Jordan

Regional uncertainties continue to curtail growth

Country Rating B2

Strengths

  • King Abdullah remains popular and has the support of the military and security services​
  • Relatively sound relations with the EU, US, IFIs and GCC countries provide political, financial and technical support
  • Significant producer of phosphates and potash
  • Frequent debt rescheduling reduced external debt service to manageable levels

Weaknesses

  • Geographic location and recent history provide a negative political aspect of the country’s borders.
  • Socio-political differences between Trans-Jordanians and Palestinians (approximately 60% of the population) with a significant proportion of the latter group largely disenfranchised.
  • Social pressures result from high unemployment.
  • Workers’ remittances, particularly from the GCC area, and foreign aid distributions from the same source are subject to prevailing politics and the vagaries of international oil prices.
  • Lack of natural resources, other than phosphates.
  • Large fiscal and current account deficits

Economic Overview

 

Outlook is for modest recovery of growth

Real GDP growth moderated to +2% in 2016, down from an average annual +2.7% in 2011-2015 and +6.3% in the decade before that. On the home front, growth in recent years has been held back by remedial policies to limit the twin deficits in the fiscal and current accounts to maintain IMF support. Externally, a less-than-buoyant global economy and an uncertain regional outlook (including an influx of Syrian refugees) have slowed growth.
 
Growth edged up to +2.2% y/y in Q1 2017, driven by strong increases in mining (+14.7%) and agriculture (+8.2%). We expect full-year growth to accelerate gradually to +2.3% in 2017 and +2.5% in 2018 on the back of some export routes being reestablished, growing infrastructure spending and a modest recovery in tourism. However, downside risks remain significant, subject to regional stability issues.
 

Improving economic policies

Monetary policy is geared to the maintenance of the kingdom's pegged exchange rate (JOD0.71:USD1). This regime has long-established credibility, under¬pinned by a steady increase in foreign exchange (FX) reserves, and we do not expect a marked policy change over the forecast period. It has kept inflation in check for many years. After two years of deflation, consumer prices have picked up by an average +3.7% y/y in H1 2017, but we do not expect a further acceleration as the Central Bank responded with monetary tightening in June.
 
The fiscal deficit has improved to -3.8% of GDP in 2016, reflecting the government’s commitment to reduce fiscal deficits as part of its economic reforms under an IMF program (currently a 3-year EFF arrangement until mid-2019 is in place). We expect similar shortfalls in 2017-2018. There are risks that deficits will not be contained, partly because of the financial strains imposed by the large influx of refugees from Syria. Public debt will remain relatively high at just under 100% of GDP.
 

External imbalances remain large

Annual current account deficit/GDP ratios have slightly narrowed from double digits to high single digits since 2014, thanks to a lower oil import bill, but at around -9% of GDP, they have remained unsustainably large. Deficits of this magnitude require the continuing support of bilateral and multilateral agencies. External debt levels (debt/GDP 69% and debt/export earnings 200% forecast for 2017) are also high and require careful management. On a positive note, FX reserves cover 6.7 months of imports, compared with an inter¬national benchmark “comfort” level of 3 months.