Jordan: Risk Assessment
Country Risk Rating
Business Climate Rating
- Political and financial support from the Gulf monarchies and the West
- Significant phosphate and potash production
- Expatriate workforce and tourism - significant sources of foreign exchange
- Political stability, unlike neighboring countries
- Shortage of natural energy resources and low productive base
- Vulnerable to international economic cycle and political instability in the Near and Middle East
- Public and external account imbalances leading to a dependence on foreign aid and foreign capital
- Very high unemployment rate (18%)
Growth Limited by the Consequences of Conflicts in Bordering Countries
Momentum in the mining sector and higher phosphate prices gave economic activity a bit of a boost in 2017. Growth will remain moderate in 2018 because of instability in the region and the fallout from the Syrian crisis. Fiscal consolidation and the very high unemployment rate will penalize private consumption, which represents 89% of GDP. The austerity measures, intended to deal with the very high debt burden, will hit low-income households, dependent on subsidies for essential goods (bread, sugar, electricity). Strong pressure will continue to bear on the property market, especially because of the presence of 1.4 million Syrian refugees, namely almost 15% of the total population. In 2018 the Jordanian economy could benefit from the reopening (on 30 August 2017) of the border with Iraq at Karameh-Tureibil. This is because until 2014, before the strengthening of the Islamic State Group’s position in Iraq, 14% of Jordanian exports were destined for the Iraqi market. The banking and insurance sector is expected to continue as one of Jordan’s growth drivers (+4.3% in the first half of 2017). Tourism activity is expected to recover, mainly stimulated by visitors from the Gulf countries and Europe. Remittances from expatriate workers in the Gulf Co-operation Council (GCC) countries could increase against a background of a rise in oil prices in 2017.
With regard to monetary policy, the central bank is expected to continue to maintain the dinar’s fixed parity against the dollar.
Twin Deficits at Very High Levels Despite the Reforms
Despite the budgetary reforms implemented during the extension, in 2016, of the IMF’S Extended Credit Facility (ECF, 2016-2019), the deficit and the public debt burden remain high. Fiscal consolidation is reflected in an over 50% drop in the public deficit between 2014 and 2016, but the level remained unchanged in 2017. With only 5% of households paying income tax, the State is heavily dependent on income from corporations. Tax paid by individuals represents only 3.2% of income. The government’s plans to widen its tax base in 2018, especially by raising VAT, customs duties and corporation tax on companies in the banking, mining and telecommunications sectors. This is because tax revenues account for only 15.4% of GDP. The government will target improving the fight against tax evasion and remove exemptions for certain companies. To finance its deficit, Jordan will enjoy preferential rates from its European partners who in October 2017 approved a loan of EUR 100 million under the Macro-Financial Assistance program (MFA).
Jordan is a net importer of oil and gas. Imports are not expected to climb strongly as they depend mainly on movements in commodity and food prices. Exports will benefit from the opening of the border with Iraq and the “Jordan Compact” which includes a free-trade agreement with the European Union. In September 2017, foreign exchange reserves were at a comfortable level of USD 12.8 million, i.e. 7.2 months of imports.
Political Stability Under Strain from Regional Conflicts and the Refugee Crisis
Despite the entry into force of a new electoral law aimed at weakening the advantage of non-partisan candidates in the national elections (only 17% of MPs are affiliated to a party), the parliamentary elections in September 2016 have only slightly modified Jordan’s political landscape. Voter participation in the elections remained low, at 37%, despite participation by the Islamist Party, which is close to the Muslim Brotherhood (Islamic Action Front) and which boycotted the previous two elections in 2010 and 2013. The August 2017 municipal elections also saw low voter turnout (37%) and a considerable lack of interest by the political parties. The country has a border with Syria and Iraq and over half of the population is made up of refugees, mainly Palestinians and their descendants. Syrian refugees have been able to obtain a work permit since October 2017, a measure designed to reduce the size of the underground economy and integrate the Syrian population. The return of many Jordanians who had joined the Islamic State (after the group was defeated in Iraq and Syria) and potential ethnic tensions between communities pose a security challenge for the country.
Despite improving, (up from 118th place in 2017 to 103rd place in 2018 in the Doing Business rankings), the business climate is still affected by the unstable regional situation.