Despite regional instability, the Jordanian economy has
remained resilient and enjoys strong fundamentals. GDP grew by
2.0% during 2017, maintaining its growth pattern of 2016.
Since the start of 2018, some indicators showed improvement.
For example, during the first four months of 2018, tourism
income and total workers' remittances grew by 11.8% and 1.2%,
respectively. Consequently, the economic outlook in Jordan
remains positive and growth is expected to gradually improve,
in light of local economic reforms and initiatives and a
positive global and regional economic outlook.
GDP is projected to grow 2.3% and 2.5% in 2018 and 2019,
respectively. The inflation rate reached 3.3% in 2017, compared
to a 0.8% contraction in 2016. The drivers were mainly the rise
in the oil price and a set of government measures that included
abolishing sales tax exemptions on many goods and services and
raising taxes and fees on a number of other goods and services.
As for the first four months of 2018, inflation was at 3.9%,
compared to 3.7% during the same period of 2017.
The operational framework for monetary policy depends on the
"corridor" system, which directs overnight interbank rates.
This system consists of an overnight deposit interest rate and
an overnight repurchase agreement (repo) interest rate. Banks
deposit their surpluses with the Central Bank at the deposit
interest rate and if they need liquidity, they borrow from the
Central Bank via repos. The overnight deposit interest rate
represents the system's floor, while the repo interest rate
represents the system's ceiling.
The fixed exchange rate regime with the US dollar, adopted
in 1995, is the nominal pillar of monetary policy. It has
effectively served the Jordanian economy and boosted trust in
the Jordanian dinar as an enticing vessel for savings.
Moreover, it has positively contributed to increasing
investment cash inflows to the Kingdom, raising the
competitiveness of domestic exports and to continuing
Taking into consideration the importance of the banking
sector, which remains the main engine of growth in Jordan, the
Central Bank of Jordan (CBJ) has been working to strengthen the
domestic banking system. In this regard, the CBJ is in the
final stages of drafting regulations for a liquidity coverage
ratio (LCR) based on Basel III principles, which will improve
current liquidity requirements regulations.
To that end, we have established a separate department for
financial stability and reinforced the role of banking
supervision with the implementation of prudential regulations
such as Basel III and corporate governance. Most recently, we
have also issued our 'Dealing with Domestic Systemically
Important Banks (DSIBs)' instructions and new stress testing
regulations. We pay special care to the liquidity and capital
positions of banks; our banks' capital adequacy ratio average
is around 17.6% as of end-2017 (above our minimum 12%
requirement) and bank liquidity is currently at comfortable
levels while being constantly monitored. It is worth noting
that such procedures are part of an ongoing national strategy
for sustainable growth; an aim that might be considered a
little optimistic given the unrest our region is facing, yet it
is entirely justifiable in light of the results we have
witnessed in banks' profitability and asset quality.
The non-performing loan (NPL) ratio is low (around 4.2%),
while the provisions coverage ratio is high and reached 75.4%
of NPLs. As for profitability, the return on equity (ROE) and
return on assets (ROA) of Jordanian banks reached around 9.1%
and 1.2%, respectively, as of end-2017.