Jordan - Overview of economy

Jordan is a small Arab country with inadequate supplies of water and other natural resources such as oil and coal. Until the 1950s the economy was underwritten mostly by Britain, and in 1967 foreign aid still represented 60 percent of government revenues. The most important event for the Jordanian economy since the end of the World War II was the quadrupling of world oil prices in October 1973.Although Jordan possessed virtually no oil itself, it became inextricably linked to the other economies in the region. Between 1973 and 1981 the Arab budget (the sum of all Arab governments' budgets) rose more than 16-fold, from US$71.8 million to US$1.179 billion, and during the same period Jordanian exports rose almost 13-fold from US$57.6 million to US$734.9 million. In addition, Jordan

sent hoards of doctors, scientists, engineers, construction workers, and teachers to the Persian Gulf who sent home remittances of more than $US1 billion between 1973 and 1981. Even after deducting the dinars flowing out of the country from the 125,000 foreigners working in unskilled jobs, the net remittances rose from US$15 million in 1970 to US$900 million in 1981. During this oil boom, Jordan's annual real GDP growth averaged 10 percent.

This rapid economic growth combined with the increase in oil prices also caused prices and import bills to rise. Then when world oil prices crashed in the early 1980s, reductions in both Arab aid and worker remittances slowed real economic growth to an average of roughly 2 percent per year. Imports—mainly oil, capital goods , consumer durables, and food—outstripped exports with the difference mostly covered by aid and borrowing. The Jordanian government was immediately forced to downsize the public sector , stop construction projects, and cut subsidies .

In mid-1989 the Jordanian government embarked upon debt rescheduling negotiations and agreed to accept an International Monetary Fund (IMF) structural adjustment program , a lending program designed to correct an economies problems. Such programs usually involve de-valuing the currency, reducing government spending, lowering the budget deficit , and implementing broad structural reforms. The Gulf War crisis, begun in August 1990, however, aggravated Jordan's already serious economic problems, forcing the government to shelve the IMF program, stop most debt payments, and suspend rescheduling negotiations. Aid from Gulf Arab states, worker remittances, and trade all contracted while refugees flooded into the country, producing serious balance of payments prob- lems. (Jordan had to increase its imports, which pushed the trade imbalance further into deficit.) This action stunted GDP growth and strained government resources. The economy rebounded in 1992, largely due to the influx of capital repatriated by workers returning from the Gulf, but the recovery was uneven throughout 1994 and 1995. The government is currently implementing the reform program adopted in 1992 and continues to secure rescheduling and write-offs of its heavy foreign debt , which amounted to US$8.4 billion in 2000. A new IMF package was approved in April 1999 that entitles Jordan to funds worth US$174 million over 3 years. The U.S. Agency for International Development (USAID) agreed to an economic assistance program for Jordan in 1999 that amounted to $150 million. However, debt, poverty, and unemployment (which stood officially at 15.5 percent in 1999) remain Jordan's biggest on-going problems.