Jordan’s real GDP growth is forecast to accelerate to 2.5 per cent in 2019, up from 2.2 per cent this year, as improving regional stability drives a rise in tourism and exports and fiscal reforms take effect, according to a new report.
Meanwhile, the reopening of borders with Iraq and Syria in the second half of this year will likely boost goods trade, although import growth – slow at minus 1.3 per cent from January to August – will remain sluggish amid muted domestic demand.
“Increased stability, notably in Iraq and Syria, will result in an uptick in inbound tourism to Jordan over the quarters ahead,” the report by Fitch Solutions, a unit of Fitch Ratings, said on Friday. This trend is already beginning to play out, with tourist arrivals rising 5.7 per cent year-on-year from January to October.
At the same time, the $2.5 billion (Dh9.18bn) in aid to Jordan over the next five years, pledged by GCC allies Saudi Arabia, the UAE and Kuwait in June, will boost investor confidence. Much of this aid is being funnelled towards capital projects.
However, its positive impact will be curtailed by ongoing monetary and fiscal tightening in the country, which is working to reduce high external debt of around 72 per cent of GDP, according to a Moody’s report earlier this month.
Jordan recorded only modest growth in 2017, and earlier this year suffered its biggest protests in years, prompted by price hikes, subsidy cuts and other fiscal measures taken by the government to reduce debt.
Jordanian Parliament last week approved an income tax law aimed at raising state revenues, the latest measure taken under a three-year International Monetary Fund-backed plan to cut public debt burden. Last year, Jordan introduced a general sales tax and removed subsidies on bread. Moody’s maintained a stable outlook for the country in November on expectations that its public debt would decline.
However, Fitch Solutions said fiscal tightening and sluggish job creation would “weigh on consumption”. It revised down its economic growth forecast for Jordan from previous estimates of 2.5 per cent in 2018 and 2.9 per cent in 2019, on the back of a “relatively weak” second-quarter performance, when GDP growth rose to 2.1 per cent from 1.9 per cent in the previous quarter of 2018.
“Fiscal consolidation and monetary tightening as the Central Bank of Jordan raises interest rates in line with the US Fed next year will prevent a more robust investment recovery,” the report said.
However, Fitch sees scope for an increase in fixed investment over next year. “The improving regional stability, resultant opportunities for export growth and government changes aimed at easing popular discontent will likely help strengthen investor conﬁdence,” it said.