JORDAN ECONOMIC GROWTH PLAN 2018 - 2022 The Economic Policy Council JORDAN ECONOMIC GROWTH PLAN 2018 - 2022 The Economic Policy Council EXECUTIVE SUMMARY Overview The JEGP is comprised of economic, fiscal and The Jordan sectoral strategies that outline the vision and Economic Growth policies pertaining to each sector. It further identifies the required policy interventions, Plan 2018 - 2022 public projects and private investments that must be undertaken to realize these sectoral (JEGP) is developed visions. A successful implementation of the IMF Extended Fund Facility Program (EFF) to recapture the along with the JEGP will put Jordan on a growth momentum sustainable growth trajectory and ensure its economic resilience in the face of regional and realize Jordan’s turmoil. development A successful implementation by the Government of Jordan of JEGP will double potential. the economic growth of Jordan over the coming five years, at the minimum, in spite of ongoing regional turbulence. 4 Jordan Economic Growth Plan 2018 - 2022 Executive Summary Jordan’s Economic Outlook Jordan has showcased its ability to remain Jordan’s GDP growth between 2000 and resilient, maintain internal cohesion, and 2009 averaged 6.5%, but from 2010 until reinvent itself in the face of adversity. The 2016, average growth was a mere 2.5%. combination of the global financial crisis Furthermore, Jordan’s total public debt has of 2009, Arab spring regional turbulence, increased at a rate exceeding economic energy crisis, closure of trade routes growth. This has resulted in a debt-to-GDP resulting in de facto economic siege (Exports ratio of 95% at the end of 2016, compared to Iraq amounted to 20% of Jordan’s total to approximately 61% in 2010. exports), a decline in remittances, security costs, and increasing food and oil prices has put a significant stain on Jordan’s economic and fiscal drive. Jordan’s GDP Growth Figure 1 Source: Central Bank of Jordan. Average ‘00 - 09: 6.5% 10% 9% 8% 7% 6% Average ‘10 -16: 2.5% 5% 4% 3% 2% 1% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jordan Economic Growth Plan 2018 - 2022 5 In August 2016, Jordan and the IMF agreed spending, prioritizing social and capital to a USD 723 million EFF in order to lower spending, clearing fuel and heath arrears, Jordan’s debt levels and fiscal imbalance. and accommodating continued pressures In 2017, the Government of Jordan has from Syrian refugees. The Government is undertaken a number of difficult structural also pursuing with measures to further fiscal measures to raise USD 635 million strengthen public financial management in government revenues as per the EFF and in implementing a Public Investment program. The 2017 budget aims at putting Management Framework to enhance the public debt firmly on a downward path, efficiency of capital spending, prioritize notably through implementing a new regime investments and maximize using PPPs to for tax expenditures/ exemptions. The implement government capital expenditure. government has reflected about 1.5% of GDP in new fiscal measures in its budget. Apart from anemic growth and debt-burden, Similar measures are also envisaged in the Jordan is faced with rising unemployment future. The Government will continue to that has worsened with the influx of Syrian maintain a prudent expenditure policy refugees. Unemployment in 2016 stood at through streamlining non-priority current 15.25%, in comparison to 12.5% in 2010, Employed Jordanians by Economic Activity Figure 2 Source: Department of Statistics. 2016 Electricity & Water 1% Mining 1% 2% Agriculture 2% 26% Govt. Services Hospitality 2% Finance 15% Trade 5% Real Estate 6% Construction 12% Education 9% Transport & Comms 10% Manufacturing 9% Other 6 Jordan Economic Growth Plan 2018 - 2022 Executive Summary while youth unemployment rate is at 25%. significantly contribute to employment, Poverty rates have increased from 14.4% in provide Jordan with hard currency, and are 2010 to an estimated 20% in 2016. Jordan is contributors to Jordanian exports. In order the largest host of registered refugees in the to bolster Jordan’s economic growth, growth world (2.8 million refugees registered with strategies for these sectors comprising of a UNURWA & UNHCR). combination of policy reforms, government projects, and investment opportunities are In terms of Syrians alone, Jordan hosts 1.3 presented in this report. These interventions million refugees, with almost 90% of them will enable Jordan to realize its growth residing outside refugee camps, competing potential which will in turn ensure the for jobs alongside Jordanians. successful fulfillment of the IMF’s EFF program. Jordan’s top five contributing sectors to GDP are Government services, As Figure (4) illustrates, the Jordanian finance, manufacturing, transport, and economy is currently dominated by tourism & hospitality respectively. Apart Government services and finance. Neither from contributing to GDP, some sectors of these can be the engine of growth in the Growth Rates by Sector Figure 3 Source: Department of Statistics. 2015 growth rate 16% ‘10-15 CAGR 14% 12% 10% 8% 6% 4% 2% 0% Mining Finance Services Electricity Transport Hospitality Agriculture Construction Manufacturing Govt. Services Govt. Non-for-profit Domestic Services Jordan Economic Growth Plan 2018 - 2022 7 years ahead as the government remains will need to be shouldered by a few key under pressure for further fiscal tightening. sectors, which need to grow at a pace of This leads to approximately 50% of the 10%+ per annum for the next 3-5 years economy that is focused on the productive (figure 7). While this pace of growth has sectors to drive growth. been achieved by the Agriculture and Construction sectors in the past 5 years, all A 5% growth rate implies approximately other sectors will require a significant jump USD 1.8 billion of growth per annum. This to achieve the targets that have been set. Sectoral Contribution to the Jordanian Economy Figure 4 Source: Department of Statistics. 2016 *ICT & Transport are combined in the GDP calculation after 2014, weightage applied based on 2014 ratios. 4% Services 1% Non-for-profit 3% Mining 4% Agriculture 4% ICT 22% Govt. Services 5% Construction 10% Tourism & 20% Finance Hospitality 9% Transport 18% Manufacturing 8 Jordan Economic Growth Plan 2018 - 2022 Executive Summary Jordan’s Vision 2025 GDP Growth Targets Figure 5 Source: Jordan’s Vision 2025 Repercussions of regional turmoil subdued 7.5% Jordan’s growth from the 2017 target of 2025 4.9% set in Jordan Vision 2025. Growth 6.5% in 2016 was a mere 2%. This “Economic 2021 Growth Plan” aims to jumpstart Jordan’s 4.9% economic growth to align it with the target 2017 for 2021 and beyond. Credit Facilities per Economic Sector (%) Figure 6 Source: Central Bank of Jordan 2016 % of GDP % of Credit Facilities 25% 20% 15% 10% 5% 0% Mining Finance Transport Hospitality Agriculture Construction GeneralTrade Govt. Services Govt. Industrial Sector Jordan Economic Growth Plan 2018 - 2022 9 Macro-economic Stability Jordan has showcased its ability to take hard and committed fiscal measures to bring down its debt-to-GDP ratio from 220% in 1990 to approximately 60% in 2008 on the onset of the global financial crisis. However, the external pressures of the past seven years and the global economic slowdown has increased Jordan’s debt-to-GDP ratio to 95%. Jordan has successfully implemented Stand-by Arrangement program with the IMF during the period 2012-2015. In August 2016, Jordan and the international community agreed to a US$ 723 million EFF with the IMF with the objective of bringing down Jordan’s debt-to-GDP ratio to 77% in 2021. The IMF program which was mutually endorsed by the Kingdom and Jordan’s international partners in 2016 rests on 3 key pillars: • Elimination of the primary deficit via a debt that was maturing in 2016 (<2%). programme of subsidy elimination and These dynamics make it increasingly hard for key structural reforms; the Government to pursue a “pro-growth” • A declining debt/GDP ratio; and strategy. • The return to a normalized growth path. Ensuring a path to success towards fiscal discipline while simultaneously enacting Jordan’s debt profile reveals an amortization counter-cyclical measures and structural that is not dissimilar to many of its’ middle- reforms to trigger and sustain growth income economy peers with an average would require expanding Jordan’s access life of 5.4 years. The challenge is that to concessional debt facilities to enable the the new debt that the country is raising rolling over of maturing debt amounting both domestically and internationally is $1-1.5 Billion per year for the next 5 years. increasingly expensive. Domestic debt rates Incremental donor budget support to hedge are rising as inflation has returned to the against the ongoing pro cyclical fiscal and economy. While there was strong demand monetary tightening. for the recent issuance, Kingdom of Jordan $ 1 billion 5.75% Eurobond due 2027, the debt service cost of this instrument is a multiple of the debt costs of the historic multilateral 10 Jordan Economic Growth Plan 2018 - 2022 Executive Summary Competitiveness and Investment EASE OF DOING BUSINESS Jordan recognizes the importance of enhancing its doing business eco-system, cutting the red-tape and bureaucracy, upgrading its economic legislation framework, and streamlining its economic judicial transactions. The government of Jordan has undertaken as for bankruptcy and insolvency, upholding important steps in each of the aforementioned of shareholders agreements, the movable dimensions, which will significantly enhance assets law, the companies law and removal its ability to attract and retain investments. of goodwill tax. On the ease of doing business front, GoJ has committed to a number of reforms which call Judicially, Jordan will set up a specialized for re-engineering, digitizing and outsourcing chamber for economic cases and will the key business interactions with the adopt electronic notifications to streamline government in addition to allowing virtual adjudication.