Country Report Jordan April 2009

Outlook for 2009-10

• Power in Jordan remains firmly in the hands of the king, Abdullah II, who is expected to retain the loyal support of the army and the security services.
• The newly reshuffled cabinet will prioritise economic reform over political liberalisation. However, in the near term the government will focus its efforts on supporting demand in the wake of the rapidly weakening economy.
• Jordan is forecast to return wide fiscal deficits, as tax receipts are depressed by slower economic growth and the government retains an expansionary fiscal stance. As a result, Jordan will remain heavily reliant on foreign grants.
• Inflation will decline sharply over the forecast period, owing to lower global commodity prices and a stronger US dollar. As a result, inflation is projected to fall from 14.9% in 2008 to an average of 4.6% in 2009-10.
• The Economist Intelligence Unit has lowered its growth forecast, after fourth-quarter 2008 data revealed a sharp slowdown in the economy. We now expect growth to fall from 5.6% in 2008 to an average of just 2.7% in 2009-10.
• The current-account deficit will narrow over the forecast period, as the cost of imported commodities falls sharply from their highs of 2008. Nevertheless, the deficit will remain wide, at an average of US$2.5bn in 2009-10.

Monthly review

• The leadership has announced it will press ahead with plans to decentralise governance, which will split the country into three regions. The plan will be trialled in Madaba governorate, before being extended to all 12 governorates.
• Osama bin Laden, the leader of al-Qaida, has called on his followers to use Jordan as a staging post to "liberate" the Palestinian Territories.
• The IMF has released a relatively positive assessment of Jordan's economy. However, it has warned against any further fiscal stimuli, and has called on the government to rein in the deficit once economic conditions improve.
• Newly released preliminary 2008 fiscal data have revealed that the budget deficit (excluding foreign grants, which more than doubled) widened by over 50% last year, on the back of fast-rising expenditure.
• The Central Bank of Jordan has cut interest rates by 50 basis points, lowered the cash reserves requirement for banks and stopped issuing certificates of deposit, in an effort to stimulate lending.
• According to the Department of Statistics, real GDP growth reached a healthy 5.6% last year, although it slowed markedly in the fourth quarter, to 4%, as the financial sector felt the fallout from the global credit crunch.

Source: Country Report