Jordan: Economy takes priority

Jordan’s new government has committed to strengthening the economy while also reducing debt levels, though at least to some degree its success or failure will depend on the health of regional and global economies.

Opening the new session of parliament on November 28, King Abdullah II said the government of Prime Minister Samir Rifai, which was formed following parliamentary elections on November 9, would be focusing on a seven-point policy plan of economic, social, and political reforms. The King said that these reforms were closely interconnected and essential to ensure development and growth.

While Jordan faced enormous economic challenges as a result of the global crisis, these could be overcome by adopting viable economic policies, said King Abdullah.

“Improving the performance of the economy will continue to top our priorities due to the direct impact such an improvement will have on the quality of life of our people,” he said. “The fiscal policies will continue to be geared towards curbing the budget deficit and consolidating financial stability. The government will also focus on improving the investment environment, stimulating economic growth and developing self-sufficiency.”

On November 21, responding to the King’s decision to re-appoint him as prime minister and give him the mandate to form the new government, Rifai said that improving the national economy would take priority.

“The government managed to achieve progress in some objectives, but was still working to realise better results in other objectives that normally require longer-term efforts, particularly those associated with the economic situation due to their reliance on the financial resources and the conditions of the international economy,” he said in a letter sent to King Abdullah.

Though acknowledging that more needed to be done, Rifai did note that there had been some marked improvements in a number of key areas, including in attracting foreign investment.

Indeed, the government has made progress in addressing some of the underlying weaknesses in the Jordanian economy since first coming to office in December last year. One of its major achievements was to reduce the budget deficit by 35% over the first three quarters of the year compared to the same nine months in 2009. This was in part a result of increased domestic revenues and a rise in foreign assistance, with one of the largest contributors being the tax on goods and services, which brought in an additional $277m, according to data released by the Ministry of Finance on November 28.

By contrast, earnings from taxes on trade and international transactions as well as income and profits declined by $162m over the nine month period, most likely a reflection of the prolonged recovery of the global economy.

The improved deficit performance was also aided by a reduction in state expenditure, though this only represented a 0.6% lowering of spending, with little left to be trimmed in an already stretched budget, which faces growing demands for social services support and economic stimulus requirements.

Though Rifai’s government has strengthened the state’s fiscal position, it is still struggling to reduce net public debt, which rose by $1.4bn in the nine months ending September 30, lifting the total to $15.2bn. This puts state debt at an estimated 55.4% of GDP, a 2.2% increase on the close of the third quarter in 2009.

Over the past year, the government has also had to contend with a stubbornly high unemployment rate estimated at 13%. However, while committed to reducing the deficit, it has been difficult for Rifai to increase spending on programmes that would create jobs, though a number of long-term capital works projects, such as the planned national rail network and large-scale irrigation schemes, will help stimulate growth and improve the employment situation.

Some of this growth will depend on how well the global economy performs in the coming year, a fact acknowledged by Finance Minister Mohammad Abu Hammour. Speaking on November 7, when he handed down the 2011 budget, the minister said the target of trimming the deficit to 5% of GDP while projecting a slight increase in expenditure presupposed a more robust global economy.

“The budget for next year was prepared according to expectations that the regional and international economies are recovering from the repercussions of the global recession,” said Abu Hammour.

Though the Jordanian government has done well to reduce the deficit in 2010, it may have difficulty in meeting at least some of its targets for next year, especially as some of its major trading partners in Europe are seeing their own economies slowing again. This in turn could impact on foreign capital inflows and on donor support, both vital to Jordan’s economy. While the policy programme outlined by King Abdullah sets a clear path for the country’s future, there is the risk of potholes that could slow the journey.