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The Jordanian Economy: A Macroeconomic Narrative

By JORDAN STRATEGY FORUM

Economic narrative: The population of Jordan, estimated at 10.05 million in 2017, is composed of Jordanians (6.96 million) and non-Jordanians (3.09 million).

As commonly known, the Syrian civil war has resulted in a large influx of refugees. Naturally, these growth rates in the local and foreign-born population. (Figure 1) have many socio-economic implications including their impact on poverty, unemployment, per capita income growth, age dependency ratio, demand for public services, and sustainability of the environment.

The Jordanian economy has been finding it difficult to create enough jobs to reduce unemployment. The overall, male, and female unemployment rates have been rising and consistently high (Figure 2).

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The 2018 (2nd. quarter) figures show that these rates among the educated and young are even higher (Figure 3).

Within the context of the consistently high unemployment rates, real economic growth witnessed during the period 2000-2017 (Figure 4). This indicates that it could not reduce the extent of this challenge. Naturally, this implies that the “strong and consistent economic growth”, must be realized to make any significant impact on unemployment.

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Economists have always tried to understand why some countries enjoy “strong” and “stable” economic growth. Others witness “weak and volatile” growth or “stagnate” at low levels of output.

This effort has led various stakeholders to consider a myriad of factors like human capital, innovation and research and development activities, foreign direct investment, openness to trade, institutional framework, and others.

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Furthermore, it is argued that fiscal policy can be instrumental in generating real economic growth and development through investment in human and physical infrastructure! The following two quotations could not express the importance of fiscal policy any better.

“A typical developing economy collects just 15% of GDP in taxes, compared with the 40% collected by a typical advanced economy. The ability to collect taxes is central to a country’s capacity to finance social services such as health and education, critical infrastructure such as electricity and roads, and other public goods.” (IMF)

“Better infrastructure, both in quantity and quality, improves income distribution. This result, together with the proven role of infrastructure in enhancing productivity and growth, suggests that infrastructure development can have double effects on poverty reduction and inclusive growth… Education spending to enhance human capital could increase the earning power of lower-income groups disproportionately more” (IMF).

Within the context of the role of fiscal policy, it is interesting to note that total tax revenues to GDP ratio has been relatively low. (Figure 5). Moreover, total public spending to GDP ratio has been falling.

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The reason for this fall has been the consistent decrease in capital spending (Figure 6)!

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Therefore, the decrease in capital spending to GDP ratio must have had negative implications to the human and physical infrastructure of Jordan. These include public health, public education, and public transport.

This is why, “His Majesty King Abdullah II entrusted Dr. Omar al-Razzaz to form a new government.In the designation letter, HM has tasked the government with a myriad of objectives. To name but a few, these include stimulating real economic growth, generating sufficient employment opportunities, launching a national dialogue whose objective is to deliver a new tax law that achieves growth and justice, and enhancing the quality of public goods and services (school and university education, healthcare, and public transport).”

In conclusion, the government must have sufficient resources to meet its’ long-run and rising responsibilities. With sufficient financial resources, the government would be able to “prioritize” and “quantify” Jordan’s needs for public goods’ investment projects (human capital and physical infrastructure) in a comprehensive manner.