Jordan: Risk Assessment
Country Risk Rating
Business Climate Rating
- Political and financial support from Gulf monarchies and Western countries
- Major producer of phosphate and potash
- Expatriate workforce and tourism are important sources of foreign currency (although not during the COVID-19 crisis)
- Relative political stability, unlike neighboring countries
- Shortage of natural energy and water resources and weak manufacturing base
- Vulnerability to international economic conditions and political instability in the Middle East
- Public and external account imbalances resulting in dependence on foreign aid and capital
- Very high unemployment rate, especially among youth and women, informal economy, challenges coping with Syrian refugees
- Electricity sector in a perilous financial situation
Weak recovery to continue in 2022
The recovery following the height of the COVID-19 pandemic began in the second half of 2021 and is expected to continue into 2022. The tourism sector (accommodation, food service, transportation), which accounted for nearly 18% of GDP and employment in 2019, was particularly affected by border closures and travel restrictions. Prioritizing the vaccination of tourism workers and entry controls for the Golden Triangle of Aqaba, Petra, and Wadi Rum spurred a partial recovery of the sector, with hotel occupancy rates reaching 70% during the 2021 summer season. Continued vaccination campaigns are expected to improve the economic outlook for consumers and businesses. Thus, the rebound in private consumption (80% of GDP) should be a source of GDP growth in 2022. However, the high unemployment rate, particularly among youth and women, is a drag on the demand side of the recovery. Rising oil and food prices are expected to be an additional source of inflation in 2022. Increased demand could also contribute to inflationary pressures. On the monetary side, the central bank has been running an accommodative policy since March 2020 but is sensitive to changes by the Fed and could take a stricter stance. The emergence of a new variant and a sluggish vaccination campaign represent considerable risks and could limit the size of the economic rebound.
Large twin deficits
The increase in COVID-related spending is affecting the government’s fiscal consolidation efforts. The fiscal response to the pandemic amounted to 2.4% of GDP in 2020. This included social and health spending, subsidies for tourism, and liquidity provision to support businesses. In 2021, some of these measures were extended, such as tax deferrals, subsidized loans for SMEs, and social assistance programs. Together, these measures contributed to widening the budget deficit and increasing public debt in 2020 and 2021. Despite this, Jordan is pushing on with its fiscal consolidation drive (broadening the tax base, combating tax evasion, strengthening the capacity of the tax administration) with the support of the IMF, with which a program involving a concessional loan of USD 1.5 billion between 2020 and 2024 has been agreed on. The country has already received USD 900 million, comprising USD 600 million in concessional loans and USD 300 million in emergency assistance. In 2022, the government deficit was expected to decline as support measures are phased out and the economy recovers, boosting tax revenues.
Regarding the external accounts, the current account deficit widened further in 2021. Exports and imports increased by 23.1% and 22.3%, respectively, in the first half of 2021 compared to 2020. With imports weighing more than double the value of exports, the trade deficit increased by 24.6% during the same period. This explains the current account deficit in 2021, which reached 8%. Since the country is a net energy importer, high prices are taking their toll. The recovery in the tourism sector, struggling until the summer of 2021, should enable the current account deficit to narrow in 2022.
Although Jordan has issued foreign-currency bonds on the domestic and international markets, it relies primarily on external support to finance the twin deficits.
Grants, particularly from the United States and other Western countries, the Gulf states, multilateral organizations, and regional banks, play a significant role. The return of FDI (about 2% of GDP) should also help finance the deficits. This support also makes it possible to keep high foreign exchange reserves (covering seven months of imports) needed to maintain the dinar’s dollar peg. Foreign aid also enables Jordan to accommodate Syrian refugees in the country.
In early 2021, the country faced a political crisis, with Prince Hamzah accused of attempting to destabilize the country. Although the prince pledged allegiance to his half-brother, the reigning King Abdullah II, in response to the accusations, the event tarnished Jordan’s reputation as a stable country. This came against a backdrop of allegations of corruption and widespread poverty. Another difficulty plagues the political system: in the last elections in November 2020, voter turnout was at most 30%, and the parliament remains dominated by independents and representatives loyal to the king. Under pressure to reform, King Abdullah has appointed former prime minister Samir Rifai to head a royal committee to draft modern laws on organizing elections and political parties.
Jordan’s pro-Western and pro-Gulf state stance will remain the cornerstone of its foreign policy for security and, increasingly, economic reasons. Jordan’s central strategic position in the region should ensure continued logistical, financial, and military support from the United States, its main ally.