“There is a missing market in Jordan; the bond market,” agreed participants at a one-day seminar held on Monday about “The Government Bond Market in Jordan and Its Future Development.”
“Bond trading makes up one percent of total trading on the Amman Stock Exchange, a low percentage compared to other emerging markets,” said Bassam Saket, head of the Jordan Securities Commission.
“In the US, two-thirds of trading is in bonds, while 30 percent of government debts is in bonds,” said Saket in an interview after the seminar.
Bonds refer to interest-bearing certificates of public or private indebtedness.
However, this financial tool seems to be missing in Jordan, despite its role in improving overall management of Jordan's public debt.
Mohammad Abu Hammour, secretary general of Ministry of Finance, said that the government of Jordan, like in many other developing countries, has borrowed directly from its central bank, which he said is not a healthy practice in terms of the independence of the central bank or in terms of developing the government bond market.
However, he noted that, the Kingdom's adoption of the economic restructuring program involves increasing reliance on marketable domestic sources, more specifically treasury bonds and treasury bills.
These tools, he explained, will be used to finance budget deficits and to meet principal payments on existing obligations.
“At present, Jordan's external debt outstanding is equal to approximately 90 percent of GDP, while internal debt equal approximately 20 percent of GDP.
“In the future, we aim to reduce our external debt to no more than 60 percent, our internal debt to no more than 40 percent, and total debt to no more than 70 percent of GDP,” he told more than 40 participants.
Abu Hammour explained the benefits of increased internal relative to external borrowing as a way to reduce the risk in our debt profile by offsetting the impact of fluctuations in the foreign exchange market.
In addition, he said, payments do not need to be shifted into foreign currencies, which results in lower downward pressure on future levels of foreign exchange reserves.
“...The development of the government bond market combined with increased issuance of treasury bonds and treasury bills in place of other alternatives will lower interest rates which in turn will help to reduce our budget deficit,” added Abu Hammour.
Participants, financial experts from various private and public institutions, blamed the lack of trading in bonds on the inadequacy of the supply of securities, lack of specialized bond dealers, and insufficient culture on the importance of bonds.
Mohammad Jafari, from the Central Bank of Jordan, noted that the bond market is at a very early stage of development.
“The CBJ maintains interest in developing the bond market since a diversified and well-functioning bond market serves monetary stability as well as promote sustainable economic growth,” said Jafari.
“The CBJ also encourages banks to issue bonds instead of heavy reliance on short-term deposits.
“It also encourages public institutions, large corporations and specialized institutions to access bond markets for fund raising,” he added.
He also briefed the audience on the draft public debt law, which aims to relax limits imposed on government bond issues.
Highlighting the fruits of developing bond issues, Saket said that using the tool is more economical than borrowing from banks.
“We aim to create a new culture of investment among financial institutions, one which makes them rely on bond issues as a means of soliciting finance,” stated Saket as the end goal of conducting such a seminar. — (Jordan Times)
By Rana Awwad
© 2000 Mena Report (www.menareport.com)