Jordan, faced with rising local borrowing costs, wants to speed up issuance of Islamic bonds or Eurobonds to tap more competitive sources of funding to contain its budget deficit, officials and bankers said.

Average yield for the most widely auctioned 18-month and three-year maturity public debt instruments has risen by around 150 basis points since March and bankers said this was prompting an accelerated pace of preparations to launch dollar-denominated sovereign issuance either in sukuk or a Eurobond.

'Domestic borrowing costs have gone up sharply and this only piles pressure on the treasury ... that is why the government is moving ahead with more innovative means to tap lower-cost funding abroad,' a senior banker was quoted as saying in our sister publication, the Gulf Daily News.

Last year, the authorities considered the international debt market to finance a chronic deficit worsened by the global downturn. However, it put the plans on hold as risk-averse local banks, awash with liquidity, were happy to lend to the government even at low interest rates.

But banks now appear to be almost exploiting the government's sole reliance on them through unrealistically high bids to offset depressed profitability as the economy suffers from a recession and weak domestic demand, some bankers concede.

Acting on behalf of the finance ministry, the Central Bank of Jordan has so far this year sold $2.8 billion worth of government debt to finance a budget deficit expected to reach 6.3 per cent of GDP this year.

Bankers say average yields shot up to 5.7 per cent for three-year Treasury bonds last week from 4.06 per cent at the end of March while 18-month paper rose by 180 basis points to 4.9 per cent since mid-April in the latest auction on June 21.

Traders say demand for 18-month and three-year Treasury bonds was also more sensitive to uncertainty over the direction of yields in international markets. – TradeArabia News Service