Tourism offers short-term relief for Jordan

27 March 2013

Jordan’s economy was boosted by a revival in its tourism sector in 2012. But to continue economic growth, Amman will need to ensure vital structural and economic reforms are implemented

The most recent figures released by the central bank show that Jordan recorded a 19.2 per cent increase in tourist revenues for the first eight months in 2012 to JD1.7bn ($2.4bn) from JD1.4bn in the same period in 2011. It contributed to Jordan achieving estimated gross domestic product (GDP) growth of 2.8 per cent, according to provisional figures from the Washington-headquartered IMF, up from 2.6 per cent in 2011.

Despite the encouraging signs for Jordan’s economy in 2012, inflation rose above 7 per cent at the end of the year and the overall fiscal account deficit is expected to have risen to 6.5 per cent of GDP.

Economic reforms

Although not affected to the same extent as others in the region by the Arab unrest, Jordan has not been immune to political crisis.

Since Amman witnessed the first protests in January 2011, Jordanians have continued to take to the streets for improved political and economic conditions.

As King Abdullah II seeks to avoid further protests and deepening political tensions, it is imperative that vital structural and economic reforms are implemented to reduce unemployment and increase growth.

Jordan has one of the most open economies in the Middle East, which facilitated strong growth during the regional boom from 2000 to 2008. During this period, its strong trade links with countries both within the Middle East and around the rest of the world enabled sustained growth, despite the country lacking oil reserves.

The growth was broadly based in the manufacturing, construction, real estate and services sectors. However, Jordan’s open economy also left it exposed to the full effects of the global financial crisis in late 2008, which contributed to GDP growth plummeting from 7.2 per cent in 2008 to 2.3 per cent in 2010.

The start of the Arab Uprisings in 2011 exacerbated the country’s economic decline. Two of the main contributors to Jordan’s economy in recent years have been the tourism sector and remittance payments, both of which have been hit heavily by recent global and regional events.

Remittances from expatriate Jordanians have accounted for almost 20 per cent of the country’s GDP in recent years. During the economic recession, many expatriates working in the Gulf lost their jobs. The political unrest has continued the decline in remittance payments, with the Central Bank of Jordan reporting that remittances declined by 5.2 per cent in 2011 to reach $3.5bn.

The revival of the tourism sector, which accounts for about 18 per cent of Jordan’s GDP, is vital if the country is to accelerate its economic growth in the coming years. National and regional stability is also essential if this sector is to realise its potential and grow its contribution to the economy.

While there is evidence of a pick-up in Jordan’s tourism sector, economists are keen to stress that the government needs to take steps to reduce its vulnerability to global and regional shocks. “Although regional politics and wider economy play a key part, it is important that Jordan is able to improve and maintain good trading and business relations with GCC countries,” says one regional economist. “The GCC remains a key market for trade and investment into Jordan.”

It is important that Jordan is able to effectively use the loans and aid it receives


Jordan’s ambitions to join the GCC highlight the importance of the relationship with the Gulf countries. In late 2011, the GCC agreed on a five-year $2.5bn aid package for the kingdom as part of plans to allow Jordan future membership of the bloc. Successful accession to the organisation is regarded as a key component of Jordan’s future growth plans.

Syrian conflict

The civil war in neighbouring Syria continues to have a negative impact on Jordan’s economy. In addition to a disruption in trade and reduction in tourists from Syria, an influx of refugees is placing a severe strain on Amman’s finances. Jordan is currently hosting about 450,000 refugees from Syria, which adds to the burden on the country’s exchequer.

On 22 March, US President Barack Obama pledged to donate $400m-worth of aid to help Jordan cope with the strain of sheltering refugees from Syria.

With the flow of refugees expected to continue to rise sharply in 2013, Amman will require further assistance from the international community.

In addition to improving GCC relations, a key target of Amman’s economic policy remains reducing the external deficit, a problem that has plagued Jordan’s economy in recent years.

The IMF has predicted that total government revenue, excluding grants, was 21 per cent of GDP in 2012, with expenditure expected to have reached 31.7 per cent.

Debt worries

A rise in oil prices since early 2011 has exacerbated the pressure on Jordan’s economy and the country’s fiscal ratios in the past two years. The IMF predicts that Jordan’s public debt in 2012 will have increased to 79.2 per cent of GDP, up from 70.7 per cent in 2011.

“Jordan has for some time been in need of vital economic reforms,” says a regional economist. “The country’s current account position has been under further pressure by increased social spending as the government seeks to appease protesters.”

The IMF has highlighted reducing expenditure in the public sector and increasing tax revenues and tax administration as essential if Jordan is to be able to reduce the fiscal deficit. Recent increases in social spending will put further pressure on the government to boost the role of the private sector to help deliver important infrastructure projects and services.

It is not just the US and the GCC that has provided financial aid to Jordan to help with its fiscal consolidation programme. In August last year, the IMF approved a 36-month stand-by arrangement worth $2bn to help Amman move forward with its economic programme.

Moreover, Saudi Arabia provided budgetary grants of approximately $1.4bn in 2011 to help fund the cost of fuel subsidies.

“It is important that Jordan is able to effectively use the loans and aid it receives. It must ensure that is used where it is needed; [Jordan] can’t afford to waste it,” says one economist.

Private support

Increasing the role of the private sector is crucial if Jordan is to meet its development needs. The government is looking to use public-private partnerships to undertake an ambitious infrastructure development programme, covering the power, water and transport sectors.

Jordan’s privatisation plans received a major boost in March when a consortium led by Japan’s Mitsubishi Corporation and Korea Electric Power Company (Kepco) closed the $600m financing for the development of a new independent power project (IPP) at Almanakher in Jordan.

Privatisation is a key part of Jordan’s strategy for meeting rising power demand and further IPPs are planned. Projects in other sectors have struggled to secure financing, however.

King Abdullah II will face a difficult balancing act in 2013, having to boost social spending while attempting to reduce the country’s debt and fiscal spending.

To ensure economic progress is made and the concerns of Jordanians are appeased, it is imperative that aid is used wisely and progress is made with much awaited economic reforms, such as increasing the role of the private sector.

Key fact

The tourism sector accounts for about 18 per cent of Jordan’s gross domestic product

Source: MEED

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications