Jordanians hope loan deferments will help Ramadan spending

Translated by Matthew Petti

The Jordanian public is waiting to see whether banks will postpone this month’s loan payments as part of Ramadan festivities. Merchants believe the move will revive markets from a slump caused by inflation.

Jordan has deferred loan payments every Ramadan since the coronavirus pandemic began, but banks have signaled that they may not continue the tradition this year. Bankers and economists say that loan deferments are a temporary fix with potential economic drawbacks.

“It’s in the hands of Jordanian banks, which have not made a decision yet,” said Dirar Al-Harasis, head of the House of Representative’s finance committee. “Representatives are meeting with the government to request activation of the Defense Order, in order to relieve citizens during Ramadan with interest-free loan deferments.”

Despite requests from merchants and Parliament, the Association of Jordanian Banks has not put out a decision yet. Hopes have begun to fade after association president Maher Al-Mahrouq said that “this year is not the first Ramadan or special occasion.”

The question of whether to defer loan payments depends on “whether or not there is a justification,” he explained.

The Jordanian government postponed loan payments for Ramadan during the 2020 coronavirus lockdown, as a way to absorb the economic impact of the pandemic. Since then, it has been a tradition to defer payments for the calendar month leading up to Ramadan.

Last year, 1.17 million borrowers owed 11.8 billion dinars ($16.64 billion) to Jordanian banks, according to statistics from the Central Bank of Jordan. In the same time period, the 157,367 people had defaulted on loans, including 137,715 people whose debts were less than twenty thousand dinars, the government announced.

Merchants say that postponing citizens’ loan payments will inject 250 million dinars ($350 million) of liquidity into the Jordanian markets during Ramadan, which will revive commercial activity and increase demand.

Asaad Al-Qawasmi, a member of the board of directors at the Jordan Chambers of Commerce, went even further than the Ramadan demand, and called for an interest-free loan deferment of three months.

“Liquidity is missing from the markets, especially for basic commodities and especially due to Ramadan demand. Heads of households can’t provide liquidity from their monthly salaries alone,” he told the international news outlet Arabi21. “Interest-free loan deferments during seasons such as Ramadan and the Eid holidays will inject liquidity, increase purchasing power, and get the wheels of the economy moving.”

But Jordanian Central Bank governor Adel Al-Sharkas warned that “delaying loan payments is unhealthy. The liquidity [that comes from it] is imaginary.”

“That’s a decision for the banks to make, and the Central Bank doesn’t interfere,” he said during a panel at the Public Policy Forum. “The value [of loan payments] fluctuates between 200 million and 240 million every month. The percentage of non-performing loans at the moment is 4.6 percent, an excellent number. It’s considered minimal. Out of that, 84 percent is covered by reserves.”

The prices of 125 out of 155 basic commodities stabilized in February, according to the Ministry of Industry and Trade. The price of ten basic commodities actually decreased, including Australian lamb, potatoes, imported lemons, onions, cauliflower, and local garlic.

However, the prices of 20 basic commodities increased, including fresh chicken, some meats, cucumbers, eggplants, and chili peppers.

Economists called on Jordanians to cut back on expenses during Ramadan, instead of delaying loan payments.

Economic analyst Husam Ayyash sees loan deferments as a temporary solution that can provide relief and spending power at a specific, limited moment. But postponing payments also prolongs the debt, he argues.

In other words, people are borrowing from their future selves to meet their current needs.

“These problems [always] come back during Ramadan,” Ayyash says. “People must learn, when we spend beyond our needs, the additional cost comes at the expense of other priorities, or turns into debt. Similarly, a single increase in demand will lead to an increase in prices.”

Ayyash emphasized that Ramadan is a month of piety, which should be an opportunity to be frugal and cut back on costs.

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