While growth in Jordan picked up pace in 2013, the external environment continues to weigh on the economy and could slow recovery in 2014.
Foremost among the government’s foreign challenges is the war in Syria, which has severed land links with trade partners, closed an important export market and, most significantly, seen Jordan become one of the main refuges for Syrians seeking safety.
According to the UN High Commissioner for Refugees, as of mid-December Jordan was hosting more than 565,000 Syrian refugees, though this number is likely to be much higher as many of those who fled the conflict in Syria are not registered with aid agencies.
The Jordanian government has estimated that by early December, around $2.1bn had been drained out of the economy in 2013 as a result of housing and supporting Syrians who have fled their homeland. This figure will rise in 2014, the UN has predicted, with the cost of providing humanitarian assistance predicted to reach $3.2bn.
This cost does not take into account other pressures on the economy, such as an increase in the prices of housing and food as the result of the influx of Syrians – and before them Iraqi refugees.
Energy issues weigh on economy
The ripples of another crisis, the continuing unrest in Egypt, have also touched Jordan’s economy. Repeated cuts to gas supplies from Egypt, caused by sabotage to the pipelines running through the Sinai, have caused electricity shortages, affecting industrial output and broader economic activity. Faced with uncertainty over its gas supplies from Egypt, Jordan has been pushed to look to the open spot market for alternative sources, adding to an already-high energy bill.
With Jordan having to import around 95% of its energy needs, any disruptions to supplies and the continued high cost of oil mean that up to 20% of GDP is spent on fuel imports. Though longer-term plans to reduce dependence on overseas energy supplies – including developing oil shale deposits for conversion to fuel and constructing a nuclear power station – will ease the situation, it will be some years before these solutions take effect.
Despite the pressures being brought to bear, Jordan’s economy has continued to grow. The IMF has said that economic expansion in 2013 will be shown to be 3.3, rising to 3.5% this year, both improvements on the 2.7% growth in GDP posted in 2012. However, some analysts are less optimistic, suggesting the combination of the high cost of humanitarian efforts and the ongoing lack of energy security could keep the final tally of 2013 growth below 3%, rising slightly this year.
The government budgeted for growth in 2014, planning to boost its expenditure from $10bn in 2013 to $11.4bn. Revenue has been forecast at $9.7bn, with the deficit to be funded through borrowing and foreign aid. According to the draft budget, there will be an increase in capital spending, especially targeting energy, water and food security, while subsidies are set to be lowered.
Inflation remained high in 2013, running at 6.1% in the fourth quarter, higher than the government’s estimate of 5.9% for the full year and well up on the 4.2% of the final three months of 2012. Though some agencies, including the IMF, have predicted inflation will ease in 2014, the consumer price index may be pushed up as the government scales back subsidies and housing costs rise. With the price of electricity expected to continue to increase, after a 15% hike in 2013, along with a forecast rise in the cost of fuel and food imports, it might be difficult for the government to hit its inflation target of 4.2% in 2014.
The fact that Jordan has managed to expand the economy, albeit at a slower rate than the government had hoped for, is an achievement, serving to highlight a degree of resilience in a country that has been hit by many external difficulties over the past decade. While 2014 will likely bring challenges, with unrest in Egypt and no end in sight to the Syrian crisis, Jordan’s hard-won resilience should see the economy maintain its steady climb.