Jordanians’ debts have hit the $16b mark

Here is why, according to experts

dept depts loan loans
(Photo: Freepik)
AMMAN — Loans owed to banks by individuals in Jordan have amassed to reach $16 billion, with over one million borrowers. And over the past year, Jordanians in debt have had to endure multiple increases in interest rates, pushing the possibility of repaying loans even further out of reach. اضافة اعلان

Data from the Central Bank of Jordan shows that the number of individual borrowers has steadily increased by a factor of 4.3 percent since 2017. This increase is in parallel with the rising volume of loans.

This surge of individual indebtedness in the Kingdom has caused many to wonder: What is the cause? 
Economic policyPolitical economist Zayyan Zawaneh told Jordan News that the rising indebtedness of Jordanians is due to the Kingdom’s financial policies and practices. 

"The government itself suffers from high public debt," he said. "This causes others to suffer, especially in terms of government workers, as it does not pay them their dues." 

"Concerning defaulters and people evading payments, years have gone by without any solutions."

A perpetual wait with no forward progress has caused difficulties for both Jordanians and the Kingdom’s economic sectors, he said. "These policies are making people suffer and putting them in harm's way."

According to government statistics, the number of individuals wanted on charges of defaulting on their debts or loans has increased tenfold in just four years. 

Currently, debtors constitute about 16 percent of inmates in Jordanian prisons.
"The government itself suffers from high public debt. This causes others to suffer…”
The upshot of ‘successive economic failures’
Economist Muhammad Al-Bashir agrees with Zawaneh that policy is to blame. 

Bashir told Jordan News that Jordanians have suffered "successive economic failures for several years".

Sales tax, he added, has become "the main source of the Treasury's income".

Borrowing policies set by Jordanian banks over the past years have produced about a million strugglers, experts have said. 

According to Bashir, the government and the public suffer from growing indebtedness. 

"An increase in indebtedness and a simultaneous increase in bank profits has created a paradox," he said, emphasizing that a public financial crisis exists. 

This crisis, he said, is represented by tax-related legislation, non-tax-related legislation, and the high unemployment rate. 

"One of the reasons behind the crisis is tampering with the Social Security Law in terms of early retirement, which confuses the labor market," he added. 

Interest ratesIn recent years, borrowers have incurred additional fees and interest because they have postponed payments due to the COVID-19 pandemic and the frequent interest rate hikes.

Economist Mazen Irsheid told Jordan News, "the accumulation and rise of loans, despite the high global and local interest rates, make the economic situation more perilous and complex than in previous years." 
"During the pandemic period, interest rates were low. Now they have doubled over the past year… This puts Jordan in a sensitive spot."
"During the pandemic period, interest rates were low. Now they have doubled over the past year, when they were raised six times," he added. 

"This puts Jordan in a sensitive spot."

Data shows that Jordanians borrow primarily to purchase houses and apartments, followed by individual and car loans. The majority of borrowers are men, at around 81 percent. Meanwhile, women make up 18 percent of borrowers.

Irsheid explained that rising interest rates in Jordan have negative repercussions, especially since most loans are for housing and real estate, which last "decades longer when compared to personal loans", he said. 

"When the interest is variable, the borrower will be affected more, and the cost of returning loans to banks will be higher," he added. 

Despite this, Irsheid said that Jordan would not face an economic crisis at present. "Even though interest rates have gone up, they have not exceeded 4.5 percent, which is one of the lowest percentages in the world.

The US dollarWhile an economic crisis is unlikely, another increase in interest rates is not, especially during the first half of the current year, said Irsheid. 
"When the interest is variable, the borrower will be affected more, and the cost of returning loans to banks will be greater."
"This is due to the fact that any interest rate hike in the US will cause a rise in Jordan," he said.

In 1995, the International Monetary Fund and King Hussein decided to peg the Jordanian dinar to the US dollar. 

"Consequently, this will affect those who obtained previous loans and new borrowers,” Irsheid noted, stressing that most loans in Jordan are of variable interest.

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