Growth despite conflicts in the backyard

General view of the Jordanian capital city Amman.

Jordan is successful in resisting effects of external environment on its economy, says International Monetary Fund.

A team from the IMF led by Kristina Kostial visited Amman in the second week of December to take stock of recent economic developments and discuss with the authorities their planned economic policies for 2015 and beyond.

Kostial says in a statement: “Jordan continues to weather well a difficult external environment. The conflicts in Syria and Iraq continue to weigh on its economy, but activity is gradually picking up. Growth is expected to increase to 3.1 percent this year while unemployment has declined to 11.4 percent in the third quarter.

“Inflation has also declined – primarily reflecting a slowdown in food and fuel prices – and stood at 2.4 percent year-on-year in November. The current account deficit continues to narrow and is estimated at 7.9 percent of GDP for 2014 as a whole.

“The program is expected to remain broadly on track through 2014. The central government budget has been tightly managed, and international reserves remain at comfortable levels. While the electricity company NEPCO is affected by shortfalls in gas flows from Egypt, this is expected to be broadly offset by lower costs of oil imports,” says Kostial.

Overall, the economic outlook is positive. “Growth is expected to increase to 3.8 percent in 2015 while the current account would further narrow to 5.9 percent of GDP. The economy is being helped by lower oil prices, which will in particular lower in the next few years the import bill and NEPCO’s losses, offsetting potential shortfalls in gas supply from Egypt.

“Jordanian citizens will have more money to spend on non-fuel items, including on domestically-produced goods. The benefits, however, could diminish over the longer term if cheaper oil reduces remittances, export and tourism receipts and Foreign Direct Investments (FDI) from oil exporting countries.

“We held constructive discussions on macro-economic policies for 2015. The budget will provide further fiscal consolidation so as to put public debt on a firm downward path. It will be complemented by sustained implementation of the energy strategy and is expected to be supported by a new income tax law, which will contribute to a fairer tax system. Monetary policy will continue to maintain high foreign exchange reserve buffers.

“Structural policies are needed to more forcefully move forward with the agenda for more growth and jobs. Of particular importance are improvements in the quality of public institutions; the business environment; and labor markets, including by re-examining public sector hiring and compensation, helping new entrants to the labor market acquire skills needed in the private sector, and enhancing female labor market participation,” concludes IMF’s Kostial.