World Economy

Jordan Making Progress, But Challenges Persist

Jordan Making Progress, But Challenges Persist
Jordan Making Progress, But Challenges Persist

On June 21, the executive board of the International Monetary Fund concluded the Article IV consultation with Jordan. Jordan has made significant progress since the 2014 Article IV Consultation but pressing challenges remain.

The gradual pick-up in growth from 2010 to 2014 ended in 2015, with real GDP growth decelerating from 2.4% in 2015 to 2% in 2016. The slowdown in 2016 was broad-based, with activity slowing in agriculture, construction, and mining, Finchannel reported.

Inflation accelerated since mid-2016 to reach 4.6% (year-on-year) in February 2017, due to the recovery in global oil and food prices, as well increased fuel excises and the removal of general sales tax exemptions. Inflation has since eased, to 3.7% (year-on-year) in May.

Labor market conditions have remained challenging, particularly for youth and women, with the unemployment rate increasing to 15.8% in the second half of 2016 and to 18.2% in the first quarter of 2017, reflecting some methodological changes.

The current account deficit (excluding grants) was 12.6% of GDP in 2016, slightly higher than in 2015, reflecting the challenging regional conditions, the Syrian refugee crisis, and the slowdown in the (Persian) Gulf Cooperation Council, which have affected exports, remittances, and other flows.

The Central Bank of Jordan has gradually increased its policy rates since late 2016 amid increasing dollarization, which has stabilized more recently, and higher US policy rates, helping to maintain reserves at close to eight months of imports, according to IMF.

Despite considerable progress and recent improvements, the outlook remains challenging. Indicators for the first few months of 2017 show an important recovery in exports, tourism receipts, and remittances relative to 2016.

Real GDP growth is projected to reach 2.3% in 2017, while inflation is expected to stabilize at around 2.5% by year-end. The current account deficit is expected to decline gradually, supported by structural reforms and fiscal consolidation.

Executive directors agreed with the thrust of the staff appraisal. They commended the authorities for preserving macroeconomic stability and external viability, reducing the fiscal deficit, maintaining prudent monetary policy, and ensuring a sound financial system.

Directors acknowledged the challenging environment facing the Jordanian economy, including below-potential economic growth, high unemployment, and difficult social conditions. They stressed the importance of implementing policies and reforms to bring public debt toward more sustainable levels, boost investment and productivity, and enhance inclusive growth.





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