Jordan needs a clear and credible strategy for managing its public debt. The issue is no longer simply how much the government borrows, but how it borrows, why it borrows, at what cost, and whether that borrowing strengthens the economy’s ability to repay. A sound debt strategy should set clear targets for the size and cost of public debt, the maturity and currency structure, and the level of risk the government is willing to accept. It should also establish clear rules for how borrowed funds are used and measurable targets against which progress can be assessed.

 

This discussion is particularly relevant given the recent improvement in the management of debt service costs. Over the past two years, the government has managed to slow the growth of interest payments, partly by refinancing some relatively expensive debt. This is a positive development and shows that better debt management can make a difference. But it would be a mistake to see lower growth in interest costs as a solution to the debt problem itself. Interest payments are still rising. The key difference is that they are rising more slowly.

 

This distinction matters. Managing the cost of debt is not the same as putting debt on a sustainable path. Debt sustainability is ultimately about whether the government can meet its debt obligations over time without placing excessive pressure on public finances or requiring continuous increases in borrowing. This requires looking beyond the current debt figure and understanding the economic forces that determine where debt is heading.

 

One of the most important factors is the relationship between the real interest rate and real economic growth. When the real interest rate is higher than the real growth rate, the debt-to-GDP ratio tends to come under upward pressure, particularly when the starting level of debt is already high. The opposite is also true. When the economy grows faster than the real interest rate, GDP can increase faster than debt, helping to bring down the debt-to-GDP ratio even when the nominal value of debt continues to rise.

 

This is why economic growth is not only a development objective. It is also an important part of the debt equation. Stronger growth expands the size of the economy and, if supported by higher productivity and employment, can broaden the government’s revenue base. A stronger economy therefore improves the capacity to service existing debt. For a country with a relatively high debt burden, sustaining economic growth is an essential part of any credible debt strategy.

 

The primary balance is another critical factor. It measures the difference between government revenues and spending before interest payments are taken into account. A persistent primary deficit means that the government is borrowing to cover its spending needs even before it pays interest on existing debt. Over time, this can create a cycle in which new borrowing adds to the debt stock, higher debt generates higher interest costs, and those costs create additional financing needs.

 

Keeping the primary deficit under control is therefore central to putting debt on a sustainable path. But fiscal consolidation should not simply mean cutting expenditure across the board. The more important issue is the quality of public spending. Governments need to improve spending efficiency, strengthen revenue collection, broaden the tax base where appropriate, and protect expenditure that supports productivity and long-term growth. Borrowing to finance productive investment is very different from borrowing to finance inefficient current spending.

 

The starting level of debt also matters. The higher the debt-to-GDP ratio, the more vulnerable public finances become to changes in interest rates and economic growth. When debt is already very high, even a relatively small increase in borrowing costs or a slowdown in growth can significantly change the future path of debt. This is why debt management must focus not only on the current debt stock but also on how sensitive that debt is to changes in economic conditions.

 

It is also important to distinguish between the nominal value of debt and the debt-to-GDP ratio. The government may continue to borrow and the nominal debt may increase, while the debt ratio falls if GDP grows faster than the debt stock. This means that reducing the debt ratio does not always require the government to reduce the nominal value of debt immediately. What matters is the relationship between the growth of debt and the growth of the economy.

 

The cost of borrowing is another major consideration. Higher interest rates translate directly into higher interest payments and greater financing needs. The impact becomes more significant as the debt stock increases because even a small change in borrowing costs can result in a large increase in annual interest payments. Reducing the cost of borrowing should therefore remain an important objective of debt management. Refinancing expensive debt at lower rates can help, but such actions should form part of a broader strategy rather than serve as a substitute for fiscal adjustment.

 

The composition of debt is equally important. Debt is not simply a single number. Its risks depend on maturity, currency and interest-rate structure. Short-term debt creates greater refinancing risk because large amounts have to be rolled over frequently. Foreign-currency debt exposes the government to exchange-rate risk, while variable-rate debt can become more expensive when interest rates rise.

 

A prudent debt strategy should therefore aim to extend the average maturity of government debt, spread repayment obligations over time, diversify sources of financing and avoid excessive dependence on short-term borrowing. The objective is not necessarily to minimize the cost of debt at any given moment, but to achieve the right balance between cost and risk over the long term.

 

Revenue capacity is another fundamental part of the equation. Debt sustainability depends not only on how much the government spends, but also on its ability to generate stable and predictable revenues. An economy with a broad productive base and a strong revenue system is better positioned to service its debt than an economy that relies on a narrow or volatile set of revenue sources.

 

The quality of economic growth matters here as well. Growth driven by productive sectors can create jobs, increase exports, attract investment and expand government revenues. Such growth strengthens the economy’s capacity to service debt. By contrast, growth driven mainly by consumption and borrowing may support economic activity in the short term without generating the income and productive capacity needed to support debt repayment in the longer term.

 

The external position also deserves close attention. Foreign reserves and the economy’s ability to generate foreign currency are particularly important when a significant share of public debt is denominated in foreign currencies. A country that relies heavily on imports while carrying substantial external obligations needs reliable foreign currency inflows to meet both its external payments and debt obligations.

 

This makes exports, foreign direct investment, workers’ remittances and tourism important not only for the balance of payments, but also for the broader sustainability of public debt. The stronger the economy’s capacity to generate foreign currency, the better positioned it is to meet external obligations and withstand external shocks.

 

A credible debt strategy should therefore answer several questions at the same time. How much can the government borrow without putting debt sustainability at risk? What should be the average cost and maturity of that borrowing? How much debt should be denominated in foreign currency? What level of refinancing risk is acceptable? And, perhaps most importantly, what is the government borrowing for?

 

The last question deserves particular attention. Borrowing is not necessarily a problem. The real issue is what the borrowed money is used for. Debt that finances productive investment, infrastructure or projects that raise future economic capacity can generate returns that help the economy service the debt. Debt used mainly to finance recurring expenditure creates a very different fiscal challenge because it adds to future obligations without necessarily creating additional income or productive capacity.

 

The size of public debt therefore matters, but it tells us only part of the story. We also need to look at the cost of that debt, the pace of economic growth, the primary balance, the maturity and currency structure, the government’s revenue capacity, foreign currency earnings and, above all, the economic return generated by borrowing.

 

Jordan has made some progress in containing the growth of debt service costs. The next step should be to move from managing the symptoms to managing the debt within a clear and measurable framework. A credible public debt strategy should set targets, establish risk limits and make the purpose of government borrowing transparent.

 

The objective should not simply be to borrow less. It should be to borrow better, at the right cost, for the right purpose, and within clearly defined limits. That is the foundation of sustainable public debt management and, ultimately, stronger and more resilient public finances.