Jordan: Risk Assessment
Country Risk Rating
Business Climate Rating
- 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 currency (although not during the current COVID-19 crisis)
- Politically stable, unlike its neighbors
- 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
- Major unrest among teachers that could spread to the rest of the country
The recovery is delayed due to the second wave. The economy contracted in 2020 due to the Covid-19 health crisis. The tourism sector, which accounts for between 10 and 15% of GDP depending on the year, has been particularly affected by border closures. A state of emergency was declared on 17 March, leading to lockdown measures (public spaces closed, gatherings banned, restaurants and businesses shut down, international flights suspended). The epidemic has been relatively well controlled, and lockdown measures have been gradually eased since April 2020, leading to a progressive resumption of economic activity. Borders reopened in early September 2020, and travelers from authorized countries can enter Jordan provided they comply with certain rules (PCR test and isolation). However, there has been an increase in cases and deaths since September 2020, which resulted in targeted lockdown measures and hurt the economic recovery. That said, the recovery should benefit from the fall in oil prices, as Jordan is a net importer, and from the impetus of structural reforms introduced by the country in recent years. Even so, domestic demand is sagging due to rising unemployment, particularly among women and young people, and IMF-supported fiscal consolidation, which is affecting consumption (80% of GDP). Potash and phosphate companies maintained business going during the lockdown, but the fall in global demand hurt their foreign sales in the first half of 2020. They should benefit from the recovery in Asia in the second quarter of 2020 and in 2021. To stimulate activity, the Central Bank of Jordan cut most of its official rates by 50 basis points on 3 March and by a further 100 basis points on 16 March and injected USD 705 million (1.6% of GDP) into the economy by lowering the compulsory reserve ratio of commercial banks from 7% to 5%.
Delayed reduction of twin deficits
Rising health and social security spending is affecting the government's fiscal consolidation efforts. The government has decided to defer the collection of 70% of the customs duties owed by certain companies and to reduce social security contributions for private sector establishments (from 21.75% to 5.25%). It has committed additional spending (USD 71 million) for the purchase of health equipment and supplies, hotel rental for quarantine purposes, and additional security costs related to the virus. It has also introduced a temporary cash transfer program for unemployed and self-employed people (USD 114 million). Declining profits of potash and phosphate companies in the first half of 2020 had an adverse impact on the budget deficit.
The current account deficit has worsened in 2020 despite the fall in oil prices. This is due to a drop in expatriates’ remittances (10% of GDP in 2019), many of whom live in neighboring countries but have lost their jobs, as well as a drop in tourism income. Inward foreign investment, mainly in the form of FDI, is declining due to the global recession. Concessional loans from international donors will help finance part of this deficit.
Popular discontent could hurt the government
Despite widespread discontent, which has been further stoked by the COVID-19 crisis, King Abdullah II retains the support of the armed forces and a population wary of radical change. Nevertheless, waves of protest in July 2020 against the government are expected. The freeze on public sector wages, which is scheduled to last until the beginning of 2021, sparked protests by the teachers' union, which had been promised a wage increase of between 35% and 75% during fall 2019. The union's offices were closed for two years, and authorities banned local media from covering the protests. The teachers' protest movement has lost momentum, but the widespread unrest will put pressure on the authorities in the medium-term, potentially prompting them to adopt a more authoritarian approach.
The next elections to the Chamber of Deputies (Lower House) took place in November 2020. Despite the dissolution of the local branch of the Muslim Brotherhood by the Court of Cassation in July 2020, the Islamic Action Front (IAF), the political wing of the Muslim Brotherhood, which held 15 of the 130 seats in Parliament, participated in the elections. Parliament remains dominated by nominally independent representatives loyal to the King. Jordan's pro-Western and pro-Gulf stance will remain the cornerstone of foreign policy for security and, increasingly, economic reasons. Jordan's central strategic position in the region should ensure continued logistical, financial, and military assistance from the United States, its main ally, despite divergences with the U.S. policy in the region.
The business environment should benefit from the structural measures currently being rolled out. Significant headway has been made in obtaining credit, paying taxes, and resolving insolvency.