World Bank ‘ready’ to support Jordan’s regional shocks
A World Bank report said Jordan's economy has slowly but steadily picked up despite regional tensions. (AFP/File)
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Despite the spillover of regional chaos, including the Syrian refugee crisis, the Egypt gas disruption, and security threats, Jordan’s economy has continued to slowly, yet steadily, pick up, a World Bank report said.
The report, released in Amman on Monday, said that notwithstanding these shocks, Jordan’s real GDP growth rate reached around 3 percent in 2014, up 30 basis points over 2013 and reflecting higher growth for the fourth consecutive year, with forecast that real GDP growth will accelerate to 3.5 percent in 2015 and 3.9 percent in 2016.
Jordan Economic Monitor “Persisting Forward despite Challenges”, prepared by the World Bank for Spring 2015, provides an update on key economic developments and policies over the past six months. It presents findings from recent World Bank work on Jordan.
According to the report on the demand side, GDP growth was predominantly fuelled by a narrower trade deficit and higher public investments. Compared to the first three quarters of 2013, the similar period of 2014 saw a 23.8 percent improvement in public investment and a 12.3 percent reduction in the trade deficit.
As for the production side, the report showed that all sectors of the economy contributed positively to growth, most notably mining and quarrying in the third quarter of 2014. The sectors that most contributed to growth included construction, wholesale and retail trade, finance and insurance services.
As for the 2015 and 2016 forecasts on real GDP growth, they assume a status quo with respect to regional security challenges from Syria and other geopolitical risks, the level of gas inflows from Egypt, continued fiscal consolidation, a low oil price and a continuation of investments particularly in energy supply diversification.
Meanwhile, the report indicated that steady economic recovery has improved unemployment rates although this creates underlying structural weaknesses. The unemployment rate dropped from 12.6 to 11.9 percent from 2013 to 2014.
“This improvement was not driven by increased employment but by an equivalent and concerning drop in the labour force participation rate from 37.1 percent in 2013 to 36.4 percent in 2014,” the report said, adding this was possibly driven by discouraged workers given perceived competition from refugees and limited hiring prospects in the public sector given ongoing consolidation efforts.
According to the report, the expanding economy and continued efforts aimed at fiscal consolidation have resulted in a lower fiscal deficit. The overall fiscal and primary deficits of the central government (excluding grants and the National Electricity Power Company’s losses) narrowed by 1 and 1.5 percentage points of GDP, respectively, during 2014, compared to 2013.
Such progress, the report indicated, was driven mostly by cyclical improvement in revenue collection and contained growth in spending. Gross public debt increased by 2.9 percent at the end of 2013 to reach 89.6 percent of GDP by the end of 2014.
With the spare capacity in the economy, rapid drop in the inflation rate and comfortable reserve indicators, the Central Bank of Jordan continued its expansionary stance. As explained in the report, headline inflation dropped to its lowest level since December 2009, while core inflation started decelerating in mid-2014 as temporary supply factors waned off.
As for other prospects for Jordan’s economy, the World Bank document expected the current account to narrow further owing to a tighter trade balance and public transfers. It explained that the trade deficit is forecast to narrow to 19 percent of GDP in 2015 from an estimated 19.8 percent in 2014.
However, these prospects might be at risk with the challenges facing Jordan, stemming from geopolitical security risks, according to the report. It added that any exacerbation of security risks related to the Syria or Iraq crises, or the Daesh threat, could severely undermine growth prospects and development efforts.
Speaking at the launch of the World Bank report, Minister of Planning and International Cooperation Imad Fakhoury said Jordan’s economy growth exceeded 3 percent in 2014 and “we hope it will reach 5 percent” this year.
He explained that the “Jordan 2025” vision will allow Jordan to move fast and to develop many sectors as it has identified the strategic components of importance, explaining that economic development has to be built on a set of vital and promising sectors. As for the World Bank report, Fakhoury said it is important to “us” to have a neutral report that diagnoses the status of the national economy objectively.
Meanwhile, Ferid Belhaj, World Bank director for the Middle East, stressed the bank’s willingness to support Jordan to help it absorb the shocks that have affected the country, resulting from its geopolitical position.
Belhaj noted this “periodical” report is launched for the first time and it will help enforce dialogue on Jordan’s economy that is affected by the regional turmoil, especially in Syria and Iraq that has also impacted development in most Arab countries.
“We realise the challenges facing Jordan, thus we stress our full readiness to support this generous country to maintain its resilience and face these shocks that affect its socio-economic safety,” the World Bank official said.
He also announced that the World Bank is in the process of preparing a “Strategic Country Diagnostic” report to define obstacles facing Jordan’s economy and job creation.
He added that the report will set pace for the strategic partnership between the World Bank and Jordan, and will reflect the Kingdom’s developmental priorities and 2025 vision.
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