Jordan: Selected Issues
Author: International Monetary Fund
Publication Date:
22 May 2012
eISBN:
9781475503845
Language:
English
Keywords:
ISCR; CR; Jordan; policy stance; investment; government policy; business rank; Jordanian economy; Other services; Inclusive growth; Business environment; Manufacturing; Global
Download PDF (455.9 KB)

This Selected Issues Paper focuses on economic condition, energy subsidies, and oil prices in Jordan. Energy price subsidies pose a serious fiscal risk in the present context of increasing and volatile international prices. The macroeconomic situation in Jordan is closely tied to that of other countries in the Middle East. From a policy perspective, macroeconomic and structural policies in Jordan should be conducted in such a way that the vulnerability of the country to sudden stops or reversals of external income flows is reduced.

Abstract

This Selected Issues Paper focuses on economic condition, energy subsidies, and oil prices in Jordan. Energy price subsidies pose a serious fiscal risk in the present context of increasing and volatile international prices. The macroeconomic situation in Jordan is closely tied to that of other countries in the Middle East. From a policy perspective, macroeconomic and structural policies in Jordan should be conducted in such a way that the vulnerability of the country to sudden stops or reversals of external income flows is reduced.

V. Drivers of Growth in Jordan1

This chapter analyses the main drivers of growth in Jordan, and considers possible structural reforms to foster inclusive growth. Stylized facts on the relative size and contributions to real GDP growth of different sectors (over the last three decades) indicate the main engines of growth in Jordan. Structural reforms aimed at reducing the number of distortions and regulations in goods and labor markets will enhance job creation.

1. Jordan has experienced high growth rates during the last decade. The economy expanded at an average growth rate of about 6 percent between 2000–10. Real GDP growth doubled from 4 percent in 2000 to 8 percent in 2007, in line with strong global growth during that same period. After 2007 growth rates declined, and this economic slowdown was amplified by the global economic crisis. Growth rates are projected to recover in the medium term (Figure 1). While growth is necessary to reduce inequality and unemployment, it might not always be sufficient.

Figure 1.
Figure 1.

Real GDP growth rate in Jordan (in percent)

Citation: IMF Staff Country Reports 2012, 120; 10.5089/9781475503845.002.A005

Sources: Jordanian authorities and IMF staff projections.

2. An effective inclusive growth strategy should be centered around creating jobs, reducing inequality and providing equal opportunities so that all segments of the population can benefit from higher growth. In order to identify key sectors which can generate more employment, it is necessary to have an assessment of the main drivers of growth. In particular, which are the largest sectors in the economy? Which sectors contribute more to economic growth?

3. During the last three decades, “Other services” (mainly finance and insurance services) have represented the largest sector in the Jordanian economy, followed by “Government services”, “Transport and telecommunications” and “Manufacturing”. The “Trade, restaurants and hotels” sector has become relatively small, since its share of GDP decreased from an average of 17 percent between 1980 and 1989 to less than 10 percent between 2000 and 2010. Concurrently, the “Manufacturing” sector expanded significantly, doubling in size between 1980 and 2010 (Figure 2).

Figure 2.
Figure 2.

Sector shares of GDP by decade (median, in percent)

Citation: IMF Staff Country Reports 2012, 120; 10.5089/9781475503845.002.A005

Sources: Jordanian authorities and IMF staff estimates.

4. In general, the larger sectors are, and have historically been, the most important engines of growth in Jordan. “Manufacturing” and “Other services” have both been the greatest contributors to growth. The latter, being particularly important during 1990 to 1999, and the former, during 2000 to 2010. For the year 2010, “Other services” was the main driver of growth, comprising finance and insurance services as well as real estate (Table 1).

Table 1.

Sectoral contribution to real growth in percentage points (median)

article image
Sources: Jordanian authorites and IMF staff estimates.

A. Structural Reforms to Create Jobs and a More Inclusive Growth Path

5. A stable macroeconomic environment is crucial to foster a vibrant and dynamic business environment. This, in turn, would provide incentives to invest, create new firms, expand existing firms, attract FDI and create jobs. As of 2011, the Jordanian economy is below average in several categories of world rankings of the Doing Business Report 2011 (Table 2).2

Table 2.

Jordan’s Ranking for Doing Business 2011

article image
Source: Doing Business Report 2011. The World Bank and the International Finance Corporation.

6. Government policies to achieve more inclusive growth should remove economic distortions and guarantee equal opportunities to start a business, access credit, and purchase land and other factors of production. Fewer economic distortions will reduce rent-seeking activities and therefore contribute to create a better business environment where returns from growth are received by all segments of the population, not just a privileged few.

7. Starting a business and especially getting credit in Jordan is more difficult than in the average country in the world. Moreover, compared to global best practice and relevant selected economies, Jordan is lagging behind (Figures 3 and 4).

Figure 3.
Figure 3.

Starting a Business - Global Rank

Citation: IMF Staff Country Reports 2012, 120; 10.5089/9781475503845.002.A005

Source: Doing Business Report 2011. The World Bank and the International Finance Corporation.
Figure 4.
Figure 4.

Getting Credit - Global Rank

Citation: IMF Staff Country Reports 2012, 120; 10.5089/9781475503845.002.A005

Source: Doing Business Report 2011. The World Bank and the International Finance Corporation.

8. Jordan could enhance job creation through a better business environment, by reducing the number of procedures, as well as the cost and the time required of each procedure to start a business. The strength of legal rights to protect borrowers and lenders through collateral laws, and the scope and accessibility of credit information (both private and public) could be further improved, since they are actually below the global average and below relevant comparator countries.

9. All in all, better rules and regulations aimed at reducing the cost of starting a business (especially SMEs) would not only increase investment and growth, but would also create a more vibrant and dynamic private sector which would in turn create jobs. Given that the manufacturing sector has grown strongly in the last 30 years and the services sector remains relatively large, special emphasis on improving the business environment in these sectors (as opposed to the mining sector which tends to be more capital intensive), would enhance their flexibility and therefore their potential to create jobs and contribute to placing the Jordanian economy on a more inclusive and sustainable growth path.

1

Prepared by Agustin Roitman.

2

This is a co-publication of The World Bank and the International Finance Corporation, and includes 183 economies.

Same Series

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Other Publishers

Cover IMF Staff Country Reports
Jordan: Selected Issues
Author: International Monetary Fund
Volume/Issue:
Volume 2012: Issue 120
Publisher:
International Monetary Fund
ISBN:
9781475503845
ISSN:
1934-7685
Pages:
32
DOI:
https://doi.org/10.5089/9781475503845.002

Real GDP growth rate in Jordan (in percent)

Sector shares of GDP by decade (median, in percent)

Starting a Business - Global Rank

Getting Credit - Global Rank