Jordan’s economic growth is expected to accelerate from 3.1% in 2014 to 4.3% in 2015.
Middle East and North Africa economies
Atradius STAR Political Risk Rating*:
Algeria: 6 (Moderate-High Risk) - Positive
Egypt: 6 (Moderate-High Risk) - Negative
Jordan: 5 (Moderate Risk) - Negative
Kuwait: 3 (Moderate-Low Risk) - Stable
Morocco: 5 (Moderate Risk) - Positive
Saudi Arabia: 3 (Moderate-Low Risk) - Negative
Tunisia: 5 (Moderate Risk) - Negative
United Arab Emirates: 3 (Moderate-Low Risk) - Positive
* The STAR rating runs on a scale from 1 to 10, where 1 represents the lowest risk and 10 the highest risk.
The 10 rating steps are aggregated into five broad categories to facilitate their interpretation in terms of credit quality. Starting from the most benign part of the quality spectrum, these categories range from ‘Low Risk’, ‘Moderate-Low Risk’, ‘Moderate Risk’, ‘Moderate-High Risk’ to ‘High Risk’, with a separate grade reserved for ‘Very High Risk.’
In addition to the 10-point scale, rating modifiers are associated with each scale step: ‘Positive’, ‘Stable’, and ‘Negative’. These rating modifiers allow further granularity and differentiate more finely between countries in terms of risk.
For further information about the Atradius STAR rating, please click here.
Head of state: King Abdullah bin Hussein al-Hashemi (since 1999).
Form of government: Jordan is a constitutional monarchy, but the parliamentary power is heavily circumscribed. Despite some recent reforms most executive and legislative powers still lie de facto with the King, who is empowered to dismiss the government and dissolve the parliament. While the Chamber of Deputies is elected by popular vote, the Senate members are appointed by the King.
Population: 6.7 million (est.)
Severely impacted by the conflicts in neighbouring states
King Abdullah II appears to be firmly in power again following the public protests in 2011 and 2012 (mainly led by the Islamic Action Front, the political wing of the Muslim Brotherhood in Jordan) ebbed . The position of the King is also considered to be secure as he is rather popular and has strong support from the effective security forces and the army.
That said, Jordan ́s security situation has worsened in recent years as the country is immediately affected by the on-going sectarian conflict in Iraq and the civil war in Syria, together with the rise of the Islamic State (IS) in both neighbouring countries. According to the United Nations, Jordan currently accommodates about 600,000 Syrian refugees, i.e. close to 10% of Jordan ́s total population, which has increased pressure on water and electricity resources. Tourism, services and cross border trade have also been negatively impacted by the conflicts in Iraq and Syria.
Jordan is stuck between its interest in good relationships with Israel (Jordan and Israel concluded a peace agreement in 1994 and maintain diplomatic relations) and the need for official solidarity with the Palestinians in their conflict with Israel (about half of Jordan’s population consists of Palestinian refugees). The country receives massive military and financial support from the US and benefits from a bilateral free trade agreement with Washington.
Stronger growth despite the on-going security issues
Jordan ́s economic growth is negatively affected by the on-going conflicts in the region. Trade flows with Iraq as a major export destination have decreased and tourism and investment are negatively impacted by security concerns. The Institute of International Finance (IIF) estimates that the economic costs of the regional unrest for Jordan amounted to USD 11.1 billion (7.9% of GDP) in the period 2011-2014.
However, economic growth is expected to accelerate from 3.1% in 2014 to 4.3% in 2015, due to increasing activity in construction (infrastructure and tourism expansion projects), economic reforms and financial aid from Gulf states and the International Monetary Fund (IMF). Private consumption is also expected to sustain growth, despite high unemployment (about 14% in 2014). On the supply side, services (two thirds of GDP, particularly finance) and transport will continue to make a key contribution. Inflation is expected to decrease to 1.1% in 2015.
The budget deficit is high but expected to decrease to 6.4% of GDP in 2015. Fiscal consolidation is difficult due to the massive influx of refugees. Jordan is highly dependent on energy imports and benefits from the lower oil price: the current account deficit is forecast to decrease from 6.8% of GDP in 2014 to 0.8% in 2015.
Jordan has a high gross external financing requirement of 84% of reserves in 2015. Foreign debt is high at 66% of GDP and 150% of exports of goods and services. Additionally, and the debt structure is not favourable as the short-term share is high. Despite this, the liquidity situation is good, as foreign reserves have increased due to external financial aid. Import cover amounts to more than 11 months in 2015.
Jordan remains heavily dependent on foreign donor support from its Arab allies (especially Saudi Arabia), the US and multilateral institutions. However, such foreign grants are a factor afflicted with uncertainty and therefore a potential economic risk.