Jordan: Maintaining the economic line

Jordan’s government has undergone major overhaul with almost one third of all cabinet ministers reshuffled by Prime Minister Marouf Bakhit. Nonetheless, this does not appear to flag any major shift in economic policy.

Though the July 2 shake-up was extensive, with nine ministers either being replaced or transferred to different positions and two new ministries created, it is noteworthy that only one of these changes directly involved a major economic portfolio: Mohammad Barakat Al Zuhair was named as the minister of state for economic affairs, one of the two newly created posts in the cabinet.

Key cabinet members Mohammad Abu Hammour, the minister of finance, and Hani Mulki, who holds the industry and trade portfolio, were retained, as were the labour and planning and international co-operation ministers, Mahmoud Al Kafawin and Jafar Hassan. This could serve as an indicator that there remains solid support for the economic policies being implemented despite the difficult conditions at home and abroad.

Recent data issued by state agencies suggest that these policies are paying off. According to the finance minister, the government was well positioned to keep its deficit within the 5.5% of GDP as projected at the beginning of the year, despite rising inflation. Thanks to increased state revenue and foreign aid, the shortfall in the budget for the first three months of the year was $209.5m, 38% down on the first quarter of 2010, Abu Hammour told Reuters in mid-June.

“Our fiscal consolidation plan is on track despite the impact of a higher oil bill and more social spending earlier this year,” Abu Hammour said. “There are positive signs that the pick-up in revenues and foreign grants are sustainable.”

More positive news came in late June, when industry and trade minister Mulki told a seminar in Amman that exports had risen by 13.5% during the first three months of the year, while there had been a 2.9% increase in foreign investment in the January-to-May period, with capital inflow reaching $1.16bn.

Not all the data is quite so positive, though there is little that is alarming either. There was a 4.6% rise in inflation in the first five months of the year compared to the same period in 2010, according to statistics from the Department of Statistics (DoS). To a degree, there is not a lot the government can do to rein in inflation, much of which has been fed into the Jordanian economy from abroad, with rises in oil costs and foodstuffs being the main ingredients in the price spiral, though increases in state charges have also played a part.

The government has forecast GDP expansion of 3.5%, though it may not achieve this goal, especially given the unrest in the region that is slowing economic growth across the Middle East. This climate is also weakening confidence in the tourism sector, a major revenue earner for Jordan that accounts for around 14% of GDP and generated $3.4bn last year, according to finance ministry figures.

Data released by the DoS in late June showed that GDP grew by 2.26% in the first quarter of 2011, better than the 2.03% recorded for the same period last year but still shy of the government’s target. Along with the tourism industry, which has seen revenue dip by some 11% this year, the previously vibrant construction sector posted a retreat of 17.7% year-on-year.

Unemployment is another concern, remaining stubbornly high. Jordan’s jobless rate edged up in the second quarter, reaching 13.2% as of the end of June according to the DoS, compared to 12.2% during the same period in 2010. Though the government wants to alleviate unemployment and provide additional stimulus to the economy while also maintaining its programme of social support, there are many calls on the state’s finances and only limited resources with which to answer them.

One step the government is preparing to take to reduce unemployment is to cut the number of foreign workers occupying jobs in the kingdom. In mid-June, labour and planning minister Al Kafawin said a comprehensive study would be undertaken to ensure Jordanians were given priority when employers were recruiting staff. Some estimates put the number of expatriate workers legally employed in the country at 250,000, with far more than that working without documentation.

The outcome of these studies, and the way in which the government decides to implement the recommended measures, will determine how far Jordan scales back its foreign workforce and how many locals take their place. Of more immediate concern will be how well the government’s financial managers are able to balance the many demands for price support, new jobs and improved services with the need to maintain a tight fiscal line while drip feeding economic growth.