Jordan’s Soft Recovery Through Government Spendings

30 Apr 2021   |  Jordan

Jordan's Ministry of Finance has estimated public spending for 2021 to reach JD 9.93 Billion, accounting for a deficit of JD 1.18 Billion or 3.7% of last year's GDP.

The budget will prioritize joint ventures with private sectors, student loans, scholarships, and governorate budgets. The government has also made vital points to crack down on tax evasion with the hope of recovering over JD 164 Million.

While the foreign investments are expected to drop to JD 577 Million, government spending is increasing, with running expenses standing at JD 8.749 Billion and capital spending at JD 1.181 Billion.

The running costs will advocate for 65% of government salaries and pensions, 17% for interests on bonds, 10% for operational costs, and the other 8% for other expenses.

Government Policies and Vaccination Program

Several policy measures are expected to provide ease in the economic recovery, such as public sector employees increase, social security programs, and minimum wage standards. Furthermore, as the relationship between the U.S. and Gulf countries expand, exports will also perform better.

However, the country's economic growth is still heavily reliant on the country's structural weakness and the threat of a prolonged pandemic.

Another high-priority sector for Jordan's government is the healthcare sector; the government seeks to maintain healthcare expenditures, achieve social protection, increase customer purchasing power, and eventually attract investments in the industry.

The priority in healthcare is due to the COVID-19 spiking cases throughout the country. With the majority of the demographic concentrated in Amman, many hospitals are overwhelmed by the occurring demands.

Jordan's officials have responded to the issue through frequent lockdowns and extended curfew hours alongside an accelerated vaccination program.

Jordan’s Economic Forecast

Jordan’s Economic Forecast

All in all, the World Bank has predicted a 1.8% contraction for 2021, 6% lower than the forecast of Jordan's Finance Minister. The forecast depends on the assumptions of economic activities without lockdown disruptions.

In 2020, the country's balance of payments was strained due to tourism collapse, resulting in an increase in unemployment by 22%. Both the World Bank and the International Monetary Fund (IMF) have predicted a bounce of similar magnitude in 2021.

While sectors gradually reopen, the open-access is putting refugees in a vulnerable position, as the pandemic placed the country in a devastating condition. Therefore, the government focuses on the elderly shelters and refugee camps for its first vaccination rollout program. To date, over 1.200 refugees have received at least the first dose of the vaccines.

However, the country is currently facing recurring second and third waves of COVID-19 infections, further dragging the economic indicators to deteriorate.

The government aims to reduce the primary deficit to 3.7% GDP from 5.7% in 2020 by maintaining fiscal consolidation and reforms to combat tax evasion, eventually enabling the country to release over USD 1.4 Billion in tax exemptions.

The stern commitment of Jordan's government to IMF and investors is improving the positive sentiment for its capacity to maintain stable sovereign ratings. Going forward, Jordan's economic outlook heavily depends on the rebound in global demands and international travel, and the pace of domestic vaccination.

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