In 2019, Jordan pursued important structural reforms, introducing new regulations to govern aspects of financial transactions, such as insolvency, digital payments, and public procurement. In so doing, the country became one of the top 20 performers in the World Bank’s 2020 Doing Business report, which takes into account progress on making it easier for small- and medium-enterprises to operate. Jordan made progress as well getting a Public-Private Partnership (PPP) Law through its Lower House of Parliament and brought its National Electric Power Company (NEPCO) to a near break-even point.
Working with the World Bank and other development partners, Jordan has developed a Five-Year Reform Matrix to lay the foundations for more sustainable, inclusive growth that can deliver on agendas involving jobs, youth, and gender. These medium-term reforms aim to make the economy more efficient and reorient it toward export-led growth by creating a better business and investment environment.
The Jordanian economy continued to experience sluggish economic growth in 2019. Real GDP in three quarters of the year grew by 1.9%--at almost the same level as last year. While economic growth benefited from rising net exports, thanks to positive terms of trade, it was constrained by weak domestic demand. Economic growth was insufficient to alleviate pressures on the domestic labor market. As a result, unemployment continued to rise, reaching 19.1% in 2019 compared to 18.6% in 2018.
Looking ahead, the impact of COVID-19 on the global economy is likely to significantly further dampen Jordan’s near-term growth prospects. Gradual recovery over the medium-term could capitalize, however, on lower oil prices and a steady reform momentum.
At the fiscal level, slippages continued for the second consecutive year due to weak revenue mobilization and limited flexibility to curtail spending, particularly on the recurrent side. The overall fiscal deficit (including grants and the use of cash) of the central government stood at just under 5% of GDP, about 1.5% of GDP higher than during the same period in 2018. Weak fiscal performance, together with lackluster economic growth, resulted in elevated public debt-to-GDP levels, with central government debt reaching 99.1% of GDP in 2019.
For 2020, fiscal consolidation will continue to be challenging, given significant downside risks due to higher than anticipated health and social safety spending and any additional measures that will be required to boost the economy. On the positive side, in 2019 Jordan’s external sector imbalances narrowed significantly because of favorable terms of trade, largely due to a decline in international oil prices which have helped curtail the cost of imports. The current account deficit during 2019 declined by almost 60% to US$1.23 billion (2.8% of GDP) compared to US$2.97 billion (7% of GDP) during 2018.
The COVID-19 outbreak and recent plunge in the international price of oil are expected to have opposite effects on Jordan’s current account deficit, which is projected to widen in 2020 and to then moderate over the medium-term as the impact of COVID-19 dissipates but lower oil prices persist. The positive impact of lower international oil prices is expected to be countered, however, by less external demand and its spill-over effects on the domestic economy through a decline in exports, remittances, travel, and foreign investments. With financing conditions already challenging, new global developments intensify Jordan’s dependence on official flows of funds from multilateral and bilateral donors, particularly at a time when large Eurobond payments are due in 2020.
Last Updated: May 01, 2020