COUNTRY REPORT Jordan Jordan at a glance: 2001-02 OVERVIEW The desire of the king, Abdullah ibn Hussein al-Hashemi, to concentrate on economic reform will be tested by domestic and regional political concerns. There is unlikely to be any lasting improvement in the regional situation before the middle of next year at the earliest, keeping domestic Palestinian temperatures high, and foreign direct investment low. Nevertheless, the Islamist opposition’s internal divisions will make them more open to manipulation by the government. The government will continue with economic reform, with the emphasis on improving the business climate. Budgetary capital expenditure should increase this year, even as current expenditure is squeezed, although current expenditure should accelerate next year as an election looms. Real GDP growth will dip to 3.1% this year before rebounding to 3.6% in 2002. These rates will only just keep ahead of population growth and real living standards will see only modest improvement. The current account will record deficits of 2.8% and 2.3% of GDP in 2001 and 2002 respectively. Key changes from last month Political outlook • The government has decided to postpone the parliamentary election until the middle of next year. The Islamist opposition seems uncertain about how to respond to the government’s electoral law, which addresses none of their central concerns. Economic policy outlook • A long-awaited fuel price increase has gone through, providing the government with an extra JD23m (US$32m) this year and twice that in 2002. This, combined with data showing a squeeze on current expend- iture in the first half of the year, has led the Economist Intelligence Unit to reduce its budget deficit forecast to 8.2% of GDP in 2001 and 2002. Economic forecast • We have lowered our real GDP growth forecast for 2001 to 3.1% in response to a variety of new data and raised our forecast for 2002 to 3.6%. Our current-account deficit forecast has worsened in response to half- yearly import data. September 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2001 The Economist Intelligence Unit Limited. All rights reserved. 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Jordan 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast 13 The political scene 18 Economic policy 23 The domestic economy 23 Economic trends 27 Infrastructure 29 Mining and industry 29 Foreign trade and payments List of tables 10 International assumptions summary 11 Forecast summary 19 Government finances, Jan-Jun 24 Industrial production index 25 Sectoral indicators, May 2001 26 Consumer price index 26 Liquidity 30 Visible trade, Jan-Jun List of figures 12 Gross domestic product 12 Jordanian dinar real exchange rates 26 Jordanian dinar exchange rate EIU Country Report September 2001 © The Economist Intelligence Unit Limited 2001 Jordan 3 Summary September 2001 Outlook for 2001-02 The oft-stated desire of the king, Abdullah ibn Hussein al-Hashemi, to concentrate on economic reform will be tested by domestic and regional political concerns. There is unlikely to be any lasting improvement in the regional situation before the middle of next year at the earliest, keeping domestic Palestinian temperatures high, and foreign direct investment low. Nevertheless, the Islamist opposition’s internal divisions will make them more open to manipulation by the government. The government will continue with economic reform, with the emphasis on improving the business climate. Capital expenditure should increase this year, even as current expenditure is squeezed, although current expenditure should accelerate next year as elections loom. Real GDP growth will dip to 3.1% this year before rebounding to 3.6% in 2002. These rates will only just keep ahead of population growth and real living standards will see only modest improvement. The political scene The government has prepared a new electoral law which offers little to its opponents; the Islamist opposition appears divided on how best to respond. A restructuring of Jordan’s troubled municipal councils has provoked an angry response from the Islamists, however. There has been a cabinet reshuffle, but the changes affect only minor-placed portfolios. The return of a senior Hamas member to Jordan from Qatar threw the government on to the back foot, both domestically and diplomatically. Relations with Iraq have improved, while ties with Israel remain tense. Economic policy A long-awaited fuel price increase has gone through and will provide the government with an extra JD23m (US$32m) this year and twice that in 2002. Public reaction was muted. Current spending has been squeezed, although capital spending has been increased. The central bank has launched a clampdown on money laundering. The king has urged faster and deeper reform. The domestic economy The government has claimed GDP growth of 4% in the year to June 2001, although it did not say whether this was real or nominal. First-half sectoral data are inconclusive. Consumer prices contracted in May. Commercial banks’ claims on the private sector increased by 8.8% year on year in the same months. The government has committed US$200m to the Disi-Amman water system, although it has not said where the money will come from. Foreign trade and The visible trade deficit increased by 22% year on year in the first six months payments of 2001. There was an encouraging surge in export earnings, but this was outstripped by import values. A trade agreement with Iraq has been enlarged. Editors: James Reeve (editor); Hania Farhan (consulting editor) Editorial closing date: August 29th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report September 2001 © The Economist Intelligence Unit Limited 2001 4 Jordan Political structure Official name Hashemite Kingdom of Jordan Form of state Constitutional monarchy National legislature Bicameral National Assembly: a directly elected Chamber of Deputies of 80 members and a Senate of 40 members appointed by the king. Under the constitution, senators are selected from among prominent political and public figures Electoral system Direct universal suffrage National elections November 1997; next election due by mid-2002 Head of state King Abdullah ibn Hussein al-Hashemi National government Council of Ministers headed by the prime minister, who is appointed by the king; ministers are appointed by the king on the advice of the prime minister. The Council of Ministers, which was appointed in June 2000, is responsible to the Chamber of Deputies Main political organisations Active parties include: Jordanian National Alliance; Popular Unity Party; Future Party; Unionist Arab Democratic Party; Islamic Action Front (IAF); Democratic Party of the Left; National Constitutional Party; and pan-Arab nationalist, Baathist and Communist parties. The professional associations are also politically influential Council of Ministers Prime minister & defence minister Ali Abu Ragheb Deputy prime minister & interior minister Awad Khulayfat Deputy prime minister & cabinet affairs minister Salih Irshaydat Deputy prime minister & justice minister Faris al-Nabulsi Deputy prime minister & minister of state for economic affairs Mohammed Halaiqa