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Expropriation Risk: 41 45 45 47 ▲Political Violence Risk:59 59 59 57 ▼Terrorism Risk:45 46 46 46 ►Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ►Sovereign Default Risk:75 66 75 75 ►
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Western influence in Jordan far outweighs Eastern influence, something very unlikely to change in 20 years. U.S. commitment to Jordan's security is unwavering irrespective of the sitting U.S. president. Moreover, current President Joe Biden renewed in July an agreement to provide USD 1.45 billion aid per annum over the next five years. Jordan enjoys close relations with the U.K., based on shared historical interests and strong ties between the ruling families and their respective militaries. Neither Russia nor China enjoys such close ties with Jordan.
The direction of travel has not changed over the past five years, though in a bid to diversify its economy and to attract foreign investment from China and Russia, the Jordan Investment Commission has targeted both countries. Previously, Jordan sought Russian support in building a nuclear reactor but only after operators from European states, notably Germany, declined because of the poor commercial terms offered.Western states have secured their interests in Jordan through a combination of economic, military, political, and diplomatic support. The U.S. and Jordan have a 1996 Status of Forces Agreement, a 2006 Acquisition and Cross-Servicing Agreement, and a 2021 Defence
Cooperation Agreement, reflecting the strategic importance of Jordan to U.S. foreign policy in the region. Given the all-encompassing U.S./Jordanian military relationship, and Amman's penchant for arms sales with the U.K. and France, neither China nor Russia has much scope to sell material to Jordan’s armed forces.
To date, China has invested in several infrastructure projects, including the construction of Jordan's first shale oil-fuelled power plant and the expansion of the Amman-al-Salt Road, which amounted to USD31.5 million. However, these projects are small compared to U.S. investment over the past four decades.
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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, usually amounting to confiscation of land. Nonetheless, there have been no expropriation cases against foreign investors in Jordan, at least in the past five years, therefore the expropriation risk remains low.
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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 exacerbated by COVID-19. The security forces will likely adopt a more robust response to protestors which would 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-Qaida, and al-Qaida-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.-led 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 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, which 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 the Caesar Act enjoys non-partisan support in Congress, Jordan will depend upon both the White House and goodwill amongst its supporters in Congress to ensure that Jordanian businesses are not subject to sanctions.
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 US policymakers and, therefore, keeps Amman on the sanctions radar.
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 U.S. and Gulf Arab states mean near-term negative trends will likely reverse over the next few years.
The economy started to recover in 2021, reaching 2.1% growth, with further improvements expected in fiscal performance and narrowing of the current account deficit. Growth was led by a broad-based recovery of the services and industrial sectors. Yet, unemployment, which stands at 23%, remains high, particularly for youth, while labour force participation is among the lowest regionally. Although inflation remained subdued in 2021, it has picked up in recent months.
Growth is projected to strengthen, reaching 2.4% in 2022, led by a recovery in domestic demand and supportive government policies. On the supply side, acceleration in the recovery of tourism and services are expected to boost the economy. Growth dynamics over the medium-term, however, hinge on global economic conditions, headwinds from the Ukraine/Russia crisis and associated sanctions, and timely implementation of key reforms to address structural challenges. Reflecting elevated international commodity prices, headline inflation during 2022 is projected to reach 3.3%. The current account deficit is projected to widen to 6.7% of GDP in 2022, as a larger fuel import bill dominates strong tourism receipts and robust exports.
In November 2020, Moody's affirmed Jordan's B1 credit and maintained the stable outlook. It also affirmed the long-term sovereign credit rating at 'BB-'. Although the government deficit stands at USD1.97 billion in the 2021 budget (5.4%), 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. Furthermore, debt service is expected to fall in 2022, for the first time in years, with cheaper financing that replaced commercial borrowing with soft loans from major donors.
In August 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 high government debt, weak growth, risks stemming from domestic and regional politics, and large external financing needs.
Jordan has largely been shielded from the fallout of the Russia/Ukraine crisis by long-term gas supply agreements, large strategic wheat reserves, soaring fertiliser exports, and a strong recovery of its tourism sector.
According to the 2022 budget approved by parliament in February, total public debt is also expected to reach JOD38.8 billion (USD 54.7 billion), or 114.7% of GDP, with a margin to decrease to JOD30.8 billion, 91% of GDP, when excluding the debt of the Public Institution for Social Security.
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