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Expropriation Risk: 39 39 41 41 ► Political Violence Risk: 57 57 59 58 ▼ Terrorism Risk: 45 45 45 46 ▲ Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 75 75 66 75 ▲
TREND ▲
King Abdullah II instructed former Prime Minister Samir Rifai in June to form a committee to reform the kingdom’s political system. The order was aimed at assuaging rising public discontent following protests over the government’s COVID-19 response, and at distracting attention from the Hashemite family feud.
Still under formation, the committee will comprise 92 members drawn from across public life. While the committee’s remit is to evaluate elections and political parties’ laws, and recommend changes to deepen Jordan’s democratic processes, it is unlikely to make much progress.
Creating such committees over the past 20 years has become an established means for defusing government-public tension; few committees, if any, have enjoyed success in implementing meaningful reform. The new commission looks to be no different.
Prime Minister Bisher Al-Khasawneh, appointed in October 2020, will come under increasing pressure in coming months as the government's COVID-19 response has proven largely ineffective and as the economy continues deteriorating. Most Jordanian prime ministers serve for only 18 months and Al-Khasawneh looks set to do the same; he will likely be replaced in early 2022, especially if COVID-19 resurges in coming months and overwhelms Jordan's health services.
Jordan has turned to the United Arab Emirates for oxygen provisions, following seven patients dying from oxygen supply shortages in Salt. The deaths, which highlight the shortcomings of government capability in handling COVID-19, led to protests in Salt (traditional stronghold for the ruling Hashemite family) and other cities. The government has reshuffled ministers in response, though there is little public confidence the reshuffle will bring improvement.
Coupled with the health crisis, the country has faced a worsening financial crisis, which will undermine economic reform efforts and lead to widespread protests. The International Monetary Fund (IMF) and Jordan reached staff-level agreement on the second review of its extended fund facility arrangement in March 2021, reflecting Jordan's strong performance relative to qualitative structural benchmarks on a broad range of reforms and the fulfilment of quantitative performance criteria. The IMF staff supported Jordan's request to augment the facility by about USD200bn to a total amount of about USD1.5bn.
Although near-term fiscal targets have been relaxed, 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, will all help to ensure debt falls below 80% of gross domestic product (GDP) by end-2025, thus preserving the programme’s debt sustainability objectives.
Debt is currently 90% of GDP. However, decline in government debt is likely to be slowed by the incurrence of new guaranteed debt of the National Electric Power Company, which is expected to be just short of 1% of GDP a year in 2021-22, to cover a renewed widening of its operating deficit. This follows the coming on stream of a new oil-shale power purchase agreement. The government hopes to reduce the operating deficit through efficiency gains and arbitration on the power purchase agreement. Jordan’s economy is expected to grow by 1.4% in 2021 and 2.2% 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 mean widespread protests during the next six months. There are also persistent elite-level frictions, with the feud within the ruling Hashemite family between King Abdullah and his half-brother, Prince Hamzah bin Hussein.
There is also increasing discontent among the Transjordan tribes -- the Hashemite's core constituency -- with Abdullah's neoliberal reform agenda, that has harmed their 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.
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 provided that the investors concerned are fairly and speedily compensated, in a convertible currency. The only case in which expropriation is likely to take place is in the interest of national security; it usually amounts to confiscation of land. There have been no expropriation cases against foreign investors in Jordan, at least in the past five years, and the expropriation risk remains low.
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, driven by continuing dissatisfaction with government’s pandemic responses and the deteriorating standard of living (a long-standing issue that COVID-19 has exacerbated). 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 in Jordan, given its proximity to conflicts in neighbouring Iraq and Syria where terrorist groups such as Islamic State (IS), 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 US 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 IS-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 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 in July 2021 were equivalent to 9.2 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 COVID-19. 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 the 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.
In June 2021, Fitch affirmed Jordan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a negative 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. However, the negative outlook reflects the risk that government debt deteriorates further amid an uncertain recovery and a difficult social context following COVID-19.
Jordan's general government deficit widened to 5.4% of GDP in 2020, from 1.4% in 2019, driven by a 40% collapse in non-tax revenue, despite a 6% increase in tax revenue due to government efforts to improve tax collection. Spending growth was contained at 4%, reflecting a modest pandemic support package and offsetting measures towards expenditure restraint, including a freeze on civil service hiring and bonuses.
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