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Jordan-Expanding Economic Growth in 2010
Jordan has managed to avoid the worst of the global recession in 2009, with the economy still expanding. Nevertheless, the drying up of liquidity and a slowing of business activity, along with a widening gap between state revenue and expenditure, means that the effects of the international crisis will continue to be with the Kingdom well into the new year.
Though final figures have yet to be tabulated, the pace at which Jordan’s economy grew in 2009 will be significantly slower than the year before, when GDP climbed by as much as 8%. For 2009, the figure is expected to be in the range of 3-3.5%, the easing of growth attributed by the IMF in a report it released in mid-December to “sluggish activity in the finance, trade and mining sectors”.
The IMF was more positive for the coming year, stating that the Kingdom’s economic growth should pick up to around 4%, reflecting slowly recovering global and regional conditions.
While 3.5% growth for 2009 is impressive – especially in times of global recession – Jordan needs to maintain or surpass this rate of expansion in order to provide jobs for its increasing population and to replace dwindling foreign assistance as a component of the economy, with aid and grants falling by more than 40% in 2009 to an estimated $570m.
Jordan will ring in 2010 with a new prime minister and cabinet, after King Abdullah II dissolved parliament in late November, a move seen as an attempt to clear the way for new elections and speed up economic reforms. These reforms include a reduction in expenditure on the civil service, an overhaul of the subsidy regime and strengthening of the legislation covering foreign investment, blocked by the parliament in August.
With the subsequent resignation of Prime Minister Nader Al Dahabi, Samir Rifai was sworn in at the head of a new cabinet in mid-December, with a mandate by the king to draft new electoral laws and call a general election within a year
At the end of November, the budget for 2009 was about $1.38bn in deficit, with the total state debt expected to reach $14bn by the end of the year. The 2010 budget has already been approved, with an 11.3% reduction in projected spending from 2009, with total outlays set at $7.6bn, with the deficit target being $967.5m, 3.9% of GDP, compared to the estimated 7.3% in the past year.
While the state is aiming to tighten its belt in the coming year, the country’s banking sector is looking to 2010 for better things to come, after a somewhat lean time of late. According to official figures, profits recorded by the country’s banks for the first half of 2009 were around 30% down, with some analysts expecting a similar decline for the year-end results.
The ratio of toxic loans to total loans extended by Jordanian commercial banks rose to 6.4% in 2009, Central Bank of Jordan (CBJ) figures show, up from the 4.2% of the previous year, although this is still significantly lower than in years past.
Throughout the year, the CBJ maintained a fairly tight monetary policy and closely monitored the financial sector, moves Umayyah Touqan, the governor of the CBJ, said had helped mitigate the effects of the global recession.
“The CBJ adherence to international supervision and audit criteria has helped Jordanian banks to face the repercussions of the global financial crisis with the minimum negative effects,” Touqan told the official news agency Petra in late November.
On December 18, the CBJ reduced interest rates by 50 basis points, taking its discount rate to 4.75%, its repo rate to 4.5% and the bank’s overnight rate on the dinar to 2.5%. Though the CBJ has cut rates four times since the end of 2008, the December move was the first reduction since April.
One of the reasons cited by the CBJ for the latest cut was easing concerns over inflation and worries about increasing liquidity fuelling price hikes through pushing up demand. However, recent figures suggest that the spectre of inflation has receded, at least for the time being. Having hit 14% in 2008, inflation is expected to slide to a far more moderate 1-2% in 2009, prompting the CBJ to loosen the monetary taps slightly.
With increased liquidity in the domestic market, expected growth for the local and global economies and anticipated fiscal reforms fast tracked, Jordan should be able to look forward to a better year in 2009, though with the continued constraints on state spending, the government will have to work hard to put in place all of its social and economic agenda.
Global Arab Network