Jordan

Consumption rebounds despite regional headwinds

Plagued by the deterioration of the situation in the Middle East and its deleterious effects on tourism in 2024 – tourism accounted for around 15% of GDP in 2023) – economic growth should rebound slightly in 2025, supported primarily by household consumption (almost 80% of GDP in 2023), which is being encouraged by monetary easing under way, despite a persistently high unemployment rate (21.4% in Q2 2024). Against a backdrop of moderate inflation and in order to preserve the dinar's peg to the dollar, the Central Bank of Jordan (CBJ) intends to continue its policy of cutting key interest rates that began in September 2024, in line with the US Federal Reserve (“Fed”). Renewed investment is expected, particularly in infrastructure (energy, transport, desalination), driven by the Gulf monarchies such as the United Arab Emirates, which is committed to the USD 2.3 billion railway project linking the port of Aqaba to the potash and phosphate mines of Al-Shidiyah and Ghor Al-Safi. Sunny all year round, Jordan is also stepping up initiatives to develop the renewable energy sector, which is a major focus for FDI. The partnership with Kuwait to build the Masader El Haq solar power plant, with a capacity of 100 megawatts and scheduled for completion by the end of 2025, is part of this strategy. It is also a question of energy independence for the country, which is largely dependent on hydrocarbon imports.

Nevertheless, the decline in tourism, which is expected to pick up again in the second half of 2025 at the earliest depending on regional security developments, will continue to weigh on the short-term outlook. The kingdom already recorded a 7% fall in arrivals and a 4% contraction in tourism revenues year-on-year over the first nine months of 2024. The trend has been exacerbated by the absence of European and American travellers, as opposed to Arab tourists (including Jordanians living abroad) who continue to visit the country in even greater numbers than before. In other areas, the manufacturing industry (fertilisers, textile and pharmaceutical products, electronic components) is holding up well (around 17% of GDP in 2023), despite the fall in world prices for phosphate and potash, supported by the robustness of its main export markets (United States, India, Saudi Arabia).

Reducing the public deficit depends on international support

Thwarted by the regional conflagration, fiscal consolidation should resume in 2025 under the aegis of the IMF, with which Jordan concluded a new four-year USD 1.2 billion programme (MEDC) in January 2024, with USD 451 million earmarked for disbursement by the end of 2024. Consolidation would be achieved mainly by tightening public spending on fixed assets which is less sensitive than freezing civil servants' salaries, cutting subsidies or raising taxes in order to curb discontent and the risk of social unrest. The fight against tax evasion would target large companies as a priority. At the same time, the government will continue with structural reforms in particular to absorb the heavy losses of public companies (nearly 2% of GDP by 2024), including the National Electric Power Company and the Water Authority of Jordan, whose recovery plans are under way.

The large central government deficit will be partly covered by the Social Security Corporation (SSC) surplus, despite the fall in interest rates, which will only marginally reduce the income generated by its investment arm. For the rest, Jordan, owing to its strategic regional location, will continue to enjoy the unconditional support of the Gulf states and the US. The latter provides USD 1.45 billion dollars of budgetary and military aid per year under the terms of the agreement for the 2023-2029 period, excluding additional one-off payments. As a result, the percentage of consolidated debt to GDP will increase only slightly in 2025. Mostly concessional, it will remain sustainable despite being high: servicing the debt will mobilise an average of 12% of government revenue over the period.

Growing demand for Jordanian exports and the albeit minimal decline in oil prices given its share of the import bill will outweigh the rise in imports of consumer goods following the rebound in domestic demand so that the imbalance in the trade balance, which is structurally in deficit, should ease slightly by 2025. The trend will only gain traction during the second half of the year, and subject to an improvement in the regional situation, on back of a gradual recovery in tourist arrivals. Remittances from the diaspora (around 9% of GDP in 2023) will remain more or less stable. The current account deficit should therefore narrow slightly in 2025, financed by FDI inflows and, failing that, by external debt contracted with the usual bilateral and multilateral partners. Foreign exchange reserves will remain comfortable, equivalent to more than 7 months of imports, which is sufficient to guarantee the peg of the dinar to the dollar.

Domestic stability threatened by regional crisis

Located at the heart of the Middle East, Jordan is a parliamentary monarchy in which King Abdullah II enjoys extensive prerogatives (decision-making power, appointment of the Prime Minister, the Chief of Staff of the armed forces, senators, etc.). With the majority of its population of Palestinian origin, heightened regional tensions and the Israel-Hamas war are having a major influence on Jordan's domestic policy to the extent that relations with its overpowering neighbour are extremely sensitive. For Amman, under pressure from the US, it is a question of maintaining an uncomfortable balance between cooperation with Israel, on which the kingdom depends for its water and gas supplies, and condemnation of the war in Gaza on top of anti-Israeli rhetoric. Jordan’s population, which is faced with high unemployment, water shortages and a slow and corrupt administration, considers the delicate diplomatic balancing act to be considered overly complacent. The Islamic Action Front, the political branch of the Muslim Brotherhood, which came out on top in the last legislative elections in September 2024 (winning 31 seats out of 138), is capitalising on this sentiment and the rejection of the King's regional diplomacy, while the electoral reforms under way are likely to favour the radical parties in a lower house that has hitherto been very fragmented.

Internationally, the US remains the primary guarantor of the kingdom's security, its main trading partner and provider of financial aid, while the Gulf states – notably Saudi Arabia, Kuwait and the United Arab Emirates – are stepping up their investments. A hub of relative stability in a crises-ridden environment, Jordan acts as a refuge in the region, welcoming Palestinians, a large number of Syrian and, to a lesser extent, Iraqi refugees. Despite the deterioration in relations with Israel, the Wadi Araba peace agreements do not appear to be jeopardised.

Last updated : December 2024