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Thu 13 Sep 2012 11:12 AM

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Jordan to issue as much as $1.5bn in eurobonds - minister

Kingdom is reviewing offers from group of banks to manage eurobond sale to help finance gov't spending

Jordan to issue as much as $1.5bn in eurobonds - minister
Jordanian capital, Jordan economy, Hashemite Kingdom

Jordan is reviewing offers from a group of banks to manage a eurobond sale of as much as US$1.5bn to help finance government spending, Finance Minister Suleiman Hafez said.

"A specialised committee from the Ministry of Finance and the Central Bank of Jordan is currently studying the offers to pick the best offer in terms of interest rates and issuance costs," the minister said, according to the state run Petra News Agency.

The government plans to raise between US$750m and US$1.5bn in the sale and will announce the shortlisted banks soon, Petra reported, citing Hafez. The debt instruments would be paid over a period of seven to ten years, the minister said.

Jordan's government is issuing the bonds "in order to strike a balance between domestic and external borrowing and provide the kingdom with a new financing instrument with a lower interest rate," Hafez said.

Jordan issued US$750m in five-year eurobonds in 2010 with an interest rate of 3.875 percent, the first issue of its kind for the country.

Jordan imports almost all of its energy needs and finances its budget and current-account deficits with foreign investment and grants from Gulf states, the EU and the US. The kingdom's public debt-to-GDP ratio increased to about 64 percent at the end of 2011.

Foreign grants to the country in the first seven months of the year plunged to JD25m (US$35.3m), from JD1.02bn in the same period in 2011, according to a statement on the Ministry of Finance's website. The kingdom received JD1.2bn in foreign grants last year.

Jordan's budget deficit reached JD637.7m in the first seven months of this year after receipt of the grants, compared with a surplus of JD330.5m in the same period in 2011. The country's budget deficit reached JD1.2bn last year.

Jordan's fiscal deficit could rise to JD2.93bn this year if economic conditions in the country do not improve, the Jordan Times has reported, citing Hafez. The kingdom's debt would rise to JD17.5bn by the end of the year from JD14.3bn. The debt for the first seven months of the year reached JD15.2bn, according to official data.

The overall budget deficit increased to about 6 percent of GDP in 2011 as a result of commodity subsidies, other social spending and borrowing by the government on behalf of Jordan’s National Electric Power Company to cover more costly imported fuel oil used during extensive periods of interrupted natural gas supply when saboteurs attacked pipelines in Egypt.

In July the International Monetary Fund agreed to loan Jordan US$2bn as the country's borrowing costs increased and high oil prices took a toll on the kingdom's economy.

"Jordan remains highly dependent on commodity imports oil and grains, tourism receipts, remittances and FDI flows, and external grants,'' the IMF said in a report in April. The kingdom "is also facing risks from a further deterioration in its terms of trade, unrest in neighbouring countries, and the prospect of further disruptions to natural gas pipeline flows from Egypt," it added.

Jordan's economy is forecast to grow 2.8 percent this year from an estimated 2.5 percent in 2011, while inflation is projected to rise to 4.9 percent from 4.4 percent last year, according to the IMF. Government subsidies in total account for about JD2.386bn annually. The treasury incurs JD40m a year for every US$1 above the price of US$100 a barrel of oil.