Hit hard by Gaza war, Jordan’s economy faces uncertain future

The $50bn kingdom

Jordan has what is classed internationally as an emerging economy. This year, its gross domestic product (GDP) is estimated to reach $50bn. With an annual income per head of approximately $4,850, Jordan ranks 114th worldwide.

Since King Abdullah came to power in 1999, Jordan has implemented reforms showing a commitment to liberalising the economy, encouraging private investment, and fostering openness toward international institutions.

The Jordanian economy grew at a rate of around 8% per year between 1999 to 2008. However, after the uprisings of the Arab Spring in 2011, the annual economic growth slowed to about 2%. This was accompanied by a significant increase in population and a rise in public debt. As a result, unemployment and poverty rates have increased.

The population of Jordan is 11.3 million, reflecting an increase of about 0.45% from 2022. The growth rate was around 2% annually between 2020 and 2023. This growth rate is lower than the levels seen in the 1980s and 1990s – which ranged between 4% and 5% annually – but the national fertility rate remains relatively high at 2.7 births per woman of childbearing age.

Climbing unemployment

Unemployment has risen in the first half of the current year, reaching 22.3% of the working-age population.  

That is higher than the 16% typical for the years between 2015 and 2023 and prompted official concern over poverty and unemployment.

The World Bank has defined Jordan's poverty line as an income of $7.9 per person daily. There are around 4 million in this income bracket, representing about 35% of the total population. Most Jordanians work in the service sector, contributing 75.5% of GDP. The industrial sector contributes 19.6%, with agriculture at 4.9%.

Jordan produces phosphate and potash and has developed processing industries for chemicals, textiles, fertilisers, and food products.

Agricultural products include cucumbers, tomatoes, watermelons, bananas, and citrus fruits. The sector was among the most important during the 1950s, accounting for 40% of the national GDP. 

By the mid-1980s, it was down to 6%, employing fewer Jordanians and more Egyptians. Land ownership patterns also changed as farmers divided and sold their lands to small farmer tenants.

War deters tourists

According to a report by the Central Bank of Jordan, tourism receipts in the first eight months of this year reached $5.2bn, up 41.3% from the same period in 2022. Jordan received 4.5 million tourists from January to August 2023, with Saudis and Palestinians topping the list of visitors, followed by Egyptians, Americans, and Israelis.

Jordan's tourist attractions include five UNESCO-designated World Heritage Sites: Petra, Wadi Rum, and the Dead Sea, which attract many tourists for their therapeutic and health benefits. Jerash is also a significant destination for artists and their audiences, hosting music and art festivals.

Visitor numbers are vulnerable to the political and security problems of the region. The Israeli-Palestinian conflict poses a concern in this respect. Given the conditions in the occupied West Bank and the tragedy in the Gaza Strip, a decline in the sector is all but certain for the foreseeable future, with all the economic consequences that will bring for workers and businesses in the industry.

Debt burden

Jordan's external debt was estimated at around $40.5bn in June this year, a significant increase from $11.5bn in December 2006.

The rise comes as the country has faced difficult economic conditions over the last two decades that led to lifted borrowing on global financial markets and relevant international institutions.

External debt rose to 82.1% of GDP in 2022. Japan remained the most significant creditor, accounting for 27%, followed by the World Bank with 12%.

Jordan has foreign exchange reserves of $13.2bn. Remittances from overseas workers remain an important source of income, amounting to $4.6bn in 2022.

Foreign trade is crucial for Jordan's economy, with a current account of around 9% of GDP. The value of goods and services exports reached $13.8bn in 2021, while imports amounted to $25.7bn, resulting in a trade deficit. Foreign trade represents 81.4% of total GDP.

Jordan exports clothes, chemicals, potash, phosphates, and food. Imports include machinery, equipment, crude oil and some food products. Jordan's most significant trading partners are Saudi Arabia, the United States, China, and the countries of the European Union.

Economic limitations and social problems

Jordan's economic potential appears to be limited. And it faces complex social conditions, not least in a cycle of unemployment and poverty.

Against this backdrop, migration into the country from Gaza or the West Bank may create an increasing burden in return for only a modest potential economic upside. Existing frustrations over poverty and joblessness have led to political tensions and security concerns.

These are the conditions that extremists can exploit. Political Islamic organisations have been active in the country over the past two decades, although well-contained by the authorities.

Nonetheless, potential security concerns stoked by rising poverty and unemployment highlight the importance of establishing more robust economic growth and direct investment in the country.

By the end of 2021, accumulated foreign direct investments amounted to $37.3bn, with an inflow of $1.58bn in 2021, an increase of 64% compared to 2020 after overcoming the impact of the Covid-19 pandemic.

Numerous high-profile proposals for infrastructure investment projects – including one to connect the Red Sea to the Dead Sea, which faltered due to a lack of backing from Israel – are less likely to attract international backers during geopolitical turmoil. The same limitations apply to opportunities across the broader economy.

Foreign investment and overseas aid

Jordan has long relied on aid and concessional loans from the Gulf countries and friendly nations such as the US, the EU and the United Kingdom.

The Arab Economic Conference – organised by the Jordanian-Iraqi Brotherhood Society – was held in Amman in the first week of last October. At the conference, the Jordanian Minister of Investment, Kholoud Al-Saqqaf, explained that Jordan has adopted a reform programme to enhance development and improve living standards.

Jordan's Economic Modernisation Vision 2030 policies aim to lift the annual economic growth rate to 5.5%, creating more than 1 million job opportunities and investments worth $41bn.

Iraq has played a role in mobilising significant investments in Jordan, which the minister said reached $12bn in tourism, real estate development, and banking.

Friendly ties between Iraq and Jordan are well-established, with an Iraqi community in Jordan since the 1980s.

It adds to the potential for joint ventures between the two countries, including investment opportunities over roads, oil, renewable energy, and infrastructure.

Development support

The Arab Fund for Economic and Social Development has granted Jordan's government 53 loans worth $2.2bn over the past years. In addition, it loaned $16.5mn to the country's private sector. It also provided grants of $53.4mn.

This support shows the willingness of the wider Arab world to invest, particularly the fund's major contributors, Saudi Arabia, Kuwait, and the United Arab Emirates. Jordan relies on this kind of funding, which also comes from other sources.

The Kuwait Fund for Arab Economic Development has been a significant and long-term partner. It has financed vital agriculture, irrigation, transportation, energy, water, and sanitation projects. Jordan continues to receive loans from the Kuwaiti Fund, including a loan last year worth $38.3mn to finance public education infrastructure.

The IMF view

The International Monetary Fund (IMF) estimates that Jordan's economic growth will reach 2.6% this year.

The country has been confronting inflation with rising interest rates, with the IMF's latest reporting saying the adverse effects of rising prices have been mitigated.

The IMF expects Jordan's GDP to reach $48.7bn by the end of 2023 and $49.95bn in 2024, rising to $51.55bn in 2025.

New credit facilities for Jordan – of approximately $1.2bn over four years  – have received preliminary approval from the IMF. These facilities are linked to a commitment from the government to implement financial and economic reforms.

Key among these commitments is controlling spending, balancing government revenues and expenditures, and managing imports to avoid an increase in the current account deficit or balance of payments.

The IMF agreement shows international confidence in Jordan's economic management. But since it came, the war in Gaza broke out, and it remains unclear how deeply the shockwaves will affect the country. Its reaction in trying to mitigate the impact will also be essential.

The World Bank recently emphasised the importance of implementing structural reforms in the Jordanian economy to meet development requirements and respond to the living needs of the population. It also pointed to the importance of considering the broader situation around the country.

The impact of war

The sheer extent of the impact of the Gaza war on Jordan's economy will now be a significant factor. Regional economic cooperation is in doubt or de-prioritised. Infrastructure projects involving Jordan and Israel will be hampered.

The expected political reaction from the Jordanian government and popular pressures may disrupt economic relations with Israel.

Jordan's ability to navigate its relations with the West – including the US and the EU – in the context of war and its aftermath will be vital. Even aid and concessional loans already agreed could be affected.

Wisdom must prevail in managing these relationships to sustain the momentum of reform and improve living standards in the country. The wider regional circumstances may mean Jordan has to seek support from Gulf countries to bolster its public finances and provide the necessary funds to meet external commitments.