Previous Quarterly Editions
Expropriation Risk: 47 47 47 47 ►Political Violence Risk:57 57 51 51 ►Terrorism Risk:46 46 46 44 ►Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ►Sovereign Default Risk:83 82 74 74 ►
TREND ►
Protest intensity to date* 2022 2023 Low LowUnrest risk in 2024**Cost of living: Very HighAnti-austerity: High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Jordan's public debt stood at 114.8% of GDP at the end of 2022, including the debt holdings of the Social Security Investment Fund (SSIF). Excluding SSIF holdings, the weighted average cost of government debt was 3% in 2022. Nearly 59% of Jordan's external debt, discounting domestically issued U.S. dollar bonds, is owed to official creditors. The increase in public debt raises questions about the sustainability of Jordan's current trajectory and its overall fiscal policy; however, the country continues to receive substantial aid, which remains key to shoring up the country's macroeconomic stability and bolstering the government's ability to finance development projects. International aid is critical to offsetting political discontent.
In 2022, total foreign aid, which encompasses funding for refugee programs, remained steady at US$4.4 billion, akin to the amount received in 2021. Of this, budget support amounted to US$2.6 billion, marking a slight increase from US$2.4 billion in 2020. For 2023, the Jordan government anticipated an estimated US$2.6 billion in budget support, equivalent to 5.2% of GDP, with loans making up approximately 56% of this amount.
The United States is Jordan's major international partner, and it is committed to guaranteeing its stability. As such, Washington ratified, in September 2022, a seven-year memorandum of understanding, committing to US$1.45 billion in annual economic and military assistance from 2023 to 2029. In a demonstration of solid bipartisan backing, the U.S. Congress augmented this package with US$200 million for fiscal year 2023. Consequently, Jordan made a successful return to the capital markets in April 2023, issuing a US$1.25 billion Eurobond, met with enthusiastic investor demand.
The country's historical dependency on international assistance has discouraged the government from strengthening its tax collection capacity. Instead, the government applies a regressive sales tax, and this has given rise to growing public discontent. The public attributes rising public debt to widespread corruption among the country's business elite.
Investment law includes guarantees for national and foreign investors against expropriation, including that no economic operations can be expropriated directly or indirectly unless this is undertaken in the public interest and if investors are fairly and speedily compensated in a convertible currency.
The only case where expropriation is likely to take place is in the interest of national security; this usually amounts to confiscation of land. Nonetheless, there have been no expropriation cases against foreign investors in Jordan, at least in the past five years. The expropriation risk therefore remains low.
An increase in political violence is likely in coming months, as discontent and protests in urban and rural centers rise across the country. As seen above, these protests are being driven by the deteriorating standard of living. The security forces will likely adopt a more robust response to protestors. That will lead to skirmishes and possible standoffs, especially in tribal areas.
A medium risk of terrorism persists in Jordan, given the country's proximity to conflicts in neighboring Iraq and Syria, where terrorist groups such as Islamic State, al-Qaida and al-Qaida-linked outfits operate. Moreover, Jordanian communities, notably in Zarqa and Maan, have hosted sympathizers who have joined and led terrorist groups operating in neighboring states and have, themselves, staged large-scale attacks in Amman.
The security forces, however, have proven effective at mitigating planned terrorist attacks and benefit from efficient intelligence services, which operate in Jordan and are embedded in neighboring states. Nevertheless, terrorism continues to pose a threat. The last significant attacks were carried out in December 2016, with Islamic State-claimed shootings in Al-Karak city in southern Jordan.
Jordan's liberal foreign exchange law entitles foreign investors to remit abroad, in a fully convertible foreign currency, foreign capital invested, including all returns, profits and proceeds arising from the liquidation of investment projects. Non-Jordanian administrative and technical employees are permitted to transfer their salaries and compensation abroad.
The Jordanian dinar will stay pegged to the U.S. dollar. The large current account deficit will be partly financed by inward foreign investment, debt inflows and donor support. Foreign reserves are rising and in September 2022 were equivalent to 7.2 months of current external payments. This should provide sufficient support to maintain the peg.
External conditions and political resistance to further austerity remain challenging. Jordan will retain U.S. loan guarantees and access to foreign borrowing at concessional rates from multilateral institutions, and it will be able to meet its repayments fully; however, the country is constrained by wide fiscal deficits and high public debt.
Jordan's reopening of its border with Syria and its call for other states to normalize with the Assad regime in Syria open the kingdom to the risk of sanctions, especially as Syrian goods transit onward to the Gulf states; however, King Abdullah was careful to secure implicit support from the White House before reopening the border and assurances that the provisions of the Caesar Syria Civilian Protection Act of 2019 would not include Jordanian businesses or personnel.
Given that the Caesar Act enjoys nonpartisan support in Congress, Jordan will depend on both the White House and goodwill among its supporters in Congress to ensure that Jordanian businesses are not subject to sanctions.
Meanwhile, the flow of narcotics, especially Syrian-produced captagon, poses a significant challenge to Jordanian customs and immigration on the Syrian borders. The drug's penetration of Gulf markets means that it will remain a high-profile issue that draws the attention of U.S. policymakers and, therefore, keeps Amman on the sanctions radar.
Although Jordan has rebounded from the adverse impact of COVID-19, the country's credit challenges — including high government debt and social pressures stemming from weak growth and high unemployment — are still pertinent. These will continue to constrain creditworthiness, although the government's commitment to structural reforms and medium-term fiscal consolidation planning, alongside international support for Jordan from the Washington and Gulf Arab states, mean that a positive outlook is likely to remain stable over the coming few years.
The current account deficit is expected to be 7.8% of GDP in 2022, narrowing to 5.7% in 2023 and then to around 3.5% by 2025, as commodity prices normalize and high demand for imports post-COVID-19 dissipates.
In November 2022, Moody's affirmed Jordan's B1 credit and changed the outlook from “stable” to “positive.” The change in outlook is driven by the government's commitment to structural reforms and its track record of effective implementation of fiscal reforms, which should enhance Jordan's credit profile. The positive rating comes on the back of solid and credible policymaking institutions, along with strong international support and considerable domestic savings that together strengthen the economy in face of external vulnerability risks.
Moody's predicts that the government's debt will decline to pre-pandemic levels of around 78% of GDP by 2026. The public deficit is likely to narrow because of sustainable revenue gains from tax administration-related reforms targeting increased compliance. Moody's put the kingdom's local and foreign currency ceilings at Ba1, which reflects very low transfer and convertibility risks, given the country's substantial foreign exchange reserves (which reached US$17.2 billion at the end of January 2023, covering approximately 7.5 months of the kingdom's imports of goods and services). This supports the credibility of Jordan's dollar peg and open capital account.
In May 2023, Fitch affirmed Jordan's Long-Term Foreign-Currency Issuer Default Rating at BB– with a “stable” outlook. The ratings are supported by a record of gradual fiscal and economic reforms and resilient domestic and external financing linked to the liquid banking sector, public pension fund and funding from Jordan's external partners. The ratings are constrained by weak growth, monetary tightening, high unemployment and geopolitical risk, plus large external financing needs.
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