Economy
Jordan relies on foreign aid to finance its capital projects, as the country's domestic revenues are too modest to finance new government projects due to the limited financial space.
Borrowing to cover current expenditures is one of the flaws in Jordan's financial policy, as Amman rarely borrows for capital projects with productive added value for the national economy, according to the State of the Country Report 2021, issued by the Economic and Social Council of Jordan.
An analysis of public budget data for 2016-2021 reveals significant differences in the volume of foreign loans earmarked to capital projects by year, as spending priorities under this heading change.
According to budget data, the total foreign loans earmarked for capital projects in 2020 were valued at about JOD 48.6 million ($68.52 millions). Most of these loans were provided by the Saudi Fund for Development to complete the desert road rehabilitation project. The total foreign loans for capital projects did not exceed JOD 40,000 ($56.400) in 2018.
Loan Value (in JOD)
Source: Jordan’s Public Budgets 2016-2021
The Saudi Fund for Development ranked first in the list of donors for capital projects for 2016-2021, with a total value of JOD 67.3 billion ($95bn) fully channeled toward the desert road rehabilitation project. The sum amounted to about 72 percent of the total loans for that period.
Jordan relied on foreign loans to finance major projects. Foreign loans contributed 67 to 100 percent in financing those projects, with the exception of two, The construction of 25 schools in 2017, and the desert road rehabilitation project.
The Saudi fund's loan covered about 50 percent of the total cost of the project, while the rest was financed by the state treasury.
The World Bank ranked second in the list of donors to capital projects with some JOD 9.3 million ($13.10 million), mainly earmarked to "developing education toward the knowledge economy."
In 2021, the Kuwait Fund for Arab Economic Development was the most prominent in the list of donors to capital projects with about JOD 7.5 million ($10.5 million).
Source : Jordan’s Public Budgets 2016-2021
* Foreign loans for capital projects
Source: Jordan’s Public Budgets 2016-2020
The education sector's share of foreign loans earmarked to capital projects declined between 2017 and 2020 after receiving the largest share of funding in 2016.
The health sector also received a share of foreign loans earmarked for projects in 2016. The money financed the construction of the new Zarqa Government Hospital, and the expansion of Al-Bashir Hospital. Later, the health sector did not feature on the list of capital projects financed by foreign loans, until the end of 2020, according to public budget data.
Economist Raad Al-Tal says he believes Jordan suffers from bad management of foreign grants, aid and loans. The volume of grants and loans reached JOD 26 billion between 2009 and 2019, yet, their impact is not directly felt whether in relation to infrastructure, health sector, education or road network development.
The expert pointed out that the management of grants, aid and loans was also governed by foreign factors, as lenders might determine the area of expenditure in a way that is not consistent with national priorities.
Valued (JOD)
Source : Jordan’s Public Budgets 2016-2020
Source : Jordan’s Public Budget 2021 – The data rely on reassessed values
* The funding is for the desert road only
German Government
Loans: 5
International Fund for Agricultural Development
Loans: 4
World Bank
Loans: 2
Saudi Fund for Development
Loans: 1
Organization of Petroleum Exporting Countries
Loans: 1
Islamic Development Bank
Loands: 1
Abu Dhabi Fund for Development
Loans: 1
Source : Jordan’s Public Budgets 2016-2020
Economic experts say they believe that the dependence of Jordanian governments on foreign aid, soft loans and domestic and foreign loans to finance deficits and spending on capital projects highlights the importance of finding alternative sources of financing, according to a report issued by the Jordanian Strategies Forum in 2017.
Experts from the forum say it is surprising that domestic bonds issued by the central government and government bodies are not traded in the secondary market.
Al-Tal explains that treasury bonds are a tool of government indebtedness and are traded to enable the government to finance its operating expenditure, including paying salaries, or to fund capital expenditure, such as the execution of projects.
Trading such bonds on the secondary market may increase demand for these tools, hence, enhancing the government's ability to finance capital projects, he said. The larger the number of options and the more the borrowing instruments are diversified, the more money can be collected at lower competitive interest rates, Al-Tal pointed out.
Al-Tal said the lack of a sound policy for trading bonds increases the government's dependence on foreign loans.