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Tuesday 20th March 2018

2018: Tough Year for Jordan's Economy

Business

Mohammad Ghazal

Fri, 04 May 2018 09:13 GMT

Rising personal and public debt, continued regional instability and a series of fiscal reforms introduced by the government are making 2018 a tough year for Jordan's people and economy.

Jordan's public debt reached 27.269 billion Jordanian dinars at the end of 2017, constituting 95.3% of the gross domestic product (GDP). Unemployment hit 18.5% at the end of 2017, an “unprecedented” level unseen in the last 25 years.

By the end of the third quarter of 2017, the Kingdom's economy grew by 1.9%, which was below the country's annual population growth that is around 2.2% to 2.5% per year.

Jordanian economist Khaled Zubeidi told 7Dnews, "2018 is a very difficult year for the entire economy…2018 is a tough year for Jordanians too as they are suffering from taxes and less support from the government."

Zubeidi explained the impact of new policies on Jordanians and various economic sectors: "The recently-introduced fiscal reforms by the government have burdened Jordanians and all economic sectors as they significantly helped in increasing the cost of living in the Kingdom."

IMF adjustment policies hit Jordanians

Early this year, Jordan introduced several tax hikes and removed exemptions in line with a reform programme proposed by the International Monetary Fund (IMF) to help reduce public debt.

The government ended subsidies on several types of bread and increased their prices between 60 - 100%. It also increased sales taxes on several commodities from 4% to around 10% in addition to removing exemptions for various sectors such as the agricultural sector.

The government has also announced increases in the price of electricity for all economic sectors.

The government introduced these fiscal reforms hoping to generate at least 540 million Jordanian dinars ($761 million) in extra revenues this year. The IMF deal with Jordan approved in 2016 seeks to reduce public debt to 77% of GDP from a record 96% by 2021.

Economists cast doubt on IMF reforms

The World Bank forecast that Jordan’s economy is expected to grow by 2.4% in 2018, while the IMF forecast puts the figure at around 2% for this year. Jordanian economists are doubtful about these forecasts.

Zubeidi said taxes have not only impacted the cost of living, but also industry: “As a result of increased taxes, the cost of Jordanian products increased, which makes them less competitive whether in the local market or abroad.”

Another Jordanian economist, Wajdi Makhamreh, also has doubts about the results expected from the newly introduced policies, arguing that it will not generate extra revenues as planned.

"The purchasing power of Jordanians decreased sharply following the recent measures and there are not enough jobs to accommodate the large number of graduates in Jordan," he said.

There are around 70,000 to 80,000 Jordanians new graduates from domestic universities every year.

"The economic growth this year is not promising, and it is expected to be lower than the population growth or around the same rate and that is not enough to create the necessary jobs for the young Jordanians," said Makhamreh.

Jordan’s economy impacted by regional dynamics

"Jordan's economy continues to suffer from regional turmoil and geopolitical conditions and the closure of borders with Syria and difficulty of penetrating the Iraqi market, which used to be a key market for Jordan's exports," said Makhamreh.

The economists said although the tourism sector's revenues in 2017 increased by 12.5%, up to $4.6 billion, compared to $4.1 billion in 2016 and there is improvement in remittances sent by Jordanian expatriates. But that is not enough.

To address the current challenges, efforts should be focused on opening new markets for Jordanian products, attracting direct foreign investments that help create jobs and rescinding recent decisions that increased taxes.

"If the government goes back on its recent decisions that entailed increased prices of almost all commodities and services, Jordanians will be spending more, and this will help increase government revenues and improve all economic sectors and reflect positively on the economy," Zubeidi said.

Makhamreh agreed. "People resort to saving more when they are subject to more taxes and fees…in addition to going back on these decisions and taxes, working harder to attract investment is needed while providing necessary incentives to attract investors," said Makhamreh.

As no major breakthroughs are foreseen in the near future, the economists agreed that the year 2018 is a "tough and a challenging year" both for Jordanians and the wider economy.

Middle East
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