Steady reform and targeted growth bolstered investor confidence in Jordan’s economy in 2015, as weaker oil prices helped to support a stronger balance of trade and maintain low levels of inflation.
While regional instability continues to weigh on the kingdom, impacting year-end growth forecasts, the outlook for 2016 remains cautiously optimistic thanks to recent successes in international debt markets and impending negotiations to secure more IMF financing in the coming year.
According to recent figures released by the Department of Statistics (DoS), while overall trade volumes fell during the first three quarters of 2015, Jordan’s balance of trade improved.
The national trade deficit was down 16.5% year-on-year (y-o-y) as of September. Exports fell to JD4.1bn ($5.8bn) over the period, marking a 7.2% y-o-y decline, while imports dropped by 13.1% to JD10.6bn ($14.9bn).
The Central Bank of Jordan (CBJ) also reported a decrease in inflation across the kingdom, with the consumer price index (CPI) falling by 0.7% in the first 10 months of the year. The largest price decreases were recorded in transport (14.4%) and fuel and lighting (12.9%) as a result of lower energy prices. However, inflation could pick up again in 2016, according to estimates from the IMF, which projects the CPI will rise by 3.1%.
Given the country’s reliance on imported feedstock for virtually all of its power generation and fuel needs, the decline in global energy prices has yielded some benefits, and in particular for Jordanian industry.
According to the CBJ, the industrial producers’ price index – a figure that measures changes in the selling price of domestic industrial output – declined by 9.6% y-o-y in the first three quarters of 2015, with a slump in refined oil products accounting for 10.7% of the decrease, as per DoS figures.
While earlier GDP growth forecasts from the IMF stood at 3.8% earlier this year, the fund now expects the economy to expand by 2.9% in 2015 and 3.7% in 2016, citing Jordan’s exposure to regional shocks and instability in neighboring countries as the primary causes of slower-than-expected growth.
At a press conference in late October, Prime Minister Abdullah Ensour underscored the challenges imposed by the latest round of conflict in the Middle East.
“We don’t want to blame all our economic problems on the wars around us, which are hundreds of kilometers away from the heart of the country,” Ensour said, “but we cannot ignore their consequences on the economy.”
In addition to placing greater pressure on public spending, instability in the region has also impacted the kingdom’s trade routes. According to Ensour, Jordan’s land cargo fleet – one of the largest in the region – is unable to access the country’s top trading partners: Syria, Iraq and Turkey.
Despite ongoing challenges for trade, the prime minister was optimistic, pointing to signals of confidence from various institutional investors. Indeed, scheduled negotiations with international financial institutions and the successful sale of US dollar-denominated sovereign debt on international markets are expected to benefit Jordan’s fiscal standing in 2015 and 2016.
Securing international financing
In November the kingdom sold a 10-year, $500m bond to international investors at a 6.375% yield. This came on the heels of another sovereign debt issue in June, which saw the sale of a $1.5bn Eurobond, backed by the US Treasury, to fund services for the more than 600,000 Syrian refugees in the country.
The kingdom is also gearing up for renewed negotiations with the IMF in February 2016 after a three-year stand-by arrangement (SBA) with the fund expired in August.
“Regarding policies in 2016 and beyond, we had constructive discussions on how to find the right balance between tackling Jordan’s economic challenge of raising growth and employment with the need to reduce its high public debt and current account deficit,” Kristina Kostial, the IMF mission chief to Jordan, said in a press release after her visit to the country in November.
The amount under discussion for the next round of financing, to be structured as an extended fund facility, has yet to be disclosed – though Kostial indicated it was likely to be less than the amount received under the SBA, which extended around $2bn in low-cost loans to the country in the wake of the global financial crisis.
The new IMF package, expected to focus on job creation and attracting investment, could help shore up the kingdom’s fiscal deficit, which is projected to reach 3% of GDP in 2016.
Oxford Business Group