AMMAN – On Monday, the
International Monetary Fund (IMF) stated that the “modest”
pace of economic growth in Jordan, which annually ranges between 2 and 3
percent, is insufficient to create tangible changes in
unemployment levels,
which stand at 22 percent.
اضافة اعلان
The report highlights that youth unemployment rates are
particularly elevated, approaching 50 percent. Additionally, female
participation in the workforce is among the lowest globally, with a rate of 14
percent, Al-Mamlaka TV reported.
The IMF emphasizes that Jordan continues to face significant
challenges in an external environment that remains “unstable.” The risks that
threaten expectations are substantial, including those arising from the
potential escalation of conflict in Gaza.
Despite notable progress in managing public finances
achieved through the Extended Fund Facility (EFF) agreement in March 2020,
which stabilized public debt, it still remains high and above pre-pandemic
levels. Jordan’s total debt reached 111.5 percent of the
GDP last year, with a
gradual expected decline to 108.2 percent by 2028. Excluding social security
debts, it was 88.7 percent last year and is projected to decrease to 78.6
percent by 2028.
The IMF acknowledges that over the past four years, Jordan
has demonstrated resilience in the face of a series of shocks, thanks to sound
macroeconomic policies and substantial international support.
The
new agreement between Jordan and the IMF, spanning four
years, was designed under the EFF. Its purpose is to assist Jordan in
addressing longstanding structural obstacles to growth and supporting
stability, alongside the challenges posed by hosting over a million Syrian
refugees.
The external environment has proven more challenging than
initially anticipated, with the
COVID-19 pandemic, subsequent Russian
aggression in Ukraine, rising commodity prices, and the recent war in Gaza.
To confront these challenges, the program was swiftly
adjusted and strengthened to mitigate the impact of shocks on the Jordanian
economy and enhance livelihoods. Despite the difficult environment, Jordan’s
economy continues to grow, albeit at a modest pace ranging between 2 and 3
percent annually. Inflation, which surged following the increase in basic
commodity prices, has since declined due to lower commodity prices and a
response to tighter monetary policy. The IMF affirms that Jordan’s economy remains
resilient, with robust growth in key sectors such as manufacturing,
transportation, agriculture, mining, and tourism.
The IMF has highlighted that the “external environment has
proven more challenging than initially anticipated. First, with the spread of
the
COVID-19 pandemic, followed by the Russian aggression in Ukraine,
subsequent increases in basic commodity prices, and most recently, the conflict
in Gaza.”
To confront these challenges, the program was swiftly
adjusted and strengthened to mitigate the impact of shocks on the Jordanian
economy and enhance livelihoods. The government has managed to maintain overall
stability despite the difficult environment.
Jordan’s economy has demonstrated resilience, with robust
growth in key sectors during the first three quarters of 2023, particularly in
manufacturing, transportation, agriculture, mining, and tourism. However, the
ongoing conflict in Gaza has an immediate negative impact on the tourism
sector. Assuming the war persists, growth is expected to decline to around 2.6
percent in 2023 and 2024, compared to previous expectations of nearly 3 percent
growth in 2024.
Looking ahead, the IMF anticipates an acceleration in growth
in the coming years, driven by further progress in implementing reforms and an
improved external environment. Additionally, the current account deficit is
projected to decrease slightly from 6.5 percent of GDP in 2024, compared to the
expected 7 percent in 2023, and further reductions are expected in subsequent
years.
At the same time, inflation has decreased to low levels,
reaching 1.3 percent in November 2023. This decline is attributed to the global
decrease in basic commodity prices and the Central Bank of Jordan’s (CBJ)
decision to raise interest rates in line with the US Federal Reserve. It is
expected that overall inflation will remain low at around 2 percent in 2024.
Looming impacts from the continued Israeli war on Gaza
The IMF has warned of the possibility of the continued
Israeli war on Gaza and its repercussions on the Kingdom’s economy. It points
out that if the war persists for a year or more and widens its scope, it could
lead to economic growth slowing down to less than 2 percent.
According to the assessment, the impact of the
conflict on Gaza is highly unclear and depends on its duration and intensity. The longer
and wider the war, the bigger the impact on Jordan's economy.
The impact on the Jordanian economy is likely to be
relatively limited in the baseline scenario, which involves containing the war,
due to the country's resilience, diverse energy sources, foreign exchange
revenues, and significant reserves.
However, in the event of a prolonged or increasing conflict
scenario, a deterioration in investor and consumer confidence, as well as a
major decrease in tourism revenues, might hinder economic development and
exacerbate external and fiscal balances, resulting in increased financing
demands.
According to the IMF, this scenario might reduce foreign
direct investment, making satisfying finance requirements more difficult. This
assessment comes amid the current focus on the impact of the war on the tourism
sector, with the cancellation of tourist trips from advanced economies, which
constitute about a third of tourism revenues, while energy and other trade
links remain unaffected.
The long-lasting war could impact Jordan’s ability to access
capital markets, in addition to other emerging border markets, and it is
possible that energy supplies may be disrupted or become costlier.
In the event that the war continues for a year and widens
its scope, the IMF predicts significantly worse economic outcomes due to a
potential interruption of natural gas and water supplies, rising oil prices,
and a substantial decline in tourism revenues.
The growth rate could slow down to less than 2 percent in
this scenario, exacerbating public financial balances and the current account
deficit, leading to an increase in public debt.
Jordan, according to the IMF, should take extraordinary
measures to offset the impact of deteriorating expectations. This includes
devoting a larger portion of the budget to the emergency fund, cutting spending
in non-priority areas, and making more room for social support.
The Jordanian government is actively seeking additional
grants in the budget to provide an extra means of dealing with any new shocks.
Renewing and modifying another four-year agreement
The IMF emphasized that the new four-year agreement aims to
solidify macroeconomic policies in the coming years and continue addressing
vulnerabilities, particularly to accelerate growth and create employment
opportunities. This new agreement will replace the existing arrangement, which
was originally scheduled to end in March 2024.
The new arrangement is expected to help the government
maintain overall stability, including managing new shocks. It will focus on
structural reforms to achieve stronger and more inclusive growth, reduce
unemployment, and support the implementation of the economic vision adopted in
July 2022.
The IMF emphasized that the Jordanian economy’s performance
under the current agreement remains strong, and the government has met all
performance criteria by the end of 2023, except for the accumulation of arrears
related to the National Electric Power Company (NEPCO).
While the current arrangement has successfully ensured
overall stability, growth has not been sufficient to significantly reduce
unemployment. Additionally, some challenging reforms require more time for
implementation.
The new agreement will focus on preserving stability and
building resilience. It aims to continue managing public finances, gradually
reducing public debt, protecting social and capital spending, improving
financial safety, and enhancing the efficiency of public utilities.
Furthermore, it will maintain the exchange rate peg to appropriate monetary
policies, as outlined in the report.
The program will also accelerate structural reforms to
achieve stronger growth and create employment opportunities. Key areas of focus
include improving the business environment, securing financing, enhancing labor
market flexibility, and strengthening public administration, according to the
IMF.
The reform agenda is based on Jordan’s economic
modernization vision and draws lessons from previous programs.
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