Jordan: Year in Review 2011

Political and economic reforms promised for 2012 are expected to improve Jordan’s business environment and restore confidence after a challenging year.

Jordan will enter the new year with a new government and a new economic plan, though the administration of Prime Minister Awn Khasawneh, which won a vote of confidence in early December, will have to confront many of the same issues faced by its predecessors. Khasawneh replaced Marouf Al Bakhit, who had his mandate revoked by King Abdullah II in mid-October after failing to fast track social, political and economic reforms.

In the incoming cabinet’s policy statement, Khasawneh said his administration was committed to establishing fiscal stability through cutting the budget deficit and public debt, stimulating investment, boosting employment opportunities by replacing guest workers with Jordanian nationals, and supporting the production and service sectors.

Along with political reforms to strengthen democracy at all levels, the prime minister told local media that tackling corruption, as well as redressing economic and social inequality, would be a major priority.

However, with a near record fiscal deficit, the government has limited resources to fund economic stimulus packages. This will be made more challenging by the recent decision by Standard & Poor’s (S&P) to lower the country’s long-term local currency sovereign debt rating from BB+ to BB.

In a statement issued in late November, the ratings agency said it based its shift on the threat of external shocks from commodity price inflation and the fallout from regional instability, which has resulted in slower economic growth and larger fiscal deficits.

S&P said that the Kingdom’s current account deficit would likely widen to 7.3% of GDP by year’s end, with the overall outlook set at negative, reflecting the risks posed if Jordan’s fiscal performance fails to strengthen and if there are delays in promised reforms and economic recovery. The company was more upbeat in the longer term, however, forecasting that net general government debt will peak at 45% of GDP in 2013, and gradually decline thereafter.

Both the outlook and ratings position held by S&P could be revised if the new government is able to enact reforms that lead to a more stable political environment, provide support for public finances, and boost external investor confidence, the agency said.

Indeed, the country has already seen progress on several fronts this year, with solid growth posted for exports, the unemployment rate down slightly and inflation having eased from 5% in 2010 to a more moderate 4.6% in 2011. Jordan does, however, face challenges in terms of declining production and regional instability.

According to data issued by the Department of Statistics in mid-November, industrial production was marginally down in the first three quarters of the year compared to the January to September term in 2010, while the growing cost of imports – especially hydrocarbons – pushed the trade deficit up by 19.7% year-on-year as of the end of August, with the imports coverage by total exports coming in at just 44.6%.

The imposition of sanctions on Damascus by the Arab League is set to directly impact the Jordanian economy, with the industrial sector one of those that will be hardest hit, according to Nazzal Armouti, the deputy chairperson of the Jordan Chamber of Industry.

“Losing any key market for Jordanian exports will result in labour layoffs and limit job opportunities,” Armouti told local media in late November.

Syria agreed in late December to allow observers into the country in an effort to avoid sanctions, but the Arab League’s secretary-general, Nabil Elaraby, has told international media that there is no immediate plan to lift restrictions. Syria is one of the Kingdom’s largest trading partners and sits astride some of Jordan’s main transit routes to other key markets in the Middle East, Turkey and Europe. Instability in Egypt too has taken its toll, as repeated attacks on the gas pipeline that carries Egyptian natural gas to Jordan and Israel have disrupted supplies to the Kingdom’s power stations.

All that said, the Jordanian economy is still poised to see growth next year: the International Monetary Fund has predicted the economy will expand by 2.9% in 2012, following on from the estimated 2.5% for 2011, though still below the 3.5% it forecasts for the wider Middle East and North Africa region. With a new government committed to focusing on economic growth, Jordan’s economic prospects are set to continue moving in positive territory.