Jordan: Edging forward

Jordan’s economy has entered 2011 in strong shape, having posted solid growth over the past 12 months and looking to do even better in the coming year, though progress has been patchy in some areas and there are more than a few potential potholes further down the road.

In early January the IMF issued its latest report on the state of the Jordanian economy, including projections for the coming year. According to the report, GDP is expected to rise by 4.25% in 2011, following on from the estimated 3.5% for the past 12 months.

“The economic recovery remains on track, on the back of slowly rising domestic activity. Fiscal prudence and credible monetary management, reinforced by strong supervision and regulation of the financial sector, provide a solid platform for a more robust growth upturn in 2011,” the report said.

That fiscal prudence would require the Jordanian authorities to achieve their objective of reducing the overall deficit by between 0.5 and 1% of GDP per year, and bring the amount of red ink in the state ledger to around 3% of GDP in the medium term, it said.

The government of Prime Minister Samir Rifai is optimistic that growth will be sufficient to meet the needs of deficit reduction, a point that it underscored in its budget for the coming year. The 2011 draft budget, submitted to parliament on December 29, estimates that GDP will increase by at least 4% – in line with the IMF’s forecast – while debt will fall, with the deficit set at $1.5bn. At 5% of GDP, this is somewhat down on the 5.3% for 2010 and well below the 2009 figure of 8.5%.

At least some of this improvement is based on expected improvement in local revenues, with total state income forecast to be $7.36bn, up from $6.9bn in 2010. In addition, the draft budget has factored in just $426m in foreign grants for 2011, a substantial decline from $610m in 2010.

Though there had been a surge in export trade, which rose by 15.9% in 2010, reversing a 19.8% fall in 2009, and growth in tourism and other sectors last year, overall progress was below targeted levels, according to Sharif Faris Sharaf, the governor of the Central Bank of Jordan.

“The pace of economic growth is still below the desired levels, and such a situation makes it incumbent to press on with current monetary and fiscal measures,” he told Pera news agency in early January, after briefing the financial committee of the lower house of parliament.

While Jordan’s GDP expanded in 2010, there are concerns that growth was not even across the economy, and that the benefits of the recovery have not filtered down to all elements of society. A reflection of the mixed progress came in early January, when employment portal Bayt.com and researching and consulting firm YouGov Siraj released the results of their latest Middle East consumer confidence survey. According to the poll, only 17% of Jordanians surveyed felt their financial situation had improved from a year before, one of the lowest levels across the region.

The study, conducted in late November and early December, also showed there had been a marginal decline in the number of respondents who felt their situation had improved since the previous survey, conducted in June, when 18% said their position had strengthened. The survey found that only 34% of Jordanians felt business conditions would improve in 2011, while just 19% believed that employment opportunities would be better. Both of these were at the lower end of the regional scale.

With inflation again edging up – prices having risen by around 5% last year and forecast to increase by 5.5% in 2011 – many of those in the lower-income brackets have been feeling the pinch. Though the government has little room to manoeuvre if it is to cut the budget deficit, it is expected to heed calls from His Majesty King Abdullah to reduce the cost burden on those least able to carry it.

On January 10 the King issued a statement saying the government needed to ensure that basic foodstuffs are available at the lowest possible prices. As a part of this, the government will need to enact measures immediately so that they have a rapid and direct impact, as well as put in place job creation schemes that will help generate income and address the problems in Jordan’s underprivileged areas.

Balancing efforts to cut expenditure and the deficit with the need to maintain social services and promote growth may be a difficult act for the government to pull off, though social stability and economic empowerment are as vital to Jordan’s long-term plans as debt reduction is.