Index Trend Previous Quarterly Editions
Expropriation Risk: 47 4 7 ► Political Violence Risk: 57 57 ► Terrorism Risk: 46 46 ► Exchange Transfer and Trade Sanction Risk: 55 ► Sovereign Default Risk: 83 82 ►
Overall Risk Temperature TREND ►
Special topic: Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Medium Low Low Low
Cost-of-living protest risk in 2023* Medium 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 calculations, see the introductory essay.
Jordan has suffered from a series of global and regional shocks over the decades, and these have curtailed the state’s ability to insulate its citizens from austerity. These shocks have emanated from regional wars, including the 1967 and 1973 wars with Israel; Iraq’s invasion of Kuwait; the U.S.-led war against Iraq, and Syria’s civil war.
Consequently, Jordan has accommodated and absorbed large refugee populations from Palestine, Kuwait, Iraq, and Syria and by doing so ‘extracted’ rent from neighbouring oil-rich states, the U.S., and European countries, in order to help host refugee communities. While the U.S. continues to provide annually USD1.5 billion to Jordan, the willingness and ability of other states to lend support often depends on their own fiscal status. As such, global economic crises, such as the COVID-19 pandemic and the Russia/Ukraine crisis, and the related energy and food insecurities and price inflation, compromise donor countries’ ability to extend further critical aid. This, in turn, compounds financial shocks.
Jordan’s inflation rate increased to 3.9% in March 2023, easing from a 4.3% gain in February. The primary upward pressures came from fuel and lighting (31.6%), dairy products and eggs (9.5%), and transportation (3.7%). The rising cost of energy and food imports, coupled with high unemployment at 22.9% (particularly among youth: 50% of under 30s, based on World Bank estimates), and IMF-directed measures to reduce state subsidies have given rise to widespread protests and a series of strikes, especially among truckers and transport workers.
Clashes with demonstrators resulted in the killing of security forces, including the deputy police chief of Maan, and protesters. Eventually, the government spent 500 million dinars on capping fuel prices.
Jordan is accustomed to protests and unlike other states in the region, the government and security services carefully manage, rather than curtail or quash them. Periods of austerity have often led to major protests in the south of the country, in cities, such as Maan, Kerak and Tafila, where the ruling Hashemite family draws upon the support of major tribal confederations.
However, the protests, as such, pose no threat to Jordan’s stability, but amount to an expression of widespread dissatisfaction, which more often than not, evokes a response from the king to reinstate subsidies and shore up loyalty to the monarchy once more.
Expropriation Risk 47 (Medium) TREND ►
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.
Political Violence Risk 57 ( Significant) TREND ►
There is likely to be an increase in political violence in coming months, as discontent and protests in urban and rural centres rise across the country. As seen above, these protests are being driven by the deteriorating standard of living, a long-standing issue COVID-19 had exacerbated.
The security forces will likely adopt a more robust response to protestors which is likely to lead to skirmishes and possible standoffs, especially in tribal areas.
Terrorism Risk 46 (Medium) TREND ►
There is a persistent medium risk of terrorism in Jordan, given the country’s proximity to conflicts in neighbouring Iraq and Syria, where terrorist groups such as Islamic State, al-Qaeda, and al-Qaeda-linked outfits operate. Moreover, Jordanian communities, notably in Zarqa and Maan, have hosted sympathisers who have joined and led terrorist groups operating in neighbouring states and have, themselves, staged large-scale attacks in Amman.
The U.S.-triggered 2021 evacuation from Afghanistan and the complex attacks staged by Islamic State of Khorason Province could inspire local sympathisers in Jordan.
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 neighbouring 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.
Exchange Transfer and Trade Sanctions Risk 55 (Significant) TREND ►
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 June 2022 were equivalent to 8.7 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. The rating is constrained by wide fiscal deficits and high public debt, but the government is trying to address these issues.
Jordan's re-opening of its border with Syria and its call for other states to normalise with the Assad regime opens the kingdom to the risk of sanctions, especially as Syrian goods transit onwards to the Gulf states. However, King Abdullah was careful to secure implicit support from the White House before re-opening 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 non-partisan support in Congress, Jordan will depend upon both the White House and goodwill among its supporters in Congress to ensure 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 it will remain a high-profile issue drawing the attention of U.S. policymakers and, therefore, keeps Amman on the sanctions radar.
Sovereign Default Risk 82 (High) TREND ►
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 – is still pertinent. These will continue to constrain Jordan's creditworthiness, although 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 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 normalise and high demand for imports post-COVID 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 the government's debt will decline to pre-pandemic levels of around 78% of GDP by 2026. The public deficit is likely to narrow, by 16% in 2021 and 9% in 2022, 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 USD17.2 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 November 2022, 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.
