Jordan Times
Monday, March 31, 2008
Debt buyback deal signed
AMMAN (JT) - Jordan on Sunday signed a debt purchase agreement with 10 Paris
Club member states in a bid to alleviate the Kingdom’s foreign debt burden.
The amount of debt subject to the agreement is $2.4 billion at 11 per cent
discount par value, bringing down the total amount that the Kingdom will have to
pay under the financial transaction by around $2.1 billion.
During the signing ceremony, held at the Dead Sea, Prime Minister Nader Dahabi
said: “The debt buyback comes as an important step towards reducing the heavy
debt burden on our budget”.
“This reduction is an integral part of our comprehensive reform plans we are
currently implementing to improve the living standards of our citizens through
economic growth and enhanced participation at all levels of society,” he added.
Underlining the Kingdom’s economic reform, he said: “A central tenet of Jordan’s
reform programme is to enable the private sector to lead economic growth, while
government retains the role of regulation. This has enabled an ambitious
privatisation programme, described by the World Bank as one of the most
successful in the region.”
“The returns from this programme, in accordance with the privatisation law, have
since been earmarked, primarily, for paying down our national debt,” he said.
At the end of last year, privatistaion revenues totalled around JD800 million,
while the money owed to the industrial countries was JD4.5 billion.
The financial transaction will improve Jordan’s economic position and enable it
to pursue its drive towards economic reform, Dahabi said, pointing out that this
operation would reduce the country’s external debt by 13 percentage points of
GDP and will enable the Kingdom to reach the targeted debt ceilings.
Dahabi referred to the main challenges facing the Kingdom, including the hikes
in the prices of commodities and basic staples, reiterating that the Kingdom has
taken serious steps to make sure that the state budget is spared the
repercussions of the changes.
The government launched the JD301 million Social Safety Network to offset the
impact of floating fuel prices and the subsequent price hikes in other
commodities and services, which are also fuelled by the rise in international
prices of essential commodities.
In his address at the ceremony, Finance Minister Hamad Kasasbeh said: “Through
buying back a large part of our non-ODA [official development assistance] loans
to Paris Club creditors, Jordan will gain the following: Around 11 per cent
discount rate of the totalled outstanding debt subject to buyback; the external
debt will go down from $7.4 billion to $5 billion and $240 million will be saved
annually over the life of the loans.”
“This would allow additional flexibility in our budget to invest in our reform
programme,” he said.
“In addition to that, with this deal, Jordan's credit position in the
international markets as well as investor confidence of the country will be
substantially improved,” the minister elaborated.
At a press conference, Kasasbeh said this is the first agreement that the Paris
Club member states sign to purchase debts at a discount, adding that this the
first time that the US agrees to debt purchase, which came in appreciation of
the Kingdom’s stands on the international level.
In reply to a question on the possibility of resorting to external debts, the
minister said: “We will not resort to borrowing again unless they are long-term
loans and for financing income-generating projects”
The agreements followed six months of negotiations with Paris Club creditor
members, said Kasasbeh, underlining the efforts of His Majesty King Abdullah in
this regard.
The Paris Club is an informal group of financial officials from 19 countries
which provide financial services to indebted countries as debt rescheduling and
debt swap transactions.