Index trend
Previous Quarterly Editions
Expropriation risk: 47 47 47 47 ► Political violence risk:51 51 51 51 ►Terrorism risk:46 44 44 44 ►Exchange transfer and trade sanction risk: 55 55 55 55 ►Sovereign default risk:74 74 74 74 ►
Overall Risk Temperature: 57 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
Jordan’s political leaders are fully subscribed to the global rules-based order because the country is dependent upon Western powers, particularly the U.S. and the U.K. The rules-based order has brought significant advantages to Jordan, including financial support from the International Monetary Fund, a solid foundation for security relations with Israel through the 1994 peace treaty, financial and security guarantees from the U.S., and support for its sizeable refugee population from the United Nations (U.N.). Consequently, Jordan’s leadership actively supports and advocates for the rules-based order, as it benefits the country directly and helps counter the threat from other states in the region.
Jordan does not actively call for the revision of the rule-based order; in fact, it is quite the opposite. Its leadership calls for the full implementation of U.N. Security Resolutions, particularly those pertaining to Israel and the two-state solution based on UNSCR 242 and 338.
Jordan would be a victim if the rules-based order collapsed. Its leadership would need to draw even closer to the U.S. and its European partners to offset the negative consequences of such a decline. Regional powers, such as Iran, Saudi Arabia and the United Arab Emirates pursue active and interventionist foreign policies. Without U.S. and European support, Jordan would be vulnerable to moves undermining its political and financial stability or weakening its independence. Although not a truly democratic state, a change in the rules-based order would likely further undermine democratic processes. The king would depend more on the military to suppress social unrest and deter neighboring states from stoking discontent.
Jordan operates under a monarchical system. The king has significant influence over political and administrative affairs. Although the lower house of the Parliament is elected, the design of the electoral system and restrictions on civil liberties undermine the effectiveness of opposition groups, limiting the chamber’s actual power. Additionally, laws and governmental pressure restrict the activities of media outlets and civil society organizations. The judicial system is perceived as lacking autonomy and frequently falls short of upholding due process. The kingdom is rated by Freedom House as “Not Free.”
TREND ►
Investment law provides guarantees for national and foreign investors against expropriation. This means that economic operations cannot be expropriated directly or indirectly unless it is deemed to be in the public interest. In such cases, investors must be 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.
Political violence is likely to increase in the coming months. Deteriorating living standards are likely to cause discontent and protests in urban and rural centers. The security forces will likely adopt a more robust response to protestors. That will lead to skirmishes and possible standoffs, especially in tribal areas.
There is a persistent medium risk of terrorism given Jordan’s proximity to conflicts in neighboring Iraq and Syria, where terrorist groups such as Islamic State, al-Qaida and al-Qaida-linked outfits operate. Jordanian communities, notably in the cities of Zarqa and Maan, have hosted jihadist sympathizers who have joined and led terrorist groups in neighboring states and have, themselves, staged large-scale attacks in Amman.
The security forces, however, have proven effective at mitigating planned terrorist attacks. They benefit from efficient intelligence services, which operate domestically and are embedded in neighboring states. Nevertheless, terrorism continues to pose a threat. The last significant attacks were in December 2016, with Islamic State-claimed shootings in Al-Karak city in southern Jordan.
A 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 is pegged to the U.S. dollar. The country has a large current account deficit that will be partly financed by inward foreign investment, debt inflows and donor support. Foreign reserves are rising and in December 2023 were equivalent to 7.9 months of current external payments. This should provide sufficient support to maintain the peg.
External conditions and political resistance to further austerity are challenging. Jordan will retain U.S. loan guarantees and access to foreign borrowing at concessional rates from multilateral institutions. This means it will be able to meet its repayments fully; however, it 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 opens 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. He also received 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 the U.S. Congress, Amman 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, credit challenges are still pertinent. They include high government debt and social pressures stemming from weak growth and high unemployment. These will continue to constrain creditworthiness; however, the government's commitment to structural reforms and medium-term fiscal consolidation planning, alongside international support for Jordan from the U.S. 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 drop to 7% of GDP in 2023, from 7.9% in 2022. In 2026, it is estimated to dip as low as 4.1% due to increased tourism inflows and a lower import bill, as commodity prices are anticipated to decline.
The conflict between Israel and Hamas has increased geopolitical risks due to its uncertain duration and the potential for further escalation; however, in the short term, these risks are offset by substantial international support for Jordan, both multilaterally and bilaterally. This support includes military and economic aid from the U.S. as well as reduced vulnerability to fluctuations in food and energy prices and potential supply chain disruptions.
Despite facing substantial external pressures, such as social unrest in the region (e.g., the Arab Spring) and conflicts in neighboring countries (Iraq and Syria), Jordan has proven resilient. It has managed to maintain economic and political stability; however, these events have reduced economic growth and increased government debt. More conflict, even if Jordan remains uninvolved, could undermine growth prospects and amplify the challenges associated with fiscal consolidation.
