Interview: Ziad Fariz

What factors led the CBJ to lower the benchmark monetary policy rates by 50 basis points in 2015?

ZIAD FARIZ: Several key monetary and macroeconomic indicators have allowed the CBJ to respond to the state of the economy and to pursue a more flexible approach towards encouraging credit and investment within the kingdom. In fact, our monetary policy has been very skilful in balancing stability and growth objectives. Therefore, the cuts were motivated by the need to support credit growth, which is starting to recover, in the context of strong foreign reserve buffers ($15bn), a low risk premium, continued de-dollarisation and low inflation. Financial markets remain robust, with banks reporting strong capital and liquidity buffers and lower non-performing loan ratios. Given these encouraging metrics, we have taken steps to further support investment by lowering benchmark interest rates.

How has the drop in global oil prices impacted the monetary stability of the kingdom?

FARIZ: A reduction of oil prices on this scale is expected to have a positive impact. On the macro level, the oil price drop during 2015 will likely result in a decreased energy import bill. This is important considering disruptions in gas imports from Egypt, which have significantly fallen as a result of political events. Lower oil prices also impact inflation and have led the government to reduce subsidies on fuel and electricity, thus securing a more sustainable fiscal budget. On the other hand, the government will lose some tax revenues. Broadly speaking, however, I believe that the net impact will be positive and improve economic growth in the kingdom, as well as trim the current account deficit. However, the overall effect will be difficult to measure, given volatile food and energy prices, as well as the regional risks and uncertainty. Considering the many variables, we will continue to closely monitor the impact of lower global oil prices.

What steps is the CBJ taking to facilitate lending to small and medium-sized enterprises (SMEs)?

FARIZ: The CBJ recognises the importance of SMEs to Jordan’s broader economic growth and it is currently working on ways to boost lending in this area. Firstly, the CBJ stands ready to refinance up to 5% of banks’ loan portfolios to priority sectors at two percentage points below the prevailing discount rate. Priority sectors include industry, energy, tourism and agriculture. So far, the CBJ has lent more than JD100m ($140.7m) through this programme. Secondly, we have made coordinated efforts alongside international financial institutions such as the Arab Fund for Economic and Social Development, the World Bank, and the European Bank for Reconstruction and Development to provide concessionary finance for SMEs. The available funding from these institutions is approximately $390m. Moreover, Jordan’s first credit bureau should be operational by 2016. This will, over time, increase the transparency of SMEs, thus making lending decisions easier for creditors. In addition, the CBJ has recently included microfinance institutions under its regulatory scope.

To what extent could sukuk (Islamic bond) add to opportunities for Islamic financial instruments?

FARIZ: Sukuk represents a significant opportunity for both the government and those who are keen on more sharia-compliant financial services to be offered within the kingdom. Further, the introduction of such new instruments will raise competition among banks and lead to more effective and efficient utilisation of available liquidity in the banking system. I hope that sukuk will stimulate the development of capital markets in Jordan, which are shallow compared to more mature markets in Europe or the US. Meanwhile, a successful issuance of sukuk may, at the same time, encourage private companies to take a closer look at raising capital via the bond market.