Jordan economy may flatline amid Arab Spring revolts

Prolonged political unrest threatens to weaken Arab state’s frail fiscal situation, say analysts
Jordan economy may flatline amid Arab Spring revolts
By Elizabeth Broomhall
Mon 23 May 2011 08:58 AM

Jordan’s economy could face stagnation this year as political unrest in the region threatens to unhinge its biggest industries and further weaken its fiscal situation, analysts have said.

The Arab country, which has limited natural resources and depends largely on political ties to uphold its economy, is challenged with reducing its budget deficit and minimising public debt.

Should the political unrest worsen or last the summer months, analysts fear it may deter foreign investment and curb tax revenues, while pushing up commodity price.

 “Jordan is one of the few economies in the Middle East with scant natural resources,” said Brad Philips, an economist for the MENA region from IHS Global Insight.

“It has been affected relatively more by the political turmoil than the wealthy Gulf countries or energy exporting countries of North Africa.”

In the face of prolonged political turmoil, he said, the government could be forced to provide concessions such as wage hikes and subsidies, causing it to tighten monetary policy.

Increases in the cost of fuel, construction materials and food meanwhile, are expected to widen Jordan’s trade deficit.

Oil prices are expected to cause the biggest issue, he said, Brent crude hitting a 32-month high in March, reaching more than $127 a barrel.

“Excessively high commodity costs and tightening monetary policy could lead to economic stagnation,” added Philips.

Other analysts have similar views, but emphasize the risks to tourism and foreign investment, the backbone of Jordan’s economy.

In February this year, the industry took a $70m hit as a direct result of the ongoing civil unrest in Egypt, government data showed. It’s a significant blow to an industry which last year generated revenues of $2bn in the first seven months of the year alone.

 “Tourism was hit most by the unstable conditions,” said Zayyan Zawaneh, a former adviser at the Central Bank of Jordan, the Ministry of Finance and the International Monetary Fund. “Investors are also more cautious than before, and are currently taking a ‘wait and see’ approach. If the unrest continues into the summer, the whole graph of the economy will be affected, starting a chain of reactions.”

John Sfakianakis, chief economist at Banque Saudi Fransi said both tourism revenues and foreign investment will fall in 2011.

Weighing in Jordan’s favour is its political stability, when compared with neighbouring Arab states, which analysts say will boost its chances of receiving financial aid from the West.

Meanwhile, its key industries, which include trade, medical tourism and repatriated remittances, have also been less affected than reports would have us believe, they say. 

 

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