To provide an update on key economic developments and policies over the past six months. To assess the implications of these developments and other changes in policy for the outlook for the country.

Needs

A key objective for Jordan is to move up the value chain, as for example, in textiles, where it would do well to gradually exit the lower end of this sector, where international competition with lower-cost producers is stiff. It would also seem appropriate to diversify the industrial structure and reorient public support to higher value-added sectors (such the pharmaceutical sector). There is a need to launch a knowledge- and innovation policy initiative that could accelerate reform and mobilize popular support, consisting of a multiyear national effort to turn Jordan into the region’s most innovative economy within 3–5 years.

Main Findings

Economic activity remained buoyant in 2012 and early 2013, in part due to weak pass-through of external price shocks, and to resilient domestic demand. For 2012, growth reached 2.6%. Mounting fiscal and external imbalances have yet to be clearly addressed. Central government finances are in dire straits, with 2012 losses in excess of 5 percent of GDP. Gross public debt soared to 80 percent of GDP at end-2012, up from 71 percent of GDP at end-2011. The aggregate economic impact of Syria’s conflict has been modest to date though sectoral impacts have been material. Syrian refugee inflows and the rerouting of regional tourism towards Jordan contributed to boosting domestic demand and supporting the recovery of tourism and related services. The influx of Syrian refugees, significantly increased pressure on public service provision, worsened public finances, and is also expected to have impacted Jordanians working in the informal labor market. A decline in exports following closure of Syrian transit routes, combined with rising imports due to Syrian refugee demand, also worsened Jordan’s trade balance. The steady and structural decline in revenues increased the vulnerability of Jordan’s public finances to exogenous shocks. Revenue collection shrank by 9.4 percent of GDP from 2007 to 2011. Jordan has developed a valuable knowledge economy; further reforms are needed for the sector to fulfill its potential, not least in terms of quantity and quality of jobs. The country’s R&D infrastructure is solid and its scientific production relatively high. ICT-based industries such as business process outsourcing and call centers are also areas in which Jordan has a comparative advantage.