Jordan - Economy
Jordan is a small country with few resources, which relies heavily on foreign aid. Since inheriting the throne in 1999, King Abdullah made economic development a priority. Jordan joined the World Trade Organization and signed a free trade agreement with the United States. But these steps offered little protection from the global economic slowdown and resulting rise in oil prices. Regional instability reduced gas imports from Egypt.
Jordan experienced robust growth during 2000–09 (averaging about 6½ percent). Despite an increasingly difficult regional environment, including the conflicts in Syria and Iraq, the macroeconomic situation has remained largely stable. Economic activity is slowly gaining momentum, with growth registering 3.2 percent year-on-year in 2014-Q1. Jordan is among the most open economies in the Middle East; tourism receipts, remittances, FDI flows, and external grants play an important role. Jordan imports most of the hydrocarbon products and grains that it needs. Political reform has been gradually progressing, with parliament now playing a more visible role.
The United Nations estimated that by mid-2012 Jordan hosted more than 30,000 Iraqi refugees and 2,000 asylum-seekers from the Horn of Africa. An additional 30,000 Syrians had fled to Jordan, further straining its resources. Syria is one of Jordan’s biggest trading partners, but the unrest there cut trade in half; Syria is also an important conduit for Jordan’s economic relations with Turkey and Europe, which were also been impacted. By 2012 more than 14 percent of Jordanians were said to be living below the poverty line and officially more than 12 percent were unemployed, even though unofficial statistics put the latter number at 30 percent.
By mid-2014 nearly 600,000 Syrian refugees had fled to Jordan to escape fighting in their country. Only 20 percent of them lived in camps where United Nations and private aid agencies provide them with care and assistance. The other 80 percent were living in host communities. They rely on basic government subsidies and on basic social services. This put enormous pressure on the infrastructure of the country.
Jordan is among the most water-poor countries in the world. The country is currently exploring ways to expand its limited water supply and use its existing water resources more efficiently, including through regional cooperation. Jordan also depends on external sources for the majority of its energy requirements. During the 1990s, its crude petroleum needs were met through imports from neighboring Iraq, often at concessionary prices. Since early 2003, Jordan has imported oil primarily from Saudi Arabia at concessionary and market prices. In addition, a natural gas pipeline from Egypt to Jordan through the southern port city of Aqaba is now operational. The pipeline has reached northern Jordan and construction to connect it to Syria and beyond is underway. Jordan developed a new energy strategy in 2007 that aims to develop more indigenous and renewable energy sources, including oil shale, nuclear energy, wind, and solar power.
Under King Abdullah, Jordan has undertaken a program of economic reform. The government has eliminated most fuel and agricultural subsidies, passed legislation targeting corruption, and begun tax reform. It has also worked to liberalize trade, joining the World Trade Organization (WTO) in 2000; signing an Association Agreement with the European Union (EU) in 2001; and signing the first bilateral free trade agreement (FTA) between the U.S. and an Arab country. Under the terms of the U.S.-Jordan FTA, which entered into force in 2001, the United States and Jordan agreed to phased tariff reductions culminating in the complete elimination of duties on nearly all products by 2010. The agreement contains labor and environmental provisions, and also provides for more open markets in communications, construction, finance, health, transportation, and services, as well as the strict application of international standards for the protection of intellectual property.
In 1996, the U.S. Congress created Qualifying Industrial Zones (QIZ) to support the peace process. QIZ goods, which must contain a certain percentage of Israeli input and enter the United States tariff- and quota-free, have also driven economic growth, particularly in the export of light manufactured products such as garments. Jordan exported $6.9 million in goods to the U.S. in 1997, when two-way trade was $395 million; according to the U.S. International Trade Commission, it exported $796.2 million in the first 10 months of 2009, with U.S. exports to Jordan valued at $976.9 million and two-way trade reaching $1.77 billion. In 2009, Jordan's economy continued to grow slightly but was hurt by lower than expected revenues and slower growth due to the global financial crisis.
In 1996, Jordan and the United States signed a civil aviation agreement that provides for "open skies" between the two countries, and a U.S.-Jordan Bilateral Investment Treaty (BIT) for the protection and encouragement of bilateral investment entered into force in 2003. The United States and Jordan also signed in 2007 a Science and Technology Cooperation Agreement to facilitate and strengthen scientific cooperation between the two countries, as well as a memorandum of understanding on nuclear energy cooperation. Such agreements bolster efforts to help diversify Jordan's economy and promote growth, and at the same time lessen reliance on exports of phosphates, potash, and recently textiles; overseas remittances; and foreign aid. The government has emphasized the information technology (IT), pharmaceuticals, and tourism sectors as other promising growth sectors. The low tax and low regulation Aqaba Special Economic Zone (ASEZ) is considered a model of a government-provided framework for private sector-led economic growth.
Jordan is classified by the World Bank as a "lower middle income country." The per capita GDP is $4,700. According to Jordan's Department of Statistics, almost 13% of the economically active Jordanian population residing in Jordan was unemployed in 2008, although unofficial estimates cite a 30% unemployment rate. Education and literacy rates and measures of social well-being are relatively high compared to other countries with similar incomes. Jordan's population growth rate has declined in recent years and is currently 2.3% as reported by the Jordanian Government. One of the most important factors in the government's efforts to improve the well-being of its citizens is the macroeconomic stability that has been achieved since the 1990s.
Jordan's 2008 and 2009 budgets emphasized increases in the social safety net to help people most impacted by high inflation, but these increases were not included in the 2010 budget because of fiscal austerity plans and the low inflation rates during 2009. The average rate of inflation in 2009 was -0.1%. The currency has been stable with an exchange rate fixed to the U.S. dollar since 1995 at JD 0.708 to the dollar. In 2008, Jordan participated in a Paris Club debt buyback to retire more than $2 billion in debt using privatization proceeds which, at the time, reduced the percentage of external debt to GDP from 46% to 32%.
While pursuing economic reform and increased trade, Jordan's economy will continue to be vulnerable to external shocks and regional unrest. Without calm in the region, economic growth seems destined to stay below its potential. Jordan's conservative banking sector was largely protected from the worldwide financial crisis but many businesses, particularly in the tourism and real estate sector, experienced a slowdown in 2009.
Jordan’s economy was tested in 2011. Jordan’s natural gas supply from Egypt was cut by deliberate explosions 9 times, compelling electricity generation plants to use more expensive fuel alternatives which cost the country about $1.8 billion and pushed Jordan’s public debt above its legal limits. There was a $3 billion deficit in 2012 out of a $9.6 billion budget
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