Previous Quarterly Editions
Expropriation Risk: 39 39 39 41 Political Violence Risk: 57 57 57 59 Terrorism Risk: 45 45 45 45 Exchange Transfer and Trade Sanction Risk: 55 55 55 55 Sovereign Default Risk: 75 75 75 66
TREND ▼
Prime Minister Bisher al-Khasawneh, who was appointed on October 7, 2020, will come under increasing pressure over the next six months as the government's response to COVID-19 has proven to be largely ineffectual and the economy continues to deteriorate. While the previous government imposed earlier draconian measures to combat COVID-19 and enjoyed some success, the pandemic’s resurgence has overwhelmed Jordan's health services and left it with one of the highest fatality ratios in the world.
The kingdom has turned to the United Arab Emirates to provide it with oxygen provisions following the deaths of seven patients from a shortage of oxygen supplies at Al-Hussein Salt New Hospital in Salt. The deaths highlight the shortcomings of government planning and capability to meet the COVID-19 challenge. They also led to a series of protests, not only in Salt, which is a traditional stronghold for the ruling Hashemite family, but also in other cities in the kingdom. The government has already reshuffled ministers in response to the crisis, though there is very little confidence among the public that the reshuffle will lead to improvement.
Coupled with the health crisis, the country has faced a worsening financial crisis, which will not only undermine efforts to reform the economy but also lead to widespread protests. The International Monetary Fund (IMF) approved in March 2020 Jordan’s four-year Extended Fund Facility of SDR926.37mn (about USD1.3bn, equivalent to 270% of Jordan’s quota in the IMF). The programme aims to reduce the country’s record USD40bn public debt, equivalent to 94% of gross domestic product (GDP), and increase growth beyond its average 2-2.5%, and to decrease youth unemployment, which has risen to 19%.
Although near-term fiscal targets have been relaxed and debt is currently 90% of GDP, debt will surely fall below 80% of GDP by the end of 2025, due to; the offsetting saving measures taken in 2020, the corrective measures included in the fiscal year 2021 budget, the partial phasing out of temporary stimulus measures, the planned adjustment in 2021-24 and the continued robust donor support, and thus preserve the programme’s debt sustainability objectives. Jordan’s economy is expected to grow by 1.8% in 2021 and 2% in 2022, according to the World Bank.
The combination of poor COVID-19 management, increasing financial dependency upon the United States and Gulf Arab states and resulting unemployment (at an all-time high of 23%) will give rise to widespread protests during the next six months. There are also elite-level frictions.
The feud within the ruling Hashemite family between King Abdullah and his half-brother, Prince Hamzah bin Hussein, which led to the latter being temporarily held under house arrest in early April 2021, while 20 others were rounded up and accused of seditious acts, has ended. However, the episode highlights persistent underlying tensions within the ruling family, which date back to the time of the late King Hussein's demise and his late instalment of Abdullah as crown prince and insistence that Hamzah (Queen Noor's son) becomes next crown prince.
It also points to increasing discontent among the Hashemite's core constituency, the Transjordanian tribes, with Abdullah's neoliberal reform agenda that has harmed their direct interests, and their growing support for Hamzah and desire for him to succeed to the throne. It is highly unlikely that Hamzah will displace Abdullah, but the move made against him indicates just how concerned the king is that his half-brother poses a threat to his rule.
TREND ▲
Investment Law No. 30 for the Year 2014 includes guarantees against expropriation. Article 42 of the law provides that no economic operations can be expropriated, directly or indirectly, unless this is done in the public interest and provided that the investor or investors concerned are fairly and speedily compensated, and in a currency that can be converted. There have been no expropriation cases in Jordan, not at least in the past five years, and the risk of expropriation is very low.
Political violence poses low direct risk in Jordan. There is likely to be an increase in incidents of political violence over the coming period as discontent and protests in urban and rural centres rise across the country, driven by continuing dissatisfaction with government responses to COVID-19 and the deteriorating standard of living, the latter of which is a long-standing issue that COVID-19 has exacerbated.
The security forces will likely adopt a more robust response to protestors than they did in the teachers' union protests in 2018, given sensitivities at the Royal Palace over the Prince Hamzah incident, and it will lead to skirmishes and possible standoffs, especially in tribal areas. The risk of incidental political violence therefore will increase.
TREND ►
There is a persistent medium risk of terrorism in Jordan, given its proximity to conflicts in neighbouring Iraq and Syria where terrorists groups, such as Islamic State (IS), al-Qaida and al-Qaida-linked groups, continue to operate. Moreover, Jordanian communities, notably in Zarqa and Maan, have hosted known sympathisers who have joined and led terrorist groups operating in neighbouring states and have, themselves, staged large-scale attacks in Amman, especially in 2004-06.
The security forces, however, have proven effective at mitigating planned terrorist attacks and benefit from efficient intelligence services, which not only operate in Jordan but are also deeply embedded in neighbouring states.
Nevertheless, terrorism continues to pose a threat. The last significant attacks were carried out in December 2016 when a series of shootings took place in the city of Al-Karak in southern Jordan. The attack started in the vicinity of Al-Karak, where a group of unidentified militants ambushed emergency responders and then moved into the city, attacking police patrols and the local police station, and finally seeking shelter in the historic Crusader-era Kerak Castle, a popular tourist attraction. IS claimed responsibility for the attack against the "apostate Jordanian security forces".
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 US dollar. The large current account deficit will be partly financed by inward foreign direct investment, debt inflows and donor support. Foreign reserves are rising and are equivalent to around eight months of current external payments, which should provide sufficient support to maintain the peg.
External conditions and political resistance to further austerity remain challenging. Jordan will retain US 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 credit challenges, including high government debt and social pressures stemming from weak growth and high unemployment, have been aggravated further by the COVID-19 shock. These will continue to constrain Jordan's creditworthiness, although the government's commitment to structural reforms, medium-term fiscal consolidation planning and international support for Jordan from the United States and Gulf Arab states mean that near-term negative trends will likely reverse over the next few years.
In November 2020, Moody's affirmed Jordan's B1 credit and maintained the stable outlook. They also affirmed long-term sovereign credit rating at 'BB-'. Although the government deficit stands at USD1.97bn in the 2021 budget (5.8%), it is expected gradually to narrow to 2.6% in 2022, as revenue recovers with the economy, pandemic-related tax reliefs, and as the government maintains expenditure restraint.
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