Regional conflict spurred by the Gaza war is having a bigger impact than expected on Jordan’s economy, with growth projected to slow down in the Middle Eastern country this year and in 2025, the International Monetary Fund said. However, the fund also stressed that the country has shown resilience and managed to maintain economic stability.
Although Jordan is not directly involved, the conflict between Israel and Hamas is affecting its tourism sector, its main foreign currency earner, as well other sectors of the economy.
“As the conflict continues and has widened, it is having a larger impact on Jordan’s economy than anticipated at the outset of the (IMF) programme, dampening economic growth and affecting government finances,” the fund said.
The country's economic growth is expected to moderate to 2.3 per cent in 2024 and 2.5 per cent next year from 2.7 per cent in 2023. "While only slightly down from earlier projections, the composition of growth is changing, with stronger net exports offsetting weaker domestic demand," the fund said.
However, the economy is forecast to pick up in the following years, “assuming a resolution of the conflict and on the back of continued sound macroeconomic policies and further progress in reform implementation”.
The IMF also confirmed that, following the second review of its economic reform programme, Jordan would have access to about $131 million as part of the $1.2 billion four year Extended Fund Facility (EFF) approved in January to support the country’s economic and financial reforms.
The lender has so far disbursed $453 million to help the middle east country meet its funding needs.
The Gaza war, which began in October last year, spread to neighbouring countries including Lebanon, hitting regional economic growth. Some of the countries in the region, including Egypt, also suffered because of loss of revenue from the Suez Canal after Houthi rebels attacked ships passing through Red Sea, a vital trade link.
Gaza war one year on – in pictures
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Smoke rises after Israeli air strikes targeted Palestine Tower in Gaza city on October 7, 2023. EPA -
Palestinians take control of an Israeli Merkava battle tank after crossing the border fence with Israel from Khan Yunis in the southern Gaza Strip on October 7, 2023. AFP -
This video grab from footage released by the Israeli Hostage and Missing Families Forum campaign group on May 22 shows what the group described as Israeli female soldiers being captured by Palestinian Hamas militants during the October 7, 2023, attack on Israel. AFP -
Smoke rises following an Israeli air strike in Gaza city on October 9, 2023. EPA -
A rocket is launched from the coastal Gaza strip towards Israel by militants of the Ezz Al-Din Al Qassam militia, the military wing of Hamas movement, in Gaza city. EPA -
Israel's Iron Dome anti-missile system intercepts rockets launched from the Gaza Strip, as seen from the city of Ashkelon, Israel, on October 9, 2023. Reuters -
Lightning strikes as smoke billows following an Israeli air strike in Gaza city on October 9, 2023. AFP -
An Israeli artillery unit fires at an area along the border with Gaza, southern Israel, on October 11, 2023. EPA -
Ultra-Orthodox Jewish people carry their belongings before boarding a ship for US nationals and their immediate family members, as they leave Israel headed for Cyprus. Reuters -
Palestinian youths take cover behind a rubbish container as they clash with Israeli forces at the northern entrance of the West Bank city of Ramallah near the Israeli settlement of Beit El on October 20, 2023. AFP -
A man mourns as he attends a funeral of Palestinians killed in Israeli strikes in Khan Younis in the southern Gaza Strip on October 24, 2023. Reuters -
A man holds a child, survivors of Israeli bombardment, as they are treated at a trauma ward at Nasser hospital in Khan Yunis in the southern Gaza Strip on October 24, 2023. AFP -
People search for survivors and the bodies of victims through the rubble of buildings destroyed during Israeli bombardment in Khan Yunis in the southern Gaza Strip on October 26, 2023. AFP -
Anti-war protesters raise their 'bloody' hands behind US Secretary of State Antony Blinken during a Senate Appropriations Committee hearing on President Biden's $106 billion national security supplemental funding request to support Israel and Ukraine, as well as bolster border security, on Capitol Hill in Washington on October 31, 2023. Reuters -
Palestinians run for cover after a strike near the Al Shifa hospital in Gaza city on November 1, 2023. AFP -
Palestinian children run as they flee from Israeli bombardment in Rafah in the southern Gaza Strip on November 6, 2023. AFP -
An injured Palestinian woman covered in dust and blood hugs an injured girl child at the hospital following the Israeli bombardment of Khan Yunis in the southern Gaza Strip on November 15, 2023. AFP -
Hostages released by Hamas Gal, left, and Tal Almog-Goldstein, second left, stand in a bus transporting them to an army base in Ofakim in southern Israel after they were released by the Palestinian militant group from the Gaza Strip on November 26, 2023. AFP -
Palestinian boys stand in their makeshift tent at a camp set up on a schoolyard in Rafah in the southern Gaza Strip where most civilians have taken refuge, on December 13, 2023. AFP -
Palestinians fleeing the north through the Salaheddin road in the Zeitoun district on the southern outskirts of Gaza city, walk past Israeli army tanks on November 24, 2023. AFP -
In this picture taken during a media tour organised by the Israeli military on December 15, 2023, soldiers visit a tunnel that Hamas reportedly used to attack Israel through the Erez border crossing on October 7. AFP -
Jewish protesters block the passage of aid trucks being sent to Gaza in Ashdod, Israel on February 1, 2024. Reuters -
A man pulls water containers as he walks past destroyed buildings in Khan Younis on May 5, 2024. AFP -
Relatives of Hanan Yablonka, one of the Israeli hostages held in the Gaza Strip since the October 7, 2023 attack by Palestinian Hamas militants, mourn during his funeral in Tel Aviv on May 26. AFP -
Humanitarian aid packages land after being dropped from a plane in Al Mawasi district of Khan Younis, on May 30, 2024. Reuters -
Palestinians attend Eid al-Adha prayer in Khan Younis town, southern Gaza strip, on June 16. EPA -
Displaced Palestinians play football in Jabalia on July 23, 2024. AFP -
Palestinians injured in an Israeli strike on a school ride on the back of a cart in Deir Al Balah on July 27, 2024. AFP -
Palestinians gather to receive food cooked by a charity kitchen, amid the Israel-Hamas conflict, in the northern Gaza Strip, September 11. Reuters -
Palestinians survey the damage at the site of Israeli strikes on a displacement camp in Khan Younis on September 10, 2024. AFP -
A medical staff member carries supplies through a destroyed section of Al Shifa hospital in Gaza city on September 17. AFP -
People walk past makeshift graves in Gaza city on September 17. AFP
Despite the headwinds caused by the regional conflict and the heightened uncertainty, the IMF said Jordan continues to show resilience and maintain macroeconomic stability.
"With revenue impacted this year by the effects of the conflict on Jordan’s economy, this year’s budget deficit is contained by careful spending prioritisation," said Kenji Okamura, acting chair and deputy managing director of the IMF.
The kingdom, which relies on foreign aid and grants to finance its fiscal and current account needs, is trying to overhaul its economy and cut state subsidies as public debt and unemployment rises.
With moderate growth rates, progress in reducing unemployment has been limited and the unemployment rate remains high at 21 per cent, the fund said.
Inflation is projected to remain low, at about 2 per cent, while the current account deficit is projected to widen slightly this year and next, to just under 5 per cent of gross domestic product, from under 4 per cent of GDP in 2023, with lower tourism receipts and lower prices for key exports, according to the fund.
Bringing the Jordanian economy on to a "higher growth trajectory" is essential to create more jobs and raise prosperity, the IMF said.
“Sustained progress in implementing structural reforms to improve the business environment, promote competition, and attract private investment is crucial to create a dynamic private sector, foster job-rich growth," Mr Okamura said.
Reforms should be accelerated to "enhance competition, reduce red tape, and increase labour market flexibility".
Efforts should also continue in order to boost revenue mobilisation and spending efficiency to keep public debt on a steady downwards path, while protecting priority social and capital spending.
"Strong and timely donor support remains essential to help Jordan navigate the challenging external environment, host the large number of refugees, and meet Jordan’s development objectives, including to address the impact of climate change," Mr Okamura added.
