Global : Jordan current account reports the third deficit in a row increasing by 73.7%
• Global : Jordan current account reports the third deficit in a row increasing by 73.7%
Global Investment House Kuwait – Jordan Economic & Strategic Report- The trade balance continued to report increasing deficit over the period 2002-07. On CAGR basis, trade deficit grew by 35.2% during the period to increase from JD1.2bn in 2002 reaching JD5.6bn by the end of 2007. On Y-o-Y basis, the deficit increased rapidly by 23.4% by the end of 2007. Total exports including Re-exports grew by 9.5% in 2007, while total imports grew by 17.2% thus justifying the widening trade deficit. The significant growth in imports was attributed to the rise in imports to meet domestic demand as well as the rise in international oil prices along with the appreciation of some foreign currencies against the Jordanian Dinar as a result of weakening US$ to which the JD is pegged. The growth in exports came on the back of the Qualifying Industrial Zones (QIZ) agreement which allow products in the textile sector with a certain amount of Israeli and Jordanian content to be exported duty- and quota-free to the United States.
External Trade Summary
JD mn 2002 2003 2004 2005 2006* 2007* CAGR 2002-07
Domestic Exports 1,556.7 1,675.1 2,306.6 2,570.2 2,929.3 3,179.6 15.4%
Re-exports 407.2 509.8 446.4 479.3 760.6 861.7 16.2%
Total Exports 1,963.9 2,184.9 2,753.0 3,049.6 3,689.9 4,041.3 15.5%
Total Imports 3,191.0 4,072.0 5,799.2 7,442.9 8,187.7 9,593.5 24.6%
Trade Balance (1,227.1) (1,887.1) (3,046.2) (4,393.3) (4,497.8) (5,552.2) 35.2%
Source: Central Bank of Jordan
Analyzing exports composition by commodity revealed that over the period 2002-07 two categories of exports namely miscellaneous and chemicals exports accounted for more than 50% of total exports. By the end of 2007 they accounted for 32.2% and 24.1% respectively. It is important to note that among chemicals exports medical and pharmaceutical exports accounted for the largest share. It grew significantly by 42.4% to reach a new landmark of JD300.1mn. Among other major exports were crude materials that stood at JD435.2mn or 13.7% of total exports. Both phosphates and potash exports were the major exports within crude materials exports, which were mainly directed to the Indian, Malaysian and Chinese markets. Food and live animals exports followed at 12.7% standing at JD403.9mn. Within food exports, vegetables grew notably at 68.4% to a record level of JD273mn.
As for the geographical distribution of export, major export partners over years were Arab countries accounting for 42.3% of total exports on average over the period 2002-07. Exports to Arab countries reported a high 63.9% CAGR over the period. NAFTA countries and Asian non-Arab countries followed at 29.9% and 19.9% respectively. The year 2007, was not different as both Iraq and Saudi Arabia were the major Arab trade partners with Jordan accounting for 11.8% and 8.2% of exports during 2007.
Analyzing imports composition by commodity revealed that mainly the categories of machinery and equipments, mineral fuels and manufactured goods accounted for more than 60% of total imports on average over the period 2002-07. By the end of 2007 they accounted for 24%, 20.8% and 19% respectively. Mineral fuels and lubricants imports continued to grow rapidly over the period, reporting a CAGR of 129.4% to stand at a new landmark of JD2.1bn by the end of 2007. This was mainly backed by crude oil imports that accounted for 15.3% of total imports during 2007.
As for the geographical distribution of imports, major import partners over years were Arab countries accounting for around 32.3% of total imports over the period 2002-07. Imports from Arab countries reported a high CAGR of 132% over the period. Asian non-Arab countries and EU countries followed, accounting for 28% and 34.9% respectively.
The year 2007 witnessed the current account registering another deficit for the third year in a row. Current account deficit increased significantly by 73.7% during 2007 reaching a new high of JD2bn as compared to a deficit of JD1.1bn in 2006. Such huge increase came on the back of a 25% Y-o-Y increase in trade balance deficit in addition to 5.5% decline in current transfers (net) balance. The increase of 17.2% in import bill was more than enough to offset the 9.5% increase in exports thus the trade deficit increased.
Income account continued to contribute positively to the current account over the period 2002-07 reporting a CAGR of 47.4%. By the end of 2007, income account surplus reported 43.8% of growth to stand at a new record of JD592.1mn. Services account on the other hand continued to contribute negatively over years. By the end of 2007, services account deficit increased slightly by 7.8% to reach JD48.3mn.
Capital and Financial Account
Despite the deteriorating current account, the capital and financial accounts continued to report surplus for the last three years. However, both accounts reported a declining surplus at the end of 2007. The capital account registered a surplus of JD9.1mn in 2007 down from JD44.5mn in 2006, while the financial account registered a surplus of JD1.07bn in 2007 down from JD1.1bn reported in the previous year. This was mainly due to 46.8% decline in the direct investments which stood at JD1.3bn in 2007, compared to all time high of JD2.4bn reported in the previous year.
Capital and Financial Account
(JD mn) 2002 2003 2004 2005* 2006* 2007* CAGR
Capital Account 48.8 66.3 1.5 6.0 44.5 9.1 -28.5%
Financial Account (314.2) (1,052.3) (200.9) 976.7 1,095.2 1,068.0 -227.7%
Direct Investment 52.8 316.8 565.9 1,142.1 2,380.4 1,267.2 88.8%
Portfolio Investment (173.0) (334.4) (204.8) 221.7 (26.1) 595.5 -228.0%
Other Investment 474.5 (200.3) (503.9) (257.0) (299.5) (217.8) -185.6%
Reserve Assets (668.5) (834.4) (58.1) (130.1) (959.6) (576.9) -2.9%
Net Errors and Omissions (120.7) 103.4 136.5 576.8 (6.4) 891.1 -249.2%
Capital and Financial Account (265.4) (986.0) (199.4) 982.7 1,139.7 1,077.1 -232.3%
Source: Central Bank of Jordan
Portfolio investments on the other hand rebounded from last year trough to register a surplus of JD595.5mn in 2007 as compared to JD26.1mn of deficit in 2006. Finally, other investments’ deficit declined by 27.3%, reaching JD217.8mn at the end of 2007.
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