The Hashemite Kingdom of Jordan
The Federation of Euro-Asian Stock Exchanges
Economic performance
62
Jordan’s economic growth slowed to 1.3% in the first quarter of 2020, reflecting only partially the impact of COVID-19 pandemic. Timid growth during the quarter resulted from an improvement in net exports and the marginal contribution of government consumption, while overall economic activity remained constrained by weak private demand and muted government investments. Meanwhile, labor market indicators for the second quarter of 2020 reflect the significant disruptions of the COVID-19 crisis. The already elevated unemployment rate has risen to 23% in Q2-2020 compared to 19.3% in Q1-2020, while the labor force participation rate dropped by 0.4% during this period. Looking ahead, the pandemic will have as disruptive an impact on the Jordanian economy and its prospects as it is having on Jordan’s trading partners and the MENA region as a whole; its gradual recovery over the medium-term could capitalize on lower oil prices and a steady momentum for reform to increase efficiency and boost productivity.
At the fiscal level, the pandemic is exacerbating the fiscal deficit, as revenue collection has subsided given the economic slowdown and domestic lockdown measures. Although the government has created savings— by curtailing the public sector wage bill—pandemic-related spending pressures and recurrent spending rigidities are limiting Jordan’s ability to confine the deficit. As a result, the overall central government’s fiscal deficit (including grants and the use of cash) widened to 4% of GDP during the first five months of 2020, almost twice as high as during the same period in 2019. The sharp deterioration in government finances, together with the slowdown in economic growth, has elevated levels of public debt in central government (including debt holdings of the Social Security Investment Fund) to 105.3% of forecasted GDP at end-May 2020. In the medium-term, the fiscal stance is expected to improve once economic activity gradually recovers.
As for the external sector, the current account deficit (including grants) narrowed by 6.3% year-on-year during Q1-2020. For Q2-2020, an initial build-up of external sector pressure was alleviated: exports and imports returned to positive growth in June following contractions in April and May 2020. Remittance inflows, on the other hand, remained negative throughout the second quarter, while the suspension of commercial flights prevented any inflows of travel receipts. Although the decline in international oil prices will support a lower import bill, the current account deficit is expected to widen significantly in 2020 due to subdued external demand and its spillover effects on the domestic economy through a decline in exports, remittances, travel, and foreign investments.
Source: www.worldbank.org