Total public debt reached by the end of February 2025, approximately JD 44.8 billion (around 118.5 per cent of GDP). Such a high percentage underscores the pressure on public finances and raises the question of whether the focus should be on deficit reduction, revenue growth, or both to manage the debt.

 

According to the Ministry of Finance's Quarterly Debt Report for 2024, the average maturity of external debt was approximately 8.0 years, and the average maturity of total debt was approximately 5.9 years. In the first quarter of 2025, the average maturity of external debt decreased to 7.8 years, and the average maturity of total debt decreased to 5.8 years. The share of short-term debt (one year or less) in total debt, according to the first quarter of 2025 report, was approximately 9.1 per cent of the total debt. Because the average maturity of external debt is long (7.8–8 years), Jordan has relative flexibility in managing its external debt and a relatively long refinancing period, but not so long as to eliminate all risk.

 

Regarding the domestic/foreign composition of public debt, the majority consists of domestic debt (including Social Security Fund investments/debts). Domestic debt typically includes treasury bonds and bills issued in Jordanian dinars, local government loans from banks or domestic entities, and other local government bonds or bills. Domestic debt reached approximately JD15.5 billion, to which is added the Social Security Fund's investment in lending to the government, amounting to JD10.8 billion, totaling JD26.3 billion, or approximately 59 per cent of the total public debt.

 

A significant portion of Jordan's domestic debt is comprised of treasury bonds, an important domestic financing instrument. However, this means that a large part of the government's obligations depends on the local debt market; thus crowding out the private sector in borrowing.

 

Some Jordanian cabinets have favored domestic borrowing due to the ease of the process itself, as the procedures are much simpler and faster than those for borrowing from abroad, even though the cost of domestic borrowing is higher than the cost of foreign loans. The average interest rate is 7–7.5 per cent according to 2023 figures, while yields on new 7–10 year bonds range between 6–8 per cent. In comparison, the average interest rate on external debt is between 3–4 per cent, and concessional loans between 2–3 per cent. On the other hand, domestic borrowing reduces exposure to currency fluctuations and benefits local banks and lending institutions rather than foreign ones.

 

Based on the foregoing, several strategic proposals emerge, including the need to extend debt maturities by issuing new medium- to long-term bonds to reduce reliance on annual refinancing; for the government to increase the proportion of long-term debt; to diversify debt instruments, such as issuing more Islamic bonds (sukuk) to attract investors from within and outside Jordan; to use a mix of debt instruments (bonds, treasury bills, and sukuk) to meet financing needs with instruments suitable for different investor segments; to strengthen the local bond market by improving market depth; to enhance transparency and disclosure (such as periodic reports and a clear local credit rating) in the Jordanian bond market to attract foreign investors; to establish an interest rate risk management program when issuing bonds, such as using financial derivatives to reduce the impact of rising global interest rates; to negotiate concessional loans from friendly countries or international institutions on favorable terms and low interest rates (as has been done recently) to reduce pressure on the budget; to increase revenues by improving tax collection and domestic revenues so that debt burdens become more manageable due to increased state resources; and to improve spending efficiency to reduce the deficit is not necessarily about reducing spending, but rather about redirecting it towards activities that increase productivity so that the citizen's income increases, and thus the state's income increases, without raising tax rates or creating new taxes... The magic model is "Rich People, Rich Government”.

 

The writer is a former Minister of State for Economic Affairs in Jordan. He is currently the CEO of the Envision Consulting Group.