Gaza war having bigger impact than expected on Jordan’s economy, IMF says

Washington-based lender approves $131 million in fresh funding as part of four-year $1.2 billion programme for the Arab country

A market in Amman. Jordan's economic growth is expected to moderate to 2.3 per cent in 2024 and 2.5 per cent next year. Getty Images

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.

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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.