The emphasis is now on reducing the fiscal deficit and resetting national strategies

The kingdom’s economic journey from its emergence as a new state in 1946 to the regional business and financial hub that it is today is a remarkable one. Over this brief span Jordan has undergone a number of developmental phases, from an initial focus on massive public investment in basic utilities, health and education to the growth of an industrial and manufacturing base, the first attempts to attract sizeable foreign investment and the successive tranches of economic reform by which Jordan has kept pace with the evolution of the global economy. During this time the nation has overcome regional unrest, and has established itself as a safe destination for those displaced by conflicts in the Middle East. The latest phase of development sees the Jordanian government tackle long-term structural issues in the economy. It has already succeeded in taking important – if sometimes unpopular – steps to cut deficits, roll back subsidies and tackle inefficiencies; these moves are now beginning to be repaid with strengthened international support.

In early 2014 the king wrote a public letter to the prime minister in which he directed the government to draft a new 10-year blueprint for economic development. As of August 2014, interested parties, from ministries and agencies to private sector think tanks such as the Jordan Strategy Forum, began working with the government. With a the first national conference taking place in September 2014, the outcome of this collaborative effort will be of great importance to the future direction of the nation’s economic development.


Looking at Jordan’s key macroeconomic indicators, the economy has shown a gradual recovery since the global economic downturn resulted in a drop in growth to 2.3% in 2010 from the previous rate of 6% or more that had been sustained for some years. Since that time, the nation’s GDP has shown a modest 2.8% year-on-year (y-o-y) expansion, according to the IMF, with the fund anticipating growth of 3.5% for 2014, rising to 4.5% in the medium term. Moreover, after reaching a peak in 2012, Jordan’s current account deficit has started to narrow thanks to lower energy imports, higher current transfers (mostly in the form of grants from GCC countries) and private receipts.

The capital markets have also shown signs of a rebound following the economic downturn. According to Amman Stock Exchange (ASE) data, the ASE Free Float Index at the close of 2013 showed a 5.5% y-o-y increase, to reach 2065.8 points. The share turnover ratio, an important indicator of market activity, grew to 38% during 2013, compared to the 33.9% posted for 2012. This incipient recovery has resulted in renewed optimism in relation to the ASE’s ability to act as a catalyst for economic growth in the country.

Nevertheless, trading values and volumes remain muted in comparison to the pre-crisis era, and many stakeholders feel that Jordan’s capital markets will need to undergo a process of reform if they are to achieve their full potential (see Capital Markets chapter).


Despite promising signs that Jordan’s economy has turned a corner, substantial challenges remain. Many of Jordan’s economic issues are related to population pressures. The country has absorbed successive waves of refugees including Palestinians, Iraqis and Syrians, many of which brought immediate benefits in the form of capital and expertise. The more recent arrivals from Syria, however, have proved to be more of an economic challenge. While much international aid has been directed towards Syrians forced to flee into neighbouring states such as Jordan, the estimated $1.1bn granted to the Syria Regional Response Plan by July 2014 represented only around 30% of refugee requirements, according to the Office of the UN High Commissioner for Refugees.

This population influx took place against a backdrop of rising energy prices, which were the result of the interruption of natural gas supplies from Egypt. While the expected completion of oil terminals and a liquefied natural gas facility in the Red Sea port of Aqaba by mid-2015 is expected to lower the cost of energy imports, the nation’s energy bill continues to be a key concern. Also, since 2009 unemployment has remained at between 12% and 13%. While employment increased by just over 1% from 2011 to 2013, the size of the working age population rose by 6% over the same period, meaning the ratio of employment to the working age population has continued to decline – to 32%.

Public Finance

These challenges have weighed heavily on the nation’s balance sheet. Despite the slight narrowing of the fiscal deficit in 2013, it amounted to 9.1% of GDP for the year. Tax receipts account for the bulk of domestic revenue in Jordan, contributing 73% of the total for the first 11 months of 2013. Jordan’s position in the region and its strong relations with both Gulf nations and Western powers enable it to attract grants and funding to narrow the gap between its revenue income and public expenditure demands. In the first 11 months of 2013 its total revenue combined with grants amounted to $7.21bn, while expenditures reached $8.76bn. Much of this figure – some $7.76bn – is accounted for by current expenditures, such as the costly social benefits which form part of the government’s social protection measures. However, the government has had some success in reducing current expenditures in its tackling of fuel subsidies, which decreased by $746m, or 64%, over the period. This improvement comes on the back of a government decision to end fuel subsidies, a politically sensitive move but one that is considered essential to the country’s long-term economic sustainability. Jordan’s ambition to reduce its debt-to-GDP ratio – which stood at 83.9% in 2013 – has been made more challenging by external factors such as the interruption of Egyptian natural gas supplies due to that country’s political crisis and the ongoing civil war in Syria, which has flooded Jordan with refugees. These events have served to further underline Jordan’s reliance on foreign grants as it attempts to meet its expenditures bill. The reduction of this dependency is essential for Jordan’s economic health in the long run (see analysis).

On the monetary level, a renewed appetite for the Jordanian dinar (JD) has allowed the Central Bank of Jordan (CBJ) to adopt an accommodative stance in 2013 and into 2014 with a significant rise in the CBJ’s foreign currency reserves, an increased demand for JD-denominated assets and an encouraging trend of de-dollarisation, while a growth in JD deposits resulted in a wider yearly expansion of the monetary supply. Against this relatively buoyant backdrop the CBJ was able to lower its rediscount rate in two 25-basis-point steps in late 2013, from 5% to 4.5%, which it followed with another 25-basis-point reduction in January 2014 to reach a rediscount rate of 4.25%. Should the foreign reserve size be maintained and the reduction in dollarisation continue, the CBJ may find itself in a position to further reduce interest rates in a bid to stimulate growth. Weighing against this possibility, however, is the prospect of stubbornly high core inflation.


Since the creation of the state, the government has undertaken short-, medium- and long-term strategic plans to guide the country’s economic development. Planning at the national level began in earnest in 1952 with the creation of the Jordan Development Board (JDB), which drafted the first five- and seven-year plans – the latter interrupted by the Six-Day War in 1967 and the influx of many refugees from the West Bank and Jerusalem. Responsibility for drafting Jordan’s development strategy subsequently shifted to the National Planning Council, which issued a series of five-year plans throughout the 1970s, 1980s and 1990s. Since then, several investment agencies have been established, among the most important of which are the Jordan Investment Board (JIB), the Jordan Enterprise Development Corporation and the Development and Free Zones Commission. These and other bodies, however, are set to be merged with the promulgation of a new investment law, various drafts of which have been proposed and withdrawn over the last decade. Under the new legislation, expected to come into force before end-2014, the JIB, the Industrial Zones and Free Zones Corporations, as well as the promotional functions of the Jordan Enterprise Development Corporation will be merged into one body, the Investment Commission.

In terms of overall strategy, the nation’s development is governed by the National Agenda 2007-17. Conceived by King Abdullah ibn Al Hussein II in 2005, the agenda aims to provide a basis for progress along the axes of society, politics and economics, and in doing so addresses such areas as government and policies (including investment, fiscal and labour policy), basic rights and freedoms, and service, infrastructure and the development of individual economic sectors. While the National Agenda remains in place, the altered economic landscape in the wake of the global economic crisis has resulted in a need for some strategic adjustment.

Key Sectors

A fortunate characteristic of the economy, as far as government planners are concerned, is its relative diversity. Unlike some of its regional peers, Jordan’s lack of hydrocarbon resources has compelled it to take a broader approach to its economic development, the results of which are apparent in the nation’s GDP mix. In the first nine months of 2013, the finance, real estate and business services sector was the largest contributor to GDP (aside from government services), according to Bank Audi, accounting for 20.3% of total GDP. The improved performance of the banking sector was noteworthy over the year, with lenders posting asset growth on the back of rising deposits (see Banking chapter). The second-largest non-government component in the GDP mix was manufacturing activity, which contributed 19.2% to the total. The strong performance of manufacturers mitigated a slowdown in the industrial sector resulting from limited investor appetite to launch new projects. At 14.3%, transport and communications activity accounted for the third-largest GDP component over the period, and with a growth rate of 4% represented one of the more buoyant areas of the economy. Similarly, trade, restaurant and hotels – the fourth-biggest GDP component at 11.5% – showed a promising expansion of 3.6% over the period. Other significant contributors to the GDP mix include construction with 5%, agriculture with 3.1%, and mining and quarrying with 2.5%.


The kingdom has sought to capitalise on its varied economic output to increase its trading activity. The government’s trade policy over recent decades has been an expansive one, in which it has established export platforms aimed at incentivising foreign investment and established a range of free trade agreements (FTAs). As a member of the Greater Arab Free Trade Area, companies exporting from Jordan are granted advantageous access to markets in 17 states in the Middle East and North Africa. Jordan is also a signatory to the Agadir Agreement which, ing general and sectoral economic policies in member countries with regard to foreign trade, agriculture, industry, financial and taxation systems. In 2004 Jordan and Singapore signed an agreement that is designed to promote economic relations and bilateral trade in goods and services, as a result of which goods of Jordanian origin can enter the Singaporean market free from Customs duties and charges. A similar FTA has existed between Jordan and Canada since 2009, and in 2011 a revised FTA between Turkey and Jordan came into effect. Jordan also became a member of the WTO in 2000, ratified an FTA with the US in 2001 and an Association Agreement with the EU in 2002.

In terms of trade volumes, Jordan exported around JD2.4bn ($3.4bn) worth of goods (including re-exports) in the first five months of 2014, up from about JD2.3bn ($3.2bn) over the same period in 2013, according to the Department of Statistics. Clothing exports were the largest single shipped commodity, accounting for JD325.8m ($460.2m) of the total. Next in order of size was vegetables and fruits (JD215.7m, $304.7m), followed by crude potash (JD196.9m, $278.4m) and pharmaceutical products (JD177.8m, $251.2m).

Imports also grew over the same period from a 2013 figure of JD6.3bn ($8.9bn) to JD6.7bn ($9.5bn) in 2014. This resulted in a trade deficit of nearly JD4.3bn ($6.1bn) for the first five months of 2014, up from JD4bn ($5.7bn) for the same period in 2013.

Reducing this structural trade deficit is a key priority for Jordan’s economic planners. The largest single imported commodity in recent years has been crude oil, purchases of which are at an elevated level due to the present shortage of natural gas. Other sizable imports include machinery, electrical appliances and parts (JD410.9m, $580.4m), vehicles and motorcycles (JD354.8m, $501.2m), and iron ore (JD326.2m, $460.8m).


Boosting Jordan’s exports and reducing its reliance on imported goods will require investment across the board. The broad sectoral mix of Jordan’s economy forms the basis of its future economic expansion and, given the nation’s structural budget deficit, attracting private investment to these areas is an essential objective of any strategy. Thanks to the government’s policy of economic liberalisation, a significant portion of the economy has been opened up to domestic and foreign investment in recent decades. This process began with a privatisation programme launched in 1996. Initially overseen by the Executive Privatisation Unit (EPU), the first significant divestment was the Public Transportation Corporation in 1998. The promulgation of the Privatisation Law in 2000 saw a raft of state bodies opened up to the private sector, such as the Jordan Cement Company, the Arab Potash Company, the Jordan Phosphate Mines Company, the portfolio of the Jordan Investment Corporation, the Jordan Telecommunications Company (which was privatised in four phases) and the flag carrier Royal Jordanian. The 2000 law also reconfigured the EPU as the Executive Privatisation Commission and established the Higher Ministerial Committee for Privatisation, chaired by the prime minister. The result of these efforts was a considerable rise in foreign direct investment (FDI) to Jordan as well as a reduction of the fiscal burden many of these state enterprises placed on the nation’s coffers: according to an OECD report published in 2013, FDI inflows to the country grew from an average of 0.2% of GDP in the early 1990s to 10% of GDP during 2000-11. The OECD’s report was commissioned to mark the country’s November 2013 signing of the OECD Declaration on International Investment, which commits the kingdom to a process of investment liberalisation, responsible business conduct and the establishment of full legal parity between domestic and foreign competitors. Its findings revealed a number of strengths and weaknesses in the current investment framework.

On the positive side of the ledger, Jordan has created an institutional focus for foreign investment, signed a total of 53 bilateral investment treaties, adheres to the norms of international arbitration, established a trade policy geared towards greater integration with the global economy and made significant progress with regard to anti-corruption policy.

Challenges that remain, according to the OECD, include a complex legal investment regime with instances of regulatory overlap; an intricate array of incentives characterised by various schemes, zones and preferential areas; and a number of restrictions on foreign investment in areas such as telecommunications, transport and wholesale trade. For its part, the Jordanian government has recognised the need for a more streamlined investment framework in its preparations for a new investment law. Meanwhile, attention is turning to how the government can more effectively work with the private sector in the development of large projects. With most of the saleable state assets already divested, the nation has had an opportunity to assess the merits of the privatisation programme through the work of the Privatisation Evaluation Committee. One of the key findings of this body is that there is an urgent need for the drafting of a new law to govern the relationship between the public and private sectors where they combine in project development. A new public-private partnership (PPP) investment model being developed by a government advisory committee is thus likely to be the principal instrument by which the government will harness private capital for the major development work of the future (see analysis).


The coming years promise to be interesting ones for the Jordanian economy. One of the most pressing questions concerns Jordan’s ability to attract private sector development for major projects in the long term now that the era of privatisations is concluded and the nation enters the next phase of large-scale private sector participation through PPP projects.

The implementation of the regulations of the new investment law will be of principal interest, while the king’s request for a fresh 10-year national strategy is clearly of great consequence to the economic outlook.

While Jordan’s reliance on international grants may not be desirable in the long term, in the shorter term they allow the country to set about its programme of fiscal consolidation while safeguarding the social security of its citizens. Economic planning in the short and medium term is likely to remain focused on reducing the fiscal deficit with the strategy of further reductions in subsidies, the completion of income tax reforms and a reinforcing of the country’s tax administration.

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The Report: Jordan 2014

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