Country Risk Rating

C
A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

A4
The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.

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 neighbors

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

Current Trends

Moderate growth hampered by conflict in border countries

GDP growth is expected to remain moderate in 2020, despite the shaky confidence of private sector agents in the face of regional instability. Economic activity will continue to be driven by mining and tourism. The latter is a particular focus for the government, which wants to double the 2016 tourist numbers by 2020. As in the past, banking and insurance activities (21% of GDP in 2018) will be growth drivers. Growth will also be fuelled by exports (about 19% of GDP in 2018), particularly in the mining sector, following the demonstration of official support at the London Initiative, a conference held to bolster investment in Jordan. The reopening of the Iraqi border (despite security risks) and related trade and investment agreements, lower import costs (oil and food) and quicker-than-expected engagement by domestic companies regarding the December 2018 amendment to Protocol 3 to the Association Agreement with the EU, which simplifies export rules, should help to stabilize the trade balance. Accordingly. private consumption is expected to grow, despite the fiscal consolidation policy undertaken as part of an IMF Credit Facility program (extended to March 2020 and likely to be renewed) and the high unemployment rate (18.5% in August 2019).

Difficulties in reducing the twin deficits

The pace of fiscal consolidation is expected to remain similar to that of 2019, due to numerous popular protests, including strikes by teachers calling for a 50% increase in salaries, which the government has responded to by proposing wage hikes. In this context, owing to the presence of Syrian refugees, public spending increased sharply in 2019 but is expected to decline level in 2020, leading to an improvement in budget deficit. Public investment will focus in particular on the tourism and transport sectors. The situation in the region will force the kingdom to maintain significant defense spending (30% of GDP in 2018). On the other hand, increased revenues from the new Income Tax Act, the implementation of tax measures and the government’s continued commitment to maintain its consolidation path will help reduce the deficit, despite the decline in grants.

As the country is a net importer of oil, Jordan's current account balance depends on fluctuations in oil prices. The current account deficit is expected to improve in 2020, and will continue to be limited by inflows of remittances from expatriates (8% of GDP in 2018). Inward foreign investment, mainly in the form of FDI, which is expected to grow in 2020, 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, especially since its currency is pegged to the dollar. Foreign exchange reserves stood at one year of imports in August 2019.

Elections against a backdrop of popular discontent

Against a backdrop of popular discontent, King Abdullah II retains the support of the army and of a population wary of radical change. Nevertheless, waves of protests against the government are expected due to the high unemployment rate driven by a restrictive fiscal policy.

The next election to the Chamber of Deputies (Lower House), scheduled for September 2020, is expected to take place as planned. The Islamic Action Front (IAF), the political wing of the Muslim Brotherhood, currently holds 15 of the 130 seats in Parliament. The IAF is softening its Islamist stance and should obtain more seats in the next legislative elections although it is not expected to form a majority. Parliament will continue to be dominated by nominally independent representatives who are 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 should ensure continued logistical, financial and military assistance from the United States, its main ally, despite differences with US policy in this region.

In 2020, the business climate is expected to continue to improve despite regional instability, with Jordan ranking among the top 20 countries that have made progress in this area. Significant headway has been made in obtaining credit, paying taxes and resolving insolvency.

Source:

Coface (02/2020)
Jordan