Interest Rate Monitor

February 3, 2013

2

US: Unemployment rises but job growth strengthens

• The U.S. economy added 157,000 jobs in January, according to a Labor Department report released Friday. That's slower growth than in December, when employers hired 196,000 workers.

• The unemployment rate was 7.9% in January, up from 7.8% the month before, as 12.3 million people were counted as unemployed. Overall, hiring is barely keeping pace with population growth, and the Labor Department noted that the unemployment rate has barely changed since September.

• Economists are expecting job growth to continue in 2013 at roughly the same pace as last year, when the economy added 2.2 million jobs. They predict the unemployment rate will end the year at 7.5%.

• The Labor Department also released revisions to its 2012 data, showing the economy added 335,000 more jobs during the year than originally reported.

• Overall, the U.S. economy lost 8.8 million jobs in the financial crisis, and is still down about 3.2 million jobs from the labor market's height in January 2008.

• Investors were impressed by the jobs report, however. Stocks rallied, briefly pushing the Dow above 14,000 for the first time since October 2007.

• Construction hiring could be one of the highlights this year. It was the single hardest hit sector in the recession but has recently shown some signs of life.

• That said, political uncertainty is still hanging over employers, as they wait for Congress to hash out a budget deal. Amid an impasse between Democrats and Republicans, chances are growing that automatic spending cuts, which aim to reduce deficits by $1.2 trillion over a decade, could take effect starting in March.

January:+157,000

3

FOMC retains stimulus measures

• the Federal Reserve shows little sign that it will wind down its stimulus efforts and the domestic economy is showing signs of improving.

• Fed officials decided Wednesday, at the conclusion of its first meeting of 2013, to continue its $85 billion monthly bond buying. The Fed’s asset purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities.

• The policy, known as quantitative easing, or QE, is meant to hold down long-term interest rates and encourage more spending, investment and hiring. But critics, including some within the Fed, worry it could cause higher inflation or new financial bubbles. QE has already propelled the central bank’s balance sheet above a record $3 trillion.

• The Fed repeated that “if the outlook for the labor market does not improve substantially” its purchases will continue; i.e. the central bank plans to hold its target interest rate near zero as long as unemployment remains above 6.5% and inflation remains no more than 2.5%.

• The central bank decision, which followed a two-day meeting, had been widely expected, especially after a surprising decline in U.S. economic growth for the fourth quarter.

• Fed officials attributed the stall to “weather-related disruptions and other transitory factors,” though they foresee a pickup to “moderate” growth. The central bank said that strains in global financial markets have eased somewhat, but cautioned that risks remain.

 Q4: -0.1%

4

Temporary weakness

• On Wednesday, the government announced that GDP unexpectedly suffered its first decline since the 2007-2009 recession, falling at a 0.1% annual rate after growing at a 3.1% in the third quarter.

• The drop was driven by a sharp fall in government spending (6.6%) and by businesses putting fewer goods on warehouse shelves, as well as by a decline in exports.

• The mainstays of the domestic private economy—housing, consumer spending and business investment in equipment and software—were stronger. Private consumption increased 2.2%, business fixed investments 9.7% and residential investment 15.2%.

• Other reports Friday confirmed the view of an economy making slow headway. The latest reading from purchasing managers suggested manufacturing is perking up after slumbering for a few months. The Institute for Supply Management said its reading of factory activity rose to 53.1, its best score since April. Any reading above 50 indicates expansion.

• The report came amid signs that factory downturns around the world are easing, potentially giving the global economic recovery more power.

• Also, Construction spending rose in December, aided by the recovering housing sector.

• Moreover, despite facing higher taxes, U.S. consumers felt slightly better about the economy especially regarding the future, according to data released Friday. A gauge of consumer confidence from the University of Michigan unexpectedly was revised up for January, to 73.8 from the preliminary level of 71.3.

5

US Treasury bond rates

As of February 2 1 Week Ago A Month Ago1 Month 0.02% 0.05% 0.06%3 Months 0.07% 0.08% 0.07%6 Months 0.11% 0.11% 0.12%2 Years 0.27% 0.28% 0.27%5 Years 0.89% 0.85% 0.81%10 Years 2.02% 1.95% 1.90%30 Years 3.23% 3.13% 3.11%

• Following the release of the US job figures, 10-year note prices initially rose on Friday, as the unemployment rate remained high at 7.9%.

• The figures suggest that the Fed will maintain its loose policy for longer, as it promised to continue its $85 billion monthly bond buying, until the outlook of the labor market improves substantially, which supports higher prices as it indicates that demand for safe havens such as US Treasurys remains high.

• Nevertheless, amid the optimism of growth momentum, demand for the perceived safety of U.S. Treasurys fell, sending the yield—which moves inversely to price—up to 2.017%, a level not seen since April 2012.

6

China: Mixed manufacturing data, but growth picking up

• Activity in China's manufacturing sector increased again in January, but separate surveys of purchasing managers' sentiment painted a mixed picture on the pace of recovery and hinted at continued weakness in export markets.

• HSBC's manufacturing index hit a two-year high of 52.3 from December's 51.5, stronger than its initial "flash" estimate of 51.9 released last week. A reading above 50 signals expansion in the manufacturing sector.

• But China's official PMI posted a surprise fall to 50.4 from 50.6 in December, coming in well below most analysts forecasts.

• Manufacturing makes up a large part of China's economy, and the sector is considered a barometer of global growth because of the nation's position as the world's biggest exporter.

• The official PMI data suggested the improvement in new orders in January was driven by domestic demand, as the sub-index for new export orders fell to 48.5 from 50, indicating contraction.

• Figures from HSBC reflected brighter prospects for exporters with orders increasing after a decline in December, but the bank said growth in infrastructure, higher consumer spending, and re-stocking were providing the biggest boost.

• China's economic growth has rebounded since bottoming in the third quarter of last year, with full-year growth of 7.8% beating government estimates.

• While fourth quarter growth of 7.9% confirmed China had avoided a hard landing, the recovery looks set to be steady rather than spectacular.

• The deputy governor of China's central bank expects growth to recover slightly to 8% in 2013. Speaking at the World Economic Forum in Davos last week, Yi Gang also warned inflationary pressures would increase.

7

Euro area: Less pronounced contraction than in recent months

• A long-running decline in euro-zone manufacturing activity eased in January, , while a stabilization in unemployment and inflation added to signs the crisis-hit region may be past its worst point.

• Friday's data coincided with improved manufacturing figures in several Asian nations, a suggestion of health around the global economy that could also shore up Europe's recovery by restoring demand for its exports.

• Data company Markit said its monthly purchasing managers' index for the euro zone, based on a survey of business executives, rose to 47.9 in January from 46.1 in December. That was up from an earlier reading for January of 47.5. Though still below the growth threshold of 50, it means activity was shrinking in January at the slowest rate in 11 months.

• Germany was the main driver of the increase, as the PMI for the country’s manufacturing sector rose to an 11-month high of 49.8 on the back of stronger export output and new business orders.

• France, the bloc’s second-largest economy, was the only one of the eurozone’s five largest economies to suffer a further decline.

• The figures "suggest that the industrial sector is close to stabilizing after contracting throughout much of last year," said Markit's chief economist, Chris Williamson. "The PMI provides hope that the first quarter could mark the start of a turnaround [in the euro-zone economy]," he said. "Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the euro zone is on course to return to growth by mid-2013.“

• The most recent official data for the economy as a whole showed the euro zone to be in recession in the third quarter of 2012, having suffered two straight quarters of falling economic output. Eurostat's data on gross domestic product in the fourth quarter will be published later this month.

.

8

Signs of eurozone jobless stabilization• Official data on Friday showed the rate of inflation in the eurozone in

January fell to 2% in January from 2.2% in December, almost in line with the European Central Bank's target level and the slowest rate since November 2010. The reduction was driven by a sharp slowdown in energy prices.

• Eurostat, the European Union's official statistics agency, also said on Friday that unemployment in the eurozone rose 16,000 in December to a high of 18.7 million.

• The jobless rate held steady at 11.7% despite wide disparities across countries. German unemployment was 5.3% in December and Austria's rate was 4.3%, versus 26.1% in Spain and 16.5% in Portugal.

• Though that is still a record rate of joblessness, the agency cut its existing figure for November unemployment from 11.8%. Signs that the jobless crisis in Europe is stabilizing will encourage policy makers, and are a tentative sign that the real economy is beginning to heal.

• German unemployment was near record lows, and Spanish joblessness showed a rare downtick, albeit from crisis levels. Unemployment increased at a far slower pace in December compared with the rest of 2012.

• Increased stability in financial markets and easing bond yields, making it easier for countries to borrow, haven't translated into the business activity needed to stem the rise in joblessness.

9

Euro area credit tightening continues as Spain’s economic contraction deepens

• Meanwhile, lending to eurozone businesses and consumers ended 2012 in a slump despite increasing signs that the financial sector is on the mend, indicating that the currency bloc has a long road ahead in reversing the damage inflicted by its three-year-old debt crisis.

• The new data underline a warning by European Central Bank President Mario Draghi last week that governments must persevere with fiscal and structural reforms to overcome "the fragmentation that remains" in the monetary union.

• Loans to the eurozone's private sector fell 0.7% on the year in December, after falling 0.8% in November, data from the ECB showed Monday. Lending to nonfinancial firms was particularly weak, declining by €51 billion on the month after a €7 billion drop in November, the data showed. Loans to households also lost momentum, falling by €2 billion after a €6 billion increase the previous month.

• Economists said that a continuing lack of demand for credit offset a continued easing in credit constraints for eurozone banks.

• In other news, a sharper-than-expected contraction of the Spanish economy was reported on Wednesday. In a preliminary reading, Spain's National Statistics Institute, or INE, said Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period the previous year. It said output for whole of 2012 fell 1.37% from 2011.

• In the third quarter, Spanish GDP fell 0.3% from the second quarter. But in the fourth quarter, the full weight of a new package of austerity measures came to bear on a local economy already suffering from the collapse of a decade long housing boom. The government of Prime Minister Mariano Rajoy is under intense pressure from the European Union and financial markets to cut a budget deficit that topped 9% of GDP in 2011.

• Investors and analysts have long predicted that Spain would be the first country to be forced to ask the ECB for help. Yet just the threat of the central bank aggressively buying shorter-dated bonds has been enough to quell turmoil in financial markets and subdue Spain’s borrowing costs sufficiently for it to maintain access to markets.

10

Spanish and Italian yields are looking safer

• The ECB has successfully brought stability to the market at least for now. Spain's relatively high yields are attractive to investors. Spain's 10-year bonds yield 5.20%, compared with just 1.69% for their German equivalent.

• Spain has made a strong start to a challenging schedule of debt sales in 2013. The country last week launched a new 10-year benchmark bond that was snapped up by investors. It was the first time the country has sold 10-year debt in more than a year, with 60% of demand from outside Spain.

• Analysts thus expect next week's sale of bonds maturing in 2015, 2018 and 2029 to meet healthy demand.

• Spain is forecast to sell €120 billion in the debt market this year to fund its budget deficit as its economy is still in a deep recession, though it has already raised about 15% of that figure.

• Nevertheless, this backdrop isn't without risks. A downgrade by one of the major credit-rating firms could disqualify Spain for bond indexes tracked by many investors, leading them to sell their holdings of Spanish debt. All three major ratings firms rate Spain near the bottom end of the investment-grade range, and their outlooks are negative.

• Moreover, Italian bond yields climbed sharply Thursday to a 2013 high of 4.36% as concern over financial difficulties at Banca Monte dei Paschi di Siena rattled investors, and an election widely seen as a referendum on the government's austerity program fast approaches.

• The weakness spilled over into Spain's bonds, although both countries' debt cut back losses later in the session.

11

Positive economic news drives market rally

12

Yen falls to weakest level relative to the dollar in over two years amid expectations of further monetary easing

13

The Week Ahead,,,

Date Cuurency / Event GMT Forecast Previous

4-Feb Mon GBP Purchasing Manager Index Construction 09:30 49.20 48.70EUR Euro-Zone Producer Price Index (YoY) 10:00 2.10% 2.10%USD Factory Orders 15:00 2.20% 0.00%

5-Feb Tue AUD Trade Balance (Australian dollar) 00:30 -2637MCNY HSBC Services PMI 01:45 51.70AUD Reserve Bank of Australia Rate Decision 03:30 3.00% 3.00%CHF Trade Balance (Swiss franc) 07:00 -800M 2.95BEUR Italian Purchasing Manager Index Services 08:45 45.80 45.60EUR French Purchasing Manager Index Services 08:50 43.60 43.60GBP Purchasing Manager Index Services 09:30 49.80 48.90EUR Euro-Zone Retail Sales (YoY) 10:00 -1.40% -2.60%USD ISM Non-Manufacutring Composite 15:00 55.00 56.10

6-Feb Wed EUR German Factory Orders n.s.a. (YoY) 11:00 -1.20% -1.00%JPY Machine Orders (YoY) 23:50 -4.00% 0.30%AUD Unemployment Rate 00:30 5.50% 5.40%

7-Feb Thu GBP Industrial Production (YoY) 09:30 -2.20% -2.40%GBP Manufacturing Production (YoY) 09:30 -2.60% -2.10%GBP Total Trade Balance (Pounds) 09:30 -£3300 -£3466EUR European Commission Releases Economic Growth Forecasts (Table) 10:00EUR German Industrial Production n.s.a. and w.d.a. (YoY) 11:00 -0.50% -2.90%GBP Bank of England Rate Decision 12:00 0.50% 0.50%GBP BOE Asset Purchase Target 12:00 375B 375BEUR European Central Bank Rate Decision 12:45 0.80% 0.75%GBP NIESR Gross Domestic Product Estimate 15:00 -0.30%JPY Trade Balance - BOP Basis (Yen) 23:50 -¥560.3B -¥847.5BJPY Adjusted Current Account Total (Yen) 23:50 ¥235.8B ¥225.9BCNY Imports (YoY) 23.50% 6.00%CNY Exports (YoY) 17.10% 14.10%CNY Trade Balance (USD) $24.20B $31.62B

8-Feb Fri CNY Consumer Price Index (YoY) 05:30 2.10% 2.50%EUR German Trade Balance (euros) 07:00 15.0B 17.0BEUR German Current Account (euros) 07:00 17.0B 15.3BEUR German Exports s.a. (MoM) 07:00 1.40% -3.40%EUR German Imports s.a. (MoM) 07:00 1.60% -3.70%CAD Unemployment Rate 13:30 7.20% 7.10%USD Trade Balance 13:30 -$46.0B -$48.7B

Economic Data Release CalendarFebruary 3, 2013 - February 8, 2013

14

Central Bank Meetings Calendar

Expected Rate Decision

Current Rate

Month Central Bank

0.25% 0.25% March 20 US Federal Reserve (FOMC)

0.75% 0.75% February 7 European Central Bank (ECB)0.50% 0.50% February 7 Bank of England (BoE)

0.10% 0.10% February 13 Bank of Japan (BOJ)

0.00% 0.00% March 14 Swiss National Bank (SNB)1.00% 1.00% March 6 Bank of Canada (BOC)

3.00% 3.00% February 5 Reserve Bank of Australia (RBA)

2.50% 2.50% March 13 Reserve Bank of New Zealand (RBNZ)

Calendar for upcoming meetings of main central banks :

15

Regional

16

Egypt Pound Continues Declines Amidst Violence

• Egypt’s pound continues to slide fell during the daily dollar auction due to worries that ongoing riots and street protests will delay the vital IMF loan and contribute to the long-standing economic crisis. As it is, the protests are turning off investors and the value of the stock market is plummeting.

• The Central Bank first began holding dollar auctions at the end of December in an attempt to curb the loss of foreign reserves. Those reserves, around $15 billion, can now cover just three months of imports, having been reduced by almost half in the past two years as the Central Bank struggled to keep the value of the currency up.

• Since the dollar auctions began, the pound has lost around 8% of its value. The currency weakened to 6.715 per dollar on the interbank market, which limits currency losses.

• The governor of the Central Bank of Egypt, Hisham Ramez, affirmed this week that the central bank will take strict measures to maintain the rate of the Egyptian pound against the US dollar, and will also fight speculators in the foreign exchange market.

17

Egypt economy under pressure

• Meanwhile, Rating agency Standard & Poors has downgraded its long-term foreign- and local-currency sovereign credit ratings of Egypt to ‘B-’ from ‘B’. It has also switched its outlook is negative, citing recent political developments that weakened Egypt’s institutions and the increasingly polarized political discourse that could undermine the effectiveness of policy-making.

• According to S&P, a further downgrade is “possible if a significant worsening of the domestic political situation results in a sharp deterioration of economic indicators such as foreign exchange reserves or the government’s deficit”.

• The rating agency has lowered its rating for Egypt over serious concerns that escalating political and social tensions in the North African country. “In our view, the country’s institutions have been weakened by recent presidential decrees”, said the analysts of S&P, warning that the increased polarization between the Muslim Brotherhood and other liberal political parties could affect Egypt’s ability to deliver sustainable public finances, promote balanced growth, and respond to further economic or political shocks.

• Moreover, Fitch downgraded Egypt’s long-term foreign and local currency rating to B from B+ with a negative outlook. This is due to political strife, a weak economy and deteriorating foreign reserves. This may trigger selling pressure in Egyptian bourses.

• Finally, Moody’s places five Egyptian banks for review. Moody’s placed five Egyptian banks – National Bank of Egypt SAE, Banque Misr, Banque du Caire, Commercial nternational Bank and Bank of Alexandria SAE – for review of a possible downgrade. It reflects banks’ increasing exposure to government securities and concerns over the operating environment that may weaken asset quality and capitalization.

18

GCC expected to grow by 3.6% in 2013

• GCC economic growth is set to slow to 3.6% in 2013 from 5.4% in 2012 as the three-year surge in regional oil production comes to an end.

• However, on the ground, business conditions are expected to remain solid as governments maintain elevated levels of investment and social spending, which will ultimately support confidence and private sector activity.

• Geographically, Qatar and Oman are likely to be the region's best performers. But project market activity will also help build or sustain growth momentum in Kuwait and Saudi Arabia.

• With oil prices average forecast at $100 per barrel will allow most GCC governments to finance higher spending without draining their financial reserves. GCC oil production is projected to fall by 1-2% per year over the next two years as Gulf OPEC producers move to reverse some of the big output increases seen since 2010.

• But there are certain caveats to this forecast. A major global economic downturn could see global oil market fundamentals loosen by more than expected in 2013, pushing oil prices below $100 per barrel for a prolonged period.

• This would put government fiscal balances under pressure and cause cuts in spending or delays in project execution, weakening economic growth.

• Over the medium-term, major economic reforms in areas such as the labor market, education, and competition policy are needed to enable the private sector to grow more independently of state support. Such reforms have taken a back seat of late as governments have prioritized measures to boost incomes and jobs.

• GCC inflation remains low. Weighted consumer price inflation is expected to have averaged 2.4% in 2012.

19

GCC economic news highlights

• Real GDP in Kuwait is expected to grow at 3.2% and 2.5% in 2013 and 2014 respectively , supported by stable oil production. Non-oil GDP in 2013 is expected to grow by to 5%. Meanwhile, inflation is expected to average 3-4% over the next two years.

• Morocco has received the first slice of a $2.5 billion aid package promised by wealthy Gulf Arab states, a Moroccan official said on Friday, part of pledge designed to cement ties between Arab monarchies in the wake of regional uprisings. Saudi Arabia, Qatar, the United Arab Emirates and Kuwait agreed in Dec. 2011 to distribute $2.5 billion to both Morocco and Jordan, the only two Arab states outside the Gulf with monarchies. The cash-strapped country relies on foreign aid, given its $90-billion economy is heavily exposed to the debt-scarred euro zone through trade, tourism revenues and migrant remittances.

• Qatar plans to issue bonds: Qatar plans to issue local currency sovereign bonds with maturities of three years and five years to develop a yield curve for the debt market.

• Saudi- SR 3.6 bn approved to boost water, sewage projects. The Ministry of Water and Electricity has approved SR 3.6 billion for the implementation of different development projects in the Riyadh region, according to local media sources. The projects include design and implementation of water and sewage projects in the region at a total cost of SR 300 million, Dharma, Muzahmiyya and Quwiayyah Provinces at SR 150 million, and a water transport project for the Kharj Province estimated at SR 150 million.

• Unemployment rate among Saudi males drops to, the lowest in 13 years. Deputy Labor Minister Dr. Mufarrij Al-Haqbani denied media reports that there was disparity between figures of the Ministry of Labor and what was published by the Statistics Department.

• Bahrain to spend USD 2.5 bln on infrastructure projects: Bahraini Minister of Works Essam Khalaf said on Monday that Bahrain plans to spend about one billion Bahraini dinars (USD 2.5 billion) on infrastructure projects over the next 10 years.

20

Lebanon: IMF urges Lebanon to implement reforms

• Finance Minister Mohammad Safadi said Lagarde suggested that the 2013 budget should include the investments necessary to bolster the economy, but at the same time, should also cut squandering and unnecessary expenses.

• “The IMF is satisfied with Lebanon’s [economic] performance in general, but there were a few reservations,” Safadi was quoted as saying by the National News Agency.

• Safadi’s talks with the fund came as the ministry mulled increasing taxes to fund a new salary scale for public sector employees. The government has so far failed to finalize a budget draft that would cover the cost of the wage hikes.

• Most ministers have expressed strong reservations about raising taxes amid a severe economic slowdown and political uncertainty in the country.

• Earlier, the IMF and the World Bank opposed the public sector salary increases and urged Safadi to avoid such a move, citing concerns over inflation and fiscal conditions.

• The Lebanese financial system continues to show resilience, according to the vice governor of the Central Bank, who said foreign reserves have reached $36 billion. The central bank official said that ongoing positive results of the sector have increased international trust in Lebanese financial institutions and made available the funds necessary to induce the economy.

• Earlier this month, the Central Bank announced a stimulus plan, asking banks to allocate $1.45 billion for low-interest lending to productive sectors.

• However, regional and global risks are still significant, and the Central Bank and the Banking Control Commission are looking out for any such dangers.

21

Comparative MENA MarketsFor the period 27/01 – 01/02

22

Locally

23

`

FX reserves reach $7.7bn as of January 24

The country’s energy bill during the January – November period of last year was 24.1% higher than amount registered during the same period in 2011.According to the Department of Statistics bulletin on foreign trade, the cost was JD4.41 billion, compared with JD3.55 billion. Imports of crude oil accounted for around 42% of the total imported energy products at a cost of JD1.85 billion.Statistics also showed that the trade deficit rose at the end of November 2012 by 20.4% to JD8,432 million compared with JD7,001 million which was the deficit figure recorded in the same period last year. The deficit figure represents the difference between the country exports and its imports. At the end of November last year, the country's total exports recorded a drop by 1.7% to JD5,085.8 million from JD5,175 million during the same period of 2011, while imports rose by 11% to JD13,517.4 million from JD12,175.9 million.Subsequently, the total exports' coverage percentage of imported goods was 37.6% compared with 42.5% in the corresponding period of the previous year, a drop by 4.9%.There was an increase in exported garment sector products, vegetables and pharmaceuticals, but the country's exports of crude potash, fertilizers and crude phosphate posted a drop.Regarding the most important commercial partner, the country's exports to the Greater Arab Free Trade Area (GAFTA) countries, including Saudi Arabia, recorded a noticeable increase.Also, exports to North American Free Trade Agreement (NAFTA) increased while goods sold to non-Arab Asian countries, including India, saw a drop. Also, exports to the European Union countries, including Italy, registered a drop.

The government on Thursday raised the prices of fuel derivatives, but maintained the price of cooking gas cylinders at JD10, in accordance with the pricing committee's recommendations.The price of ship fuel and marine diesel fuel have slightly dropped, under the committee's decision, which was endorsed by Trade Minister Hatem Halawani.In February, motorists will pay 0.800 per one litre of unleaded 90-octane gas and 0.990 per one litre of 95-octane gas, whereas they were sold in January at 0.780 and 0.970, respectively.In February 2012, one litre of the 90-octane gas was sold at JD0.620 and the 95-octane gas at 0.795, which means an increase by around one-third in their prices in a year. Prices of both diesel and kerosene will edge up to 0.685, from 0.665 last month, in accordance with the new pricing list.The price of cooking, and heating, gas cylinders, which are also used has remained unchanged at JD10 while the government is paying around JD13 per cylinder, the Jordan News Agency, Petra, said. The government lifted fuel subsidies last November, with the decision leading to a 15 per cent increase in the price of 90-octane gasoline and a 33 per cent increase in prices of diesel and kerosene.Currently, fuel prices are announced monthly by the pricing committee as they fluctuate in accordance with changes on world markets

The European Bank for Reconstruction and Development ( EBRD) is planning to provide Jordan's private sector with $300 million annual aid to finance investment projects, mainly small and medium enterprises (SMEs).At a meeting with Chairman of Jordan Businessmen Association Hamdi Tabba, Principal Banker at the EBRD Gary Mclean said the energy and water sectors will be top priority for the bank, noting the bank's readiness to offer Islamic and traditional loans.The bank, he added, has allocated $2.5-billion investment fund for 4 regional countries, namely Jordan, Egypt, Tunisia and Morocco.Tabba hailed the bank for opening a representative office in Amman after Jordan was admitted a member of the bank in December 2011. Stability and security have made the Kingdom a safe heaven and an investment magnet in a region which suffers unrest and turmoil, Tabba noted.Jordan, he said, has qualified human resources and infrastructure needed for investment projects, noting the strong banking sector in the Kingdom and the sound monetary policy of the Kingdom.

Reports released show that the expected amount of U.S. aid to Jordan during the fiscal year of 2013 is likely to reach $670.6 million (JD475 million). This figure includes the expected aid from the U.S. government, the U.S. Agency for International Development (USAID), and the Millennium Challenge Corporation (MCC).

The amount of aid for each sector has already been specified, with the health sector attaining $43 million and the education and social services getting $49 million. Funds specified for economic development amount to $235 million, with $7.5 million of which set aside for environmental projects. Finally, $310.6 million has been allocated for security and peace purposes, where the U.S specified that Jordan plays a vital role in promoting regional security and stability.

24

FX reserves edge up to $7.7 billion

• Recently, the United Arab Emirates deposited $1 billion at the Central Bank of Jordan to help the kingdom finance development and infrastructure projects that could assist in stimulating the economy.

• On December 25 the UAE transferred $250 million to Jordan's central bank. These funds are separate from the US$1.25bn earmarked by the UAE for Jordan as part of the US$5bn that GCC states agreed in 2011 to grant the kingdom over a five-year period.

• This deposit has boosted CBJ foreign reserves to $7.7 Billion which covers 4.5 months of imports, an increase of $1 billion from the end of 2012 level of $6.7 billion.

• If the UAE deposit was excluded, foreign reserves would have remained stagnant through the first 24 days of the year; which reflects lower external position pressures on the economy.

• Easing external position pressures will help in improving local currency liquidity in the banking sector.

• Jordan's economy is forecast to expand 3.5% this year from an estimated 3.0% in 2012, while inflation is projected to fall to 3.9% from 4.5% last year, according to the International Monetary Fund (IMF). Though those numbers seem unlikely if the price hikes due to lifting subsidies are taken into account, as inflation in December reached 7.2%.

25

Fiscal balances are expected to be more sustainable in 2013, but risks remain

• Data from the Ministry of Finance shows that public debt had climbed by 19% toward the end of 2012, crossing the JD16.5 billion mark, representing 75% of estimated GDP in 2012. Thus, debt to GDP could end 2013 at 79%.

• According to the 2013 budget law, the deficit including grants is expected to drop to JD 1.31billion or 5.4% of estimated GDP for 2013, a decrease of around JD360 million. However, the budget deficit excluding grants is expected to trim at a much slower pace to JD 2.16 billion (or 8.9% of GDP) compared to JD 2.29 billion in 2012.

• Nevertheless, if we exclude grants and include the expected losses from state-owned NEPCO, then the fiscal deficit would increase to around JD 3 billion, or 13% of GDP.

• Moreover, the internal debt is expected to decrease by JD 192.8 million (or 0.8%) throughout 2013, and external debt to increase by JD 1.50 billion (or 6.26%). This would mean that total debt would increase by JD1.31 billion in 2013, around 5% of GDP to reach 80% by the end of 2013.

October

2012External Debt 4,743.8 4,486.8

Percent of GDP 21.4% 21.9%Internal Debt 11,533.0 8,915.0

Percent of GDP 51.9% 43.7%Public Debt 16,276.8 13,401.8

Percent of GDP 73.3% 65.4%Source: Ministry of Finance

JD Mi l l ion 2011

26

But Egyptian gas supply drops again,,,

• Jordan's Egyptian gas supplies have dropped to one-third of their normal levels, officials say, prompting fresh concern over the security of the country's primary energy source. According to a Ministry of Energy source, natural gas supplies from Egypt declined to some 80 million cubic feet (mcf) per day since Saturday, one-third of the 240mcf rate outlined in the gas agreement between Amman and Cairo.

• Although Egypt has refused to disclose the reasons behind the drop, officials link the shortage with the ongoing instability and riots that have gripped the country since late Friday.

• Egyptian officials have not indicated when gas supplies will resume in full, according to the source, but the government is expected to demand compensation for the decreased quantities. The drop comes one month after Egypt pledged to resume pumping in full after nearly two years of disruptions.

• Moreover, figures released earlier in the week showed that the daily supply of Egyptian gas averaged only 100 million mcf for the past three months.

• Once Jordan's primary energy source, Egyptian gas accounted for 80% of the Kingdom's electricity generation needs in 2009, a figure that dropped to some 18% in 2012, due to the disruptions in supply. The drop in Egyptian gas supplies has forced Jordan onto costlier heavy oil imports, which has ballooned the national energy bill to some JD4.4 billion and pushed the cost of electricity subsidies to over JD1 billion.

• NEPCO losses are estimated to reach JD715 million this year, the figure assumed an average daily Egyptian gas supply of around 140 mcf, however, if levels continued at today’s rates then losses could reach to $1 billion again this year. If this was to happen, then the external position will be under pressure again and likely result in a drop in FX reserves levels.

27

Amman Stock ExchangeFor the period 27/13 – 31/13

ASE free float shares’ price index ended the week at

(2045.7) points, compared to (2052.6 points for the last

week, posting a decrease of 0.34%. The total trading

volume during the week reached JD(60.2) million compared

to JD(30.9) million during the last week. Trading a total of

(61.9) million shares through (23,589) transactions

The shares of (172) companies were traded, the shares

prices of (58) companies rose, and the shares prices of (82)

declined.

Top 5 losers for the last week

Stock % chg

Alentkaeya For Investment&realestate Development Company Plc (15.29%)

Jordan Press & Publishing/(ad-dustour) (14.04%)

Darwish Al-khalili And Sons Co. Plc (12.50%)

South Electronics (12.50%)

Arab Electrical Industries (10.00%)

Top 5 gainers for the last week

Stock % chg

The Investors And Eastern Arab For Industrial And Real Estate Investments 25.00%

International Brokerage & Financial Markets 18.92%

National Portfolio Securities 12.50%

Specialized Investment Compounds 11.43%

First National Vegetable Oil Industries Co. 11.11%

28

Local Debt MonitorLatest T-Bills

As February 3, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(1,809) million.

Yield (%) Size - million Maturity Date Issue Date 3 months T-Bills

2.898% 50 14/03/2012 14/12/2011 29/2011

2.844% 50 12/03/2012 12/12/2011 28/2011

Yield (%) Size - million Maturity Date Issue Date 6 months T-Bills

3.788% 50 14/08/2012 14/02/2012 02/2012

3.433% 50 23/01/2012 23/01/2012 01/2012

3.232% 50 08/06/2012 08/12/2011 27/2011

Yield (%) Size - million Maturity Date Issue Date 9 months T-Bills

4.285% 75 04/12/2012 04/03/2012 05/2012

4.229% 75 29/11/2012 29/02/2012 04/2012

4.169% 75 22/11/2012 22/02/2012 03/2012

Coupon (%) Size - Million Maturity Date Issue Date 1 year T-Bills

6.755% 70 27/01/2014 27/01/2012 01/2013

6.750% 60 24/12/2013 24/12/2012 22/2012

6.905% 50 04/12/2013 04/12/2012 21/2012

6.180% 70 22/11/2013 22/11/2012 20/2012

29

Local Debt MonitorLatest T-Bonds Issues

Coupon (%) Size - million Maturity Date Issue Date 2 years T-Bonds

7.950% 70 29/01/2015 29/01/2013 T0313

7.950% 80 22/01/2015 22/01/2013 T0213

7.950% 60 17/01/2015 17/01/2013 T0113

Coupon (%) Size - million Maturity Date Issue Date 3 years T-Bonds

8.600% 60 30/12/2015 30/12/2012 T6812

8.600% 60 17/12/2015 17/12/2012 T6612

8.300% 80 02/12/2015 02/12/2012 T6312

Coupon (%) Size - million Maturity Date Issue Date 4 year T-Bonds

7.246% 37.5 15/01/2016 15/01/2012 T0312

6.475% 50 16/11/2015 16/11/2011 T4211

Coupon (%) Size - million Maturity Date Issue Date 5 years T-Bonds

7.750% 75 11/03/2017 11/03/2012 T0712

7.489% 50 19/01/2017 19/01/2012 T0412

Coupon (%) Size - million Maturity Date Issue Date Public Utility Bonds

8.134% 26 05/09/2015 05/09/2012 PB55 (Water Authority)

7.966% 20 29/07/2015 29/07/2012 PB005 (Housing & Urban Development)

7.724% 150 26/04/2017 26/04/2012 PBO12 (National Electricity)

30

Prime Lending Rates

31

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