MASTER OF MY DOMAIN

Jordan 2019 | FINANCE | INTERVIEW

The central bank retains stewardship of an economy under pressure due to myriad external challenges.

Dr. Ziad Fariz
BIOGRAPHY
Dr. Ziad Fariz holds a PhD in economics from Keele University in the UK as well as a bachelor's of economics from the University of Baghdad. He has been Governor of CBJ from 1996-2000 and from 2012 to date. He has held several key positions in his long career, including Chairman of Capital Bank, Deputy Prime Minister and Minister of Finance, CEO/General Manager of Arab Banking Corporation, and Chairman of Export & Finance Bank, among others. He was also previously Minister of Industry, Trade, and Supply as well as Minister of Planning and International Cooperation. He is also the recipient of numerous awards.

How would you assess Jordan's economic and financial performance in recent years?

Jordan's economy has shown resilience over the past few years, despite precarious regional developments. In 2017, GDP grew by 2.1% in real terms compared to 2% in 2016, while in nominal terms GDP grew by 3.9% in 2017 compared to 3.4% in 2016. The primary objective of CBJ is to maintain monetary and financial stability. In addition, CBJ stands ready to respond to any internal or external shocks by using its monetary tools. In 2017 and 2018, CBJ raised the interest rates on its monetary policy instruments eight times over the two years by 225 basis points, in addition to an increase of 25 basis points in late 2016, in order to preserve monetary stability and ensure a competitive return on JOD-denominated assets. Despite the increases in the monetary policy interest rate, credit facilities extended by licensed banks to the private sector grew by 9.3% in 2017 and 5.9% in the first 11 months of 2018. Moreover, foreign reserves remained at a comfortable level, USD13.4 billion, covering more than seven months of the Kingdom's imports in 2018. Furthermore, the government continued to pursue its national economic and structural reform program in 2018 in cooperation with the IMF. Accordingly, the government has implemented a new bundle of corrective fiscal measures to adjust fiscal positions and enhance domestic revenues through mitigating distortions in the tax system caused by the unjustified expansions in tax exemptions. Consequently, the budget deficit, including foreign grants, declined by 0.2 percentage points to reach JOD727.6 million, or 2.4% of GDP, in 2018, compared to a budget deficit of JOD747.9 million (2.6% of GDP) in 2017. However, gross public debt reached 94% of GDP at the end of 2018 compared to 94.3% at the end of 2017.

What have been the effects of the implementation of IFRS 9 standard and its importance for the economy?

CBJ is keen to continue its leadership of the banking sector and retain the status of the banking sector as one of the most important pillars of the national economy. This leadership role mainly involves implementing and following international standards and practices. Among such standards is the IFRS 9, which became effective as of January 2018. Implementing the new standard will have implications in the banking and credit environment through enhancing the soundness and robustness of banks' financial positions, improving risk management in the banking environment, and boosting the quality of credit portfolios and credit granting procedures. Furthermore, these instructions will imply interconnections with other supervisory requirements, such as Basel III, capital adequacy, and liquidity. In order to properly implement the standard, banks should identify their strategic actions in the following areas: reconsidering their allocation of lending to economic sectors with greater sensitivity to the economic cycle, readjusting their loan-loss provisions, revising commercial policies as product economics and profitability change, and reforming credit-management practices to prevent exposures from deteriorating.

How do you evaluate the progress thus far toward the goals outlined in the National Financial Inclusion Strategy (NFIS) 2018-2020?

Overall, access to finance has improved in recent years, but disparities remain for the majority of the population and vulnerable groups continue to be disadvantaged. As NFIS has become a widely used tool for accelerating financial inclusion in most countries, CBJ launched NFIS in December 2017 with two national goals: to increase access to finance for the adult population from 33.1% to 41.5% and to reduce the gender gap from 53% to 35%. The strategy overall builds on a set of priority policy areas, three of which form the core industry pillars: microfinance, digital financial services, and SME finance. Four areas are considered cross-cutting enablers that facilitate the development of industries and make them more robust: fintech; financial consumer protection and financial capabilities; data and research; and laws, regulations, and instructions. While financial inclusion targets all segments, NFIS prioritizes certain segments: the most vulnerable groups that traditionally have lower levels of financial inclusion and the bottom 40% of households in terms of income, which comprise women, youth, and refugees. The strategy is expected to contribute to reducing socioeconomic inequalities, which will be a result of the convergence of a number of developments, such as new and more adequate funding sources and other financial services for the largely financially constrained SMEs.