The Economy of the Hashemite Kingdom of Jordan

Topics: Jordan, Economics, Inflation Pages: 6 (1803 words) Published: November 5, 2008
The Hashemite Kingdom of Jordan, with a population of 5.5 million is a country that is very poor in resources, and has no oil. It also has limited agricultural land and is considered to have scarce water. The main natural resources available are phosphate and potash. About 80% of the human population lives in cities, and 38% of this population is under the age of 14 years, which classifies it amongst the youngest lower middle-income countries. Although there is a slow progress in the demographic growth, which is currently about 2.6%, it is expected that the total population would reach to almost 7 million by year 2015.

Compared to other lower middle-income countries, and despite the lack of resources and the uncertainty emanating from the regional political environment, Jordan has managed to achieve outcomes that are above average in comparison to other countries with lower middle income. The main three factors contributing to such above average outcomes are: •Influx of Jordanian expatriates transfers into the country, which along with grants exceeded 20 percent of GDP. •Capital inflows from neighboring countries that have recently been on the increase as a result of the excess liquidity in the neighboring oil producing countries. •Sound development policies that have been properly managed.

The graph below taken from the World Bank's Country Assistance Strategy Paper prepared for The Hashemite Kingdom of Jordan clearly shows the trend of Per Capita Income from 1976 to 2005.

It is evident that Jordan was unable to catch up with the levels of income per-capita it had reached in the 1980s boom, which was then severely hit in 1989 by a financial crisis. During the 1990s -which was considered a period of adjustments-, and while trying to restore some constructive economic growth, the incomes per capita were swept by the high population growth. Thus unemployment and poverty became the most critical problems to be solved.


Economic Shocks:
The Jordanian economy faced two external economic shocks in 2004: •Oil prices more than doubled and the Iraq's free delivery of oil was blocked. •A sharp reduction of external grants occurred.

These external economic shocks resulted in a major stress throughout the increasing cost of the subsidies of oil, and thus the government had to adopt a certain plan in order to gradually remove the oil subsidy by the year 2007, and at the same time liberalize the domestic oil market at the beginning of the year 2008. The external economic shocks appeared at a time where the economic growth was strong as a result of strong inward remittances from Jordanian expatriates, economic reform program, and improvement in revenues as a result of fiscal consolidation. The average growth in 1996-2000 was below 3.5 percent on an average and had moved to up to 5 percent per year during 2000-2004, despite the recession that was induced by the war on Iraq in 2003. The GDP growth as a result of not withstanding the economic TTT fell to 7.2 percent in 2005, after being 7.7 percent in 2004. As a result, the complexity of the whole economic situation has increased, and Jordan is now going through a period of transition. Since the recession in 1989, and throughout the phase of transition, structural and economic reformation has helped Jordan in absorbing the external shocks. Looking ahead, Jordan will be facing big challenges to reach a stage of self reliance as it will have to reduce or eliminate the budget deficit, properly manage its debts, while at the same time reduce poverty and provide the necessary services to the increasing population.

The main driver of the robust growth in 2001-2004 were the manufacturing sector with value added of 35% of GDP and the transport and telecommunication sector together adding about 20%. This was mainly because of the economy’s ability to absorb negative shocks and take advantage of positive external environment....
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