Jordan : Jordan is an upper middle-income country with a population of 6.2 million and a per-capita GNI of US$4,340. The population is around 80 percent urban and is one of the youngest among upper-middle income countries with 38 percent under the age of 14. The country has limited natural resources, potash and phosphate are its main export commodities, limited agricultural land, and water is especially scarce. Jordan ranks as the world’s fourth poorest country in terms of water resources. Services account for more than 70 percent of the gross domestic product (GDP) and more than 75 percent of jobs. As one of the most open economies of the region, Jordan is well integrated with its neighbors through trade, remittances, foreign direct investment (FDI), and tourism, and has especially strong links to the Arab Gulf economies. Jordanian policymakers aim to use the demographic opportunity of a well educated, young population to build a dynamic, knowledge-based economy. As a result of its open economy and high degree of regional integration, Jordan is vulnerable to the political, economic and social volatility of the region. The political upheaval that swept the Arab region has had a significant impact on Jordan taking the form of economic shocks as well as inspiring domestic demands for stronger citizen voice, greater accountability and improvements in living conditions. The regional political upheaval impacted Jordan economically through two channels: (1) the sharp drop in gas supplies from Egypt led to a surge in Jordan’s current account and fiscal deficits; and (2) the Syrian conflict which led to a large influx of refugees is further straining Jordan’s difficult fiscal position. In terms of human development, Jordan is above average in relation to middle-income countries. These positive results are based on consistent levels of spending—more than 25 percent of GDP—on human development, education, health, pensions, social safety nets. In addition, Jordan ensures a high level of gender parity in access to basic public services. In education, the government launched in 2003 a comprehensive cutting-edge modernization program aimed at overhauling the basic education system to align it with the needs of a knowledge-based economy. School enrollment rates at each level of education are close to other countries at Jordan’s income level. In terms of quality, Jordan ranks above international averages in science but still below average in math. A growing population is exerting increasing demand on both health and education services. One of the government’s principal goals is to expand access to higher quality education and to provide the skills needed in a competitive economy. Economic and fiscal conditions have improved slightly in early 2013, after a challenging year in 2012. With gas supplies from Egypt shrinking to 16 percent of contractual terms in 2012, Jordan had to rely on expensive fuel imports to generate the country’s electricity. This led to a rapid deterioration of Jordan’s balance of payments and fiscal positions in the first half of 2012. As a result, an IMF SBA was approved in August 2012 (800 percent of quota or about US$2 billion). For the year 2012, the current account deficit reached 18 percent of GDP (up 6 percentage points of GDP from 2011) while the overall fiscal deficit reached 8.5 percent of GDP (up about 2 percentage points of GDP from 2011). The elimination of all petroleum product price subsidies except for LPG and a doubling (from a low base) of gas flows from Egypt since November 2012 helped reduce the acute macroeconomic pressures. The introduction of a broad-based cash compensation transfer likely improved public spending progressivity. Following pressures in late 2012, policy measures and external assistance have since boosted foreign reserves and confidence in the peg is returning. Although net international reserves (NIR) halved in 2012 to US$5.4 billion (to 3 months of imports), NIR improved in late 2012 and early 2013 due to monetary policy tightening by the central bank in December, a doubling of gas inflows from Egypt since November, and the receipt of US$1.2 billion in grants in early 2013. As a result, confidence improved and dollarization, which had accelerated in the fall reversed partly in early 2013. The large drop in NIR in 2012 was mostly driven by: (1) a widening of the current account deficit, and (2) a notable switch from dinar deposits to foreign currency, some of which was kept in cash. The current account deficit stemmed mostly from a worsening of the trade balance as exports stalled due to the Syrian-crisis related disruption of trade routes, while imports jumped as energy and food imports surged (the latter jumped 20 percent, in part due to the large influx of Syrian refugees). Inflation accelerated towards end-2012 to 7¼ percent, mostly driven by food prices, rising public sector wages, and the elimination of petroleum product price subsidies. Core inflation, nonetheless, remained stable at 3 percent. Financial markets have been stable since the onset of the IMF SBA in August 2012. Jordan’s external debt reached 22 percent of GDP in 2012 and is projected to remain sustainable under the most adverse scenario (IMF SBA review; April 2013). A debt sustainability analysis of Jordan’s public debt, however, reveals that under a number of shocks, the country’s debt dynamics would not be stabilizing over the medium-term. A robust implementation of the fiscal consolidation plan under the SBA is therefore critical to rebuild buffers. Public sector debt rose sharply in 2012, reaching 80 percent of GDP at end-December, up from 70 percent of GDP at end-2011. Over the past 10 years, Jordan has pursued structural reforms in education, health and privatization/liberalization and they have progressed well. In addition, the Government of Jordan (GoJ) has been working towards social protection systems and subsidy reforms, improving the conditions for greater public private partnerships in infrastructure, and tax reforms, including improvement of tax administration and management. However, sound economic policies and additional reforms will be necessary to reduce the vulnerability of the country to external shocks. Challenges include vulnerability to fluctuations in the international oil market due to the country’s high energy import dependency and disruption of gas supplies from Egypt; high unemployment and dependency on remittances from Gulf economies; and increasing pressure on natural resources, especially water. The greatest challenge (and also the largest opportunity) remains the necessity to create adequate conditions for increased private investment and improved competitiveness. This will help deliver the high and sustainable growth needed to create employment and to reduce poverty. Staying the course with the implementation of the fiscal consolidation program may prove challenging but is key to maintaining a strong economic performance. Jordan has experienced its own version of the “Arab Spring.” Since February 2011, low-scale but persistent demonstrations have challenged the government to initiate political reform and address economic governance. The different Governments since have responded by embarking on a process of gradual reform. The Parliament has approved constitutional changes to strengthen the independence and integrity of Judiciary bodies thereby improving public accountability. The recent January 2013 parliamentary elections may be an opportunity for enhancing political stability and reinvigorating the reforms drive. The government is pursuing reforms in transparency and accountability, public finance management (in particular budget and debt management and public sector spending efficiency) and private sector development. Sustained progress in the implementation of structural reforms and a supportive regional and external environment are critical for sustaining good economic performance in the period ahead.
Posted on: Tue, 23 Jul 2013 18:49:36 +0000
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