(MENAFN- Jordan Times) A recent rise in demand for the US dollar in the local market has tapered off, according to financial experts and executives.
The temporary surge in demand for the US dollar in the past weeks was due to regional instability and economic uncertainties in the Kingdom, the pundits said.
In remarks to The Jordan Times Monday, economists blamed senior officials for the panic that hit the local market over the dinar's exchange rate, saying the market reacted nervously to the public financial figures revealed by the government recently, which in addition to latest regional developments, pushed some people to convert substantial amounts in domestic currency to US dollar.
According to Alaa Eddine Diraniyeh, head of the Jordanian Exchange Association, although there was a "huge" demand for the US dollar, supply of the currency was enough to cover market needs.
Diraniyeh noted that the market has calmed down currently as demand for the dinar has also picked up thanks to increasing remittances by Jordanians abroad and influx of tourists from Arab countries.
"Ongoing turmoil in Syria and the government's demoralising statements that public finances had been worse than expected caused panic among people," he said.
Economic and political analyst Zayyan Zawaneh said that although panic in the local market has eased, the overall economic situation remains unstable, urging policy makers to act immediately to spread assurances among people and investors.
Key economic indicators show that the Treasury is suffering from a record deficit that might touch JD3 billion, the ratio of government revenues coverage to public expenditure is decreasing and public debt to gross domestic product ratio is increasing, he explained.
Borrowing costs of the government are also going up, he elaborated, noting that interest rates charged by local banks on treasury bonds have jumped from around 3 per cent to 6.8 per cent in recent weeks.
Foreign reserves of the Central Bank of Jordan (CBJ) are also on a decline, standing currently at $8.8 billion, according to Zawaneh, a former adviser at the International Monetary Fund (IMF) and the CBJ.
As the national economy is based on three pillars: fiscal policy, monetary policy, and stability and security of the Kingdom, he stressed that the government should take immediate measures to enhance its financial resources and not to rely heavily on foreign grants, which he said "may and may not come".
As the fiscal policy of the government is suffering from what he termed as "cracks" due to inappropriate decisions, the development role of the CBJ is currently limited, Zawaneh said, which caused the recent rise in demand for dollar.
Among the urgent solutions to exit current difficulties, he suggested amending the Income Tax Law by imposing more taxes on the rich in addition to raising sales tax rates on luxury goods, while reducing taxes and fees on the tourism sector as Jordan is expected to be the preferred destination for Arab tourists.
Economist Yusuf Mansur had a different view from Zawaneh as he was optimistic about a better performance for the economy.
Mansur said panic in the market over the exchange value of the dinar was unjustified, as the economy and the financial position of the state are set to see a boost.
"The exchange rate of the domestic currency is receiving support from positive external factors that were not present at the beginning of this year," he said, explaining that the drop in oil prices and the decrease in the value of the euro will help the country reduce its oil imports by around 20 per cent and lower import bill from Europe by nearly 10 per cent.
In regards to the value of the dinar, Manusr indicated that in the 1990s the IMF had advised Jordan to maintain a level of foreign reserves that can cover a month-and-a-half of imports in order to maintain the dinar-dollar peg.
Based on expected trade figures for this year, he added that reserves would cover over seven months of imports.
Mansur emphasised the need for positive government statements to assure the local market.
Financial analyst at Capital Investments Ali Tabbalat agreed with Mansur that the dinar exchange rate is stable.
"I cannot see any threat to the dinar," Tabbalat said, saying austerity measures announced by the government recently and hikes in fuel prices will generate more revenues for the Treasury, which, he said, will bring the deficit to safer levels.
Regional developments also played a major role in making people worry about their savings in the dinar, he added.
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