Jordan’s feeble economy has traditionally been reliant on foreign aid, mainly from Gulf states and worker’s remittances. In recent years, the Jordanian government has been seeking cooperation from foreign governments and international organizations to forgive its massive debt to unburden the nation. The country’s debt ratio – about 100 percent of GDP – is one of the world’s highest.
Leaders from the Group of Eight in June 1999 called on the world community to help alleviate Jordan’s $7 billion debt encumbrance.
Such forgiveness would go a long way to helping the country’s new king, Abdullah. On February 7, 1999, King Hussein died after over 45 years of leading the country. Hussein, one of the region's more popular figures -- led his country through turbulent eras, including external wars with the Israelis and an internal war with the Palestinians. He bequeathed to his son a peace with the Israelis but a rickety economy as well.
The new king is looking to both external help and internal reform to meet his chief goal of creating an improved economic climate for Jordanians.
One beginning area to meet this goal is by improving the nation's infrastructure to support new investment and continued economic growth. Jordan is continuing to liberalize its investment and customs laws in a way that will attract foreign investment. And while the government controls roughly 60 percent of the economy and is the country's largest employer, it is pushing ahead with a privatization program that seeks to place the private sector as the engine of economic growth.
On the sectoral level, construction, agricultural and manufacturing sectors have played the leading roles in driving economic growth in recent years. While the country has limited natural resources, it is one of the world’s largest exporters or phosphates.
The death of King Hussein raised a serious concern regarding the Kingdom’s economic stability. These fears were concentrated on a scenario whereby the dinar would rapidly devalue, cause wide-scale panic and lead to the complete collapse of an already fragile economy. Quick measures by the Arab and international community diffused this anticipated crisis.
In March 1999, Jordan reached an agreement with the International Monetary Fund on a new three-year financial package, which would replace the current ten-year program. The new package provides Jordan with an extra $150 million per year. In return, Jordan agreed to a number of economic reforms.
In June 1999, leaders from the Group of Eight called on the world community to help alleviate Jordan’s $7 billion debt encumbrance. This global pledge to lend assistance to the Kingdom supports Abdullah’s foremost priority, namely to create an improved economic climate for the people of Jordan.
Debt relief and forgiveness are of supreme importance for Jordan’s feeble economy. The debt ratio in this Arab nation is around 100 percent of GDP, one of the highest rates in the world. In order to illustrate the severity of Jordan’s stagnation, debt servicing this year will consume 26 percent of the central government’s budget.
Jordan's government is greatly concerned about the impact of the growing level of unemployment, which already stands at between 15-20 percent, and low wages, which have dropped by more than 20 percent during the 1990s. Increasing jobless rate, diminishing per capita purchasing power, spreading poverty and deteriorating farmers’ conditions have pushed many Jordanian Parliament Members to demand immediate economic restructuring and clear development strategies in order to save the national economy from a prolonged recession.
Economic Figures
1999** 1998 1997
GDP Growth (percent) 1.0 2.2 1.3
GDP per capita (US$) - 1,551 1,514
CPI Inflation (percent)* 2.5 3.1 3.0
Unemployment (percent) 17 15 -
Exports (US$bn) 1.75 1.80 1.84
Imports (US$bn) 3.75 3.84 4.11
Trade balance (US$bn) -2.00 -2.04 -2.27
Budget deficit (excluding grants, US$mn)- - 476
Budget deficit (excluding grants, % of GDP) -10.7 7.7
Budget deficit (including grants, % of GDP) -6.9 3.1
Foreign debt (US$mn) - 7,046*** 6,452
Foreign Aid (JD million) - 183.1 134.7
Internal Debt (JD million) - 905.0 1,600
* Inflation figures based on government cost of living index, which includes subsidized items.
** 1999 figures are initial projections
*** 95.3% of GDP
The Jordanian government controls roughly 60 percent of the country’s economy and is also the largest employer. Government entities, such as the Social Security Agency, have large investments in share holding companies. Government regulations and procedures are bureaucratic, although the liberalization of investment laws is expected to ease the red tape.
The government has announced a privatization program but has not made heavy progress. In late 1998, roughly one-third of the Jordan Cement Factories Company was sold to the French Lafarge. The Government also plans to sell its ownership in the Aqaba Railway Corporation, Royal Jordanian Airlines, Public Transport Company, and Jordan Telecommunications Company (JTC). In early 2000, it was announced that the government sold 40% of its shares in JTC to France Telecom.
In April 1999, Jordan agreed on a three-year reform package with the IMF. The program's policies envisage economic growth of 3-4 percent by 2001. The scheme stresses private sector participation, in addition to implementing sound fiscal and monetary policies. For the first time, the plan includes improvements in transparency and accountability of government accounts.
In 1996, the government passed a securities law designed at enhancing the efficiency, transparency and overall performance of the stock market and encouraging foreign investment. This was part of the first phase in overhauling the Amman Financial Market (AFM) since it 1978 establishment. The move was part of Jordan's overall economic reform program. The law, drafted with World Bank assistance, will ease the state's grip on the bourse and encourage faster and clearer presentation of company results.
In another step to draw foreign indirect investment, the country put into effect May 17, 1997, a new Securities Law that established an independent Securities Exchange Commission (SEC), a private securities bourse, a private depository and transfer center, and a society for financial professionals licensed to practice in Jordan.
The Jordanian Bourse is linked to the Paris Bourse for automated clearing and settling purposes. It is also connected to other major international exchanges on an on-line basis.
The Securities Law permits recapitalization and abolishes the capital gains tax, which had been set at 15 percent. Approximately 40 Jordanian companies are able to offer tax-free stock dividends to their shareholders.
Under a 1995 law, foreigners may buy up to 49 percent of any of the ninety-eight firms listed on the exchange.
Presently, the AFM combines the running of the stock market with a regulatory role. The new law divides these tasks among three separate bodies: the Amman Securities Exchange Commission, responsible for day to day operations of the market; the Central Depository Body, responsible for settlement and clearing of stock and the centralization of the current manual share settlement, which involves cumbersome paperwork; and a government watchdog, the Securities Exchange Commission to oversee the two previous bodies. The exchange and Central Depository Body both have boards of directors composed of licensed financial brokerage firms.
The new law also regulates Jordan's first mutual funds, with manager accreditation falling under SEC jurisdiction.
At the sector level, construction, agricultural and manufacturing sectors have been the main drivers of economic growth in recent years.
Industry
Jordan’s industrial sector includes several major producers in the minerals sector and small to medium scale industries in other sectors. In some major industrial enterprises, the government continues to hold substantial shares
Leading Jordanian industries are phosphate fertilizers and minerals, petroleum products, food processing, metal products, cement and building materials, cigarettes, animal feed and clothing. Additional industries include furniture, pharmaceuticals, cosmetics, paints, plastics, paper and cardboard.
The country’s industrial sectors have continued to grow with the strong minerals industry undertaking ambitious expansion plans. Small and medium scale industries are also expanding growing with record numbers of new industrial companies registering and commencing work. Although Jordan's industrial exports were devastated by the loss of the Iraqi, Kuwaiti and Saudi markets occasioned by the Gulf War crisis, many industrialists have bounced back. They have seized on growing domestic market demand growth in the domestic market led by the returnees and are using more imagination and energy than they had previously in order to look for new markets. In addition, the government itself encourages private industry to diversify and to develop new overseas markets.
Industrial zones have been established at Sahab (south of Amman), Irbid and Salt; while Zarqa and Aqaba have been further developed as industrial centers.
Tourism
Tourism is a main source of income and foreign currency, contributing more than 10 percent to the country’s GDP. Since 1992, this industry has grown at an annual rate of between 6-8 percent. The government is working feverishly with the private sector in transforming the country into a popular tourist destination..
Since the 1994 peace agreement with Israel, 46 new hotels have been built in Jordan, and expansion is continuing. Aggregate tourist number are, however, somewhat disappointing. Official figures show 1.1 million tourists in 1997 versus 858,000 in 1994, although only about one-third of these are estimated to be real tourists.
Exports
Jordan's Central Bank put exports for 1998 at about US$ 1.80 billion compared to US$ 1.84 billion for 1997. Imports in 1998 stood at US$ 3.84 billion, versus US$ 4.11 billion in 1997
© 2000 Mena Report (www.menareport.com)
