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French Version

The recipe for Jordan's growth

Jordan report

Banque Audi Saradar released a full economic report on the performance of the Jordanian economy. The report focuses on GDP growth. It also examlrined the fiscal and economic reforms carried out by the Jordanian government. The text of the conclusion of the report follows.

The Jordanian economy continues to display a combination of strengths and weaknesses, although opportunities continue to outpace threats, translating into a favorable economic real growth performance. On the positive side, we mention the strong domestic consumer demand, the surge in foreign direct investment and the serious government attempts to address structural economic woes. On the negative side, we mention the high oil prices and the lower external grants putting a burden on the fiscal balance and the current account, while the continuing rapid expansion in labor continues to exert pressure on the country's job creation requirements.

Within such an environment, real GDP growth has been projected at 6.3 percent in 2005 as per the International Monetary Fund, down from 7.7 percent reported in 2004 but up from an average of 5 percent over the previous five years. The full-year projected growth shows a slight retreat from the high of 7.5 percent reported by mid-year 2005. On the overall however, macroeconomic performance remains healthy, although the outlook was weakened by the rapid increase in oil prices and the sharp decline in external grants. The pace of structural adjustment reforms in the short to medium term would remain the key challenge for Jordan going forward, with the acceleration or deceleration of GDP growth depending primarily on such adjustment efforts.

If we were to summarize the economic performance in Jordan in 2005, we would say that the country's economy was subject to challenging developments and outcome. Real growth was reported at above 6 percent, although slightly declining from the performance of the previous year and that of the first half of 2005. The rise in oil prices and the reduction in external grants have put considerable pressure on the government budget and the external current account. This was counterbalanced by a surge in foreign direct investment and privatization efforts that provided support to the balance of payments. What remains is the extent to which equity investments are sustainable within the context of a growing stock market bubble fuelled by the dramatic rise in stock prices, although valuation ratios are broadly in line with current regional averages. A downturn in regional financial markets could hamper Jordan's privatization plans and reduce equity inflows, with obvious adverse effects on the capital account at large.

It is within this environment that the National Agenda, a ten-year reform program drawn up by a broad cross-section of society, set out policies to reform the political, economic, educational, fiscal and social welfare systems over the next decade. The new government, sworn in just before the end of last year, has as main focus the proper implementation of such a comprehensive reform agenda. Obviously, security issues would be the other primary government concern, following the occasional security drifts that the country has witnessed over the past year or so.

As such, notwithstanding some considerable achievements that characterized Jordan's economic performance in 2005, there is a significant need to sustain strong policies as the economy remains quite vulnerable to external shocks and security concerns. In a relatively difficult geo-political situation, significant progress has been made in macroeconomic stabilization, but long-standing vulnerabilities, such as the ones mentioned above, remain. Within the context of a rapidly growing work force, issues like job creation and poverty reduction are also re-emerging as important challenges for policy makers at large.

With real economic growth forecasts for the years ahead expected widely at below the 6 percent threshold, the question that arises today is whether the reduction in growth reflects a normal correction from a couple of years of outstanding performance or a trend reversal due to the accumulation of some imbalances in Jordan's government budget, in its current account balance and in inflated capital markets at large? The 2006 economic performance and its first results should actually provide a prelude of an answer to such a legitimate query.

In conclusion, the Jordanian authorities have so far shown a strong determination to address emerging challenges. In the eyes of international observers, Jordan's medium-term reform agenda is broadly appropriate. It is the government's ability to push ahead with its reform agenda and build on the recent achievements that will determine the country's economic outlook in the short to medium term and beyond.

Amman,27March2006
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