Population 6.397 million
GDP 31.353 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
2.5 |
2.6 |
2.7 |
3 |
|
Inflation (yearly average) (%)
|
5 |
4.4 |
4.5 |
4 |
|
Budget balance (% GDP)*
|
-7.5 |
-11.7 |
-11 |
-10 |
|
Current account balance (% GDP)
|
-9 |
-12 |
-14.5 |
-12.5 |
|
Public debt (% GDP)
|
67 |
71 |
79 |
83 |
| (e) Estimate (f) Forecast * Grants excluded |
||||
STRENGTHS
- Political and financial support of the international community
- Implementation of strategies intended to foster major infrastructure projects
- Tourism and expatriate workers, important source of foreign exchange earnings
- Relatively satisfactory business environment at regional level
WEAKNESSES
- Virtually no natural energy resources and low productive base
- Vulnerable to economic conditions in the Middle East
- Dependence on foreign aid and capital, reflecting imbalances in the public and external accounts
- High short-term debt
- Exposure to regional political instability
Risk assessment
Modest growth expected
Rising local and regional political uncertainties, particularly in Syria, combined with a gloomy economic environment worldwide, will affect Jordan’s economy in 2013. Nonetheless, on the demand side, public and private consumption looks set to sustain growth despite high unemployment (13% in 2012). On the supply side, services (two thirds of GDP), especially finance, transport and retail, will continue to make a key contribution. In the secondary sector, activity will be driven more by the chemicals industry and telecommunications than by mining (phosphate and potash) and construction.
IMF involvement in mid 2012 due to persistence of substantial fiscal and external deficits
The social measures taken in response to demonstrations since early 2011 – and in particular the energy subsidies – have undermined the aim of reducing the substantial fiscal deficits. As a result, in August 2012, Jordan was obliged to ask for a three-year loan from the IMF for $2bn. As the arrangement was given subject to a number of conditions, the deficit could fall slightly in 2013, due especially to a reform of the subsidy regime. The accumulation of deficits has led to a rise in public debt, most of which is domestic and financed to a large extent by the local banks.
Goods exports are expected to increase only slightly with sales in Asia and re-exports to Iraq offsetting with difficulty weak demand from Europe and the United States. They will moreover remain exposed to variations in world prices for phosphates and potash. Furthermore, hydrocarbon imports (a quarter of the total) will continue to put pressure on the external accounts. Though Jordan receives Iraqi oil at reduced prices, the supply of cheap Egyptian gas has become problematic. The current account deficit could however narrow moderately, with expatriates’ transfers and tourism being resilient, and it should be partly financed by foreign direct investment, mainly from the Gulf countries, though on a downward trend.
Meanwhile, the early repayment of rescheduled debt in 2008, significantly reduced Jordan’s external debt ratio, which has stabilised at just over 60% of GDP, while the country should continue to benefit from flows of bilateral and multilateral aid at concessional rates. However, the high proportion of short-term debt still constitutes a potential source of exchange rate risk. Moreover, foreign currency reserves are set to fall (to four months of imports) making it harder for the country to cope with potential shocks and maintain the dinar’s peg to the US dollar.
Persistent political and social tensions
Since early 2011, there has been a wave of demonstrations in the wake of the uprisings in several Arab countries, prompting King Abdullah II to appoint several new Prime Ministers and dissolve parliament in October 2012. However, the current electoral system governing the legislative elections at the end of January 2013, boycotted by some opposition parties, enabled the re-election of a majority giving priority to rural areas to the detriment of the political and social aspirations of the majority urban population, with a high proportion of Palestinian origin. The new government, in place since mid-March 2013 – the 6th in two years – will, however, still have to contend with the contradictory demands of loyalists and tribes on one side, and the opposition on the other, in particular the Islamic Action Front, an offshoot of the Muslim Brotherhood, which is calling for a constitutional monarchy. But despite embarking on reforms, King Abdullah – who still enjoys broad public support and the backing of the armed forces – intends to keep hold of the main levers of power. In this context, Jordan is very exposed to regional political instability, especially in Egypt and Syria, with an influx of refugees from the latter and the possibility that the fall of the Syrian regime could strengthen the Islamist opposition and weaken the Hashemite monarchy.
Meanwhile, there will probably be renewed social unrest in response to the cuts in subsidies induced by the conditionality of the agreement with the IMF.
The governance indices are still among the most satisfactory in the region, notwithstanding the allegations of corruption, and the robust, dynamic banking system is a feature that makes the country attractive. Moreover, economic openness has brought with it liberalisation, with the creation of free-trade areas and public/private partnerships.
Country relatively attractive to business
Local companies are still dependent on economic trends in neighbouring countries and the countries of the Gulf. There has not been a significant worsening in those companies’ situation and Coface payment behaviour record, on a limited base, is slightly better than the world average. Potential ad hoc problems, however, both with private and public companies, mean caution is advised.
