Gazdasági elemzések
Jordan

Jordan

Population 9.7 million
GDP 4,136 US$
C
Country risk assessment
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Business Climate
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Synthesis

major macro economic indicators

 

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 2.0 2.0 2.3 2.5
Inflation (yearly average, %) -0.8 3.3 4.5 2.3
Budget balance (% GDP)* -3.4 -2.6 -2.2 -3.5
Current account balance (% GDP)* -9.5 -10.6 -9.6 -8.6
Public debt (% GDP) 95.1 95.9 96.0 95.1

(e): Estimate. (f): Forecast. *Grants included.

STRENGTHS

  • Political and financial support from the Gulf monarchies and the West
  • Major producer of phosphate and potash
  • Expatriate workforce and tourism are significant sources of foreign exchange
  • Politically stable, unlike its neighbours

WEAKNESSES

  • Shortage of natural energy resources and weak productive base
  • Vulnerable to international economic conditions and political instability in the Near and Middle East
  • Public and external account imbalances leading to dependence on foreign aid and foreign capital
  • Very high unemployment rate

Risk assessment

Growth still hampered by conflicts in border countries

Jordanian growth will remain moderate, partly due to the shaky confidence of private sector agents in the face of regional instability. As in the previous year, economic activity will be driven by the mining and tourism sectors. The latter is a particular focus for the government, which wants to double 2016 tourist numbers by 2020. As in the past, banking and insurance activities (20% of GDP in 2017) will be the main drivers of growth. Exports, which represent about 20% of GDP, are expected to increase slightly. However, they will continue to suffer from regional instability, despite the reopening of the border with Iraq in 2017. Since the Arab Spring movements of 2011, the kingdom has failed to encourage foreign or domestic investment. Although the authorities implemented measures in 2018 to remedy this situation, including offering people who invest in the country the opportunity to obtain Jordanian nationality under certain conditions, the effects of these steps are not expected to be significant in 2019. Domestic demand will remain constrained by the fiscal consolidation policy undertaken as part of an IMF Extended Fund Facility (EFF). In addition to the unemployment rate, which is especially high among young people (18.7% in the second quarter of 2018), cuts to electricity, bread, and fuel subsidies – which were implemented in 2018 – are acting as a drag on private consumption and fuelling inflation. Despite this, inflation is expected to slow in 2019.

 

Difficulties in reducing the twin deficits

The pace of fiscal consolidation is expected to slow in 2019 due to popular protests. In 2018, many demonstrations were organised after the proposition of a bill whose measures would have included hiking the income tax and lowering the level of taxable income, among other measures. In response to these events, the government abandoned the bill, and Prime Minister Hani Mulki was forced to resign. His successor is therefore unlikely to significantly raise taxes, and subsequently tax revenues. At the same time, public spending is expected to increase, leading to a widening budget deficit. Public investment will focus notably on the tourism and transport sectors. The situation in the region will force the kingdom to maintain significant defence spending (8% of GDP in 2017). In 2018, protests over budget cuts attracted attention abroad. The country then received additional international assistance, which had previously been in decline, from neighbouring countries, as well as from the United States.

As the country is a net importer of oil, Jordan's current account balance depends on fluctuations in oil prices. Although the trade balance remains in deficit, the current account deficit is expected to shrink in 2019 and will continue to be limited by inflows of remittances from expatriates (8% of GDP in 2017). Inward foreign investment, mainly in the form of FDI (5% of GDP in 2017), as well as concessional loans from international donors, will help to finance this deficit. This will allow Jordan, whose total external debt is equal to more than 70% of GDP, to increase its foreign exchange reserves, which stood at seven months of imports in 2017.

 

The regime is being challenged by citizens in an unstable regional context

In a context of public discontent, Omar al-Razzaz's new government will have to reconcile IMF expectations with those of Jordan’s citizens.

The country, which borders Syria and Iraq, hosts many refugees from these countries. In fact, over half of the population is made up of refugees, mainly from Palestine (24% of the population) and Syria (15%). Although the kingdom is trying to integrate Syrians, in particular by granting work permits, the refugee-welcoming policy pursued since the beginning of the Syrian conflict seems to be reaching its limits: in July 2018, the country barred several tens of thousands of Syrians from entering its territory. The return of Jordanians who had joined the Islamic State and possible ethnic tensions between communities will be major security challenges in 2019.

Relations with Israel seem cordial, despite Jordan’s large Palestinian population and ties to Arab countries in the Gulf. Nevertheless, the kingdom’s decision not to renew an agreement giving Israel control over land purchased by Jewish people in the 1920s could rekindle tensions between the two countries.

In 2019, the business climate will continue to suffer from regional instability, with Jordan rated 104th out of 190 countries in the Doing Business ranking.

 

Last update: February 2019

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