6. (SBU) In a bit of good news, currency reserves are currently at 
their all time high of USD 9.7 billion, which can cover the value of 
projected imports for six and one-half months, much longer than the 
internationally-accepted practice of three months, Zubi explained. 
Foreign currency reserves over the first five months of 2009 grew by 
USD 1.25 billion or 16.1% since the end of 2008.  The increase in 
reserves has been driven by the current account deficit, which was 
reduced from 11% of GDP in the last quarter of 2008 to 5% of GDP in 
the first quarter of 2009, according to Zubi.  (Note:  This drop in 
the current account deficit was triggered by the trade deficit, 
which was narrowed by 35% or USD 2 billion compared to the same 
period in 2008, mainly due to lower fuel prices (Ref B).  End note.) 
 Also, inflation remained low at 0.5% in the first six months of 
2009, mainly due to the general drop in fuel and commodities prices, 
compared to 2008 (septel). 
 
¶7. (SBU) Zubi is optimistic that the GOJ has the flexibility to 
raise funds locally at cheaper than the usual rates given the large 
amounts of domestic liquidity available and the current conservative 
lending policies of Jordanian banks.  Domestic liquidity stood at JD 
19.1 billion (USD 26.98 billion) at the end of May 2009, an increase 
of 4.4% compared to the 2008 end-of-year figure and 8.1% higher when 
compared to the same period last year.  Zubi told EconOffs that the 
Central Bank could, in theory, raise funds locally for budget or 
capital expenditure needs by offering different instruments such as 
development bonds, public entity bonds, treasury bills or treasury 
bonds at cheaper rates.  (Note:  Jordan's Central Bank has not 
issued development bonds during the past eight years but does 
regularly issue short-term (90 days to three years) public entity 
bonds, treasury bills and treasury bonds.  End note.)  Zubi said 
that the Central Bank theoretically had the option to raise funds 
through offering different instruments for as low as 3% to 
commercial banks compared to the 6% rates offered previously. 
Despite criticisms for conservative practices, the Central Bank has 
offered 17 different issues of lower-rate instruments totaling more 
than USD 1.69 billion through the first half of 2009. 
 
¶8. (SBU) Adel Sharkas, the Central Bank's Director of Money Market 
Instruments, clarified to EconOff that the GOJ generally issues 
Money Market Instruments to fund the amortization of previous issues 
and that the net amount at the end of the year would be minimal in 
comparison.  He explained that while the GOJ has issued USD 1.69 
billion worth of instruments from January to July 2009, the net 
amount so far is only USD 1.27 billion.  According to Sharkas this 
"honeymoon" of being able to raise funds cheaply will not last for 
long.  Once economic activities pick up, banks will prefer to lend 
to the market at 11%, 12%, or even 14% rather than to the government 
at 3%. 
 
Domestic Debt Grows 
------------------- 
 
¶9. (SBU) The GOJ has resorted to these internal borrowing measures 
to help address fiscal needs caused by the significant budget 
deficit (ref A).  This has contributed to high levels of domestic 
debt.  As of the end of June 2009, the net central government 
domestic debt stood at an all time high of USD 7.73 billion, nearly 
38% more than the June 2008 figure of USD 5.61 billion and 11.5% 
higher than the December 2008 figure of USD 6.94 billion. 
 
 
AMMAN 00001942  003 OF 003 
 
 
¶10. (SBU) Comment:  While there are positive fiscal indicators such 
as strong reserves and high liquidity, these positive indicators are 
unlikely to last long given the growing budget deficit, slow growth, 
low revenues and an even more difficult budget and commercial 
environment expected next year.  End comment. 
 
Visit Amman's Classified Website at 
http://www.state.sgov.gov/p/nea/amman 
 
BEECROFT