Our Insights

Jordan eases COVID-19 restrictions – but economic revival remains far off

**Written and disseminated among select contacts on May 5**

 

WHAT YOU SHOULD KNOW

Minister of Industry, Trade and Supply, Tareq Hammouri, announced on Sunday, May 3, that all economic sectors are permitted to reopen at full capacity starting the following Wednesday as long as Jordanian nationals comprise 75% or more of the work force. While the move is intended to kickstart the economy, the measure will not go far enough to avert a financial crisis, which is likely to pose the most serious threat to Jordan’s economy since the establishment of the kingdom.

 

WHY THIS MATTERS

1. The crisis means that Jordan will find itself even more dependent upon financial support from Western donors and the Gulf Arab states, at a time when those donors themselves are strapped for cash. Therefore, the cost will be particularly high: Western donors will insist on the country staying committed to economic reforms, while Gulf Arab states will likely command political allegiance. At the same time, in spite of easing COVID-19 restrictions, economic growth is likely to remain constrained in the near term because of the kingdom’s deep links to the global economy. 

2. Despite the pledge of additional financial support from the US on April 23 ($8m) and an IMF Extended Fund Facility on March 26 ($1.3bn), the economy is expected to contract 3.7% this year. The country has a record $42bn in public debt, representing 97% of GDP. Debt is expected to exceed 100% to mitigate against the effects of the crisis.

3. Jordan is in for a very bumpy ride. The government will need to satisfy its donors’ conditions to secure much-needed financial support, but risks the prospect of widespread protests due to growing public discontent. It will likely choose to defer economic reforms and risk the ire of the IMF rather than confront an increasingly angry population. This means accepting further support from Gulf Arab states, which will come with fewer economic strings attached, but clear political demands.

 

WHAT’S NEXT

The easing of the restrictions will do little to alleviate the wider impact of COVID-19 on the economy. It will buy the government some time, but it will not be enough to help the kingdom overcome the financial shock. The services industry, which amounts to 61.8% of GDP (2018) and had been intended to drive forward the economy, has been hardest hit and will require many years to recover. The impact of the pandemic on tourism, already weakened by previous terror attacks, will be far reaching. Businesses will require government backing to stage any meaningful recovery as well as considerable time to allow for a global pick up. Jordan is a highly globalised country and dependent upon trade. For example, in 2018 exports accounted for 35.6% of GDP and imports 54.6% of GDP.

THE GULF CONNECTION: Saudi Arabia, UAE and Kuwait pledged a total package of support of $2.5bn following the protests in 2018, while Qatar promised $500m and also opened up more space in its labour market to Jordanians. Jordan will now face a drop in foreign aid as these countries tighten their belts and name a higher political price for support. For example, Saudi Arabia’s support may be conditioned upon accepting the US Deal of the Century, while the UAE could ask for more proactive backing for its ventures in North Africa and the Horn of Africa, and a more hardline stance against the Islamic Action Front. Over 750,000 Jordanians work in the GCC, with remittances amounting to $3.7bn in 2017. However, Jordan may be compelled to choose sides among Gulf allies; Qatar has been under an economic blockade since 2017.

Like his father King Hussein, King Abdullah – now in power for 21 years – has proven adept at reading the public mood; and on this issue, he is more likely to stand with them but also plead Jordan’s special case to the international community and appeal for a pass until the crisis is well and truly over. This will mean deferring reforms and persuading cash-strapped donors that the kingdom’s stability is critical to the region, but ultimately accepting the terms set out by Gulf partners in exchange for alleviating the economic hardship felt by all Jordanians.

Neil Quilliam | CEO | n.quilliam@castlereagh.net

[contact-form-7 id="345" title="Order Report"]