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Jordan Economic Monitor Summary - Spring 2016

Core Content

The Jordan Economic Monitor provides an analysis of the country's economic developments and policy changes from the previous six months, placing them in a global and long-term context. It outlines the implications of these developments for the economic outlook and highlights the role of various sectors and policy instruments in shaping the current and future economic trajectory.

Main Points

Economic Performance

• Jordan's economy experienced its first slowdown in GDP growth since 2010, dropping from 3.1% in 2014 to 2.4% in 2015.
• Growth remained broad-based, with the mining and quarrying and electricity and water sectors recording the highest growth rates in 2015.
• The tourism and construction sectors were negatively impacted due to security concerns and lower demand.
• In 2016, growth is projected to increase slightly to 3.0%, with the mining sector expected to play a key role, alongside energy investments and a base effect from tourism and construction.

Unemployment

• The unemployment rate rose to 13.0% in 2015, a 1.1 percentage point increase from 2014.
• Youth unemployment remained high at 30.8%, and female unemployment was 22.5%, more than double that of men.
• Ma'an governorate had the highest unemployment rate at 16.8%, while Madaba and Tafiela followed closely.

Fiscal Policy

• The fiscal deficit narrowed to 3.6% of GDP in 2015 from 9.3% in 2014.
• This was due to lower transfers to NEPCO and WAJ, as well as reduced domestic revenues and grants.
• NEPCO and WAJ borrowed from commercial banks, providing a 6.9% of GDP relief to the fiscal balance.
• The gross debt-to-GDP ratio reached 93.4% by end-2015.
• Jordan is pursuing an Extended Fund Facility (EFF) with the IMF to support further fiscal consolidation and growth-enhancing reforms.

External Sector

• The merchandise trade balance narrowed by 14.7% due to a 40.6% decrease in energy imports, which outweighed a 7.1% contraction in domestic exports.
• Exports were partially supported by a 10.9% increase in phosphate exports, though trade route closures with Syria and Iraq had a significant impact.
• The current account deficit widened to 8.9% of GDP, driven by lower public transfers and service exports.

Monetary Policy

• The Central Bank of Jordan maintained a loose monetary stance in 2015, reducing the policy lending rate by 125 bps.
• Gross foreign exchange reserves increased by 0.5% to $14.2 billion by end-2015.
• Deflationary pressures persisted throughout 2015, with core inflation reaching its lowest level since May 2013.

Key Information

• Security issues and the Syrian refugee crisis significantly impacted Jordan's economy, particularly trade, tourism, and construction.
• Population growth surged, with 9.5 million residents by 2015, including 1.3 million registered Syrian refugees.
• Government incentives were introduced in several sectors including ICT, transportation, tourism, and real estate to stimulate economic activity.
• The ESSRP (Emergency Services and Social Resilience Program) is an innovative approach to managing urban displacement, focusing on improving municipal service delivery and generating employment opportunities.
• Public investment and consumption were drag factors on growth, decreasing by 4.3% and 3.8% respectively in real terms between 2014 and 2015.

Risks and Challenges

• The balance of risks is on the downside, with continued regional security instability, low oil prices, and weak global demand posing significant threats.
• Fiscal sustainability remains a concern, with the need to manage debt and maintain a stable macroeconomic framework.
• The business environment and reform implementation are critical for attracting investment and improving economic performance.
• Refugee integration and formalization of employment present both opportunities and challenges, particularly in the context of labor market dynamics and economic resilience.

Special Focus: Municipal Service Delivery and Urban Displacement

• The ESSRP aims to improve municipal service delivery and address the challenges posed by urban displacement.
• The program has achieved most of its targets, with household satisfaction increasing and service provision improving.
• Municipal expenditures have been significantly affected by the refugee influx, with per capita expenditure decreasing by 29%.
• Women's employment and local authority collaboration are emphasized as key to generating employment and improving social resilience.

Conclusion

The Jordan Economic Monitor highlights the country's ongoing challenges in maintaining economic growth and managing high unemployment in the context of a turbulent regional environment and the refugee crisis. It underscores the importance of continued fiscal consolidation, structural reforms, and investment in key sectors to ensure long-term economic stability and resilience. The role of international support and local governance is also critical in addressing the multifaceted challenges facing Jordan.