Policy Briefs
Fiscal Policy, Private Sector Development, and Social Outcomes in an Indebted Arab Country: Balancing Austerity with Pro-Growth Policies in Jordan
No.
PB 114
Publisher
ERF
Date
August, 2023
In a nutshell
- Jordan’s economic trajectory has been characterized by long stop-go cycles. Real GDP per capita peaked in the early 1980s followed by a precipitous decline in 1992, then peaked again in the early 2010s. It has since declined to levels reached 20 and 40 years ago.
- These long swings have been associated with an increasing reliance on borrowing and more so on external financing, resulting in an unprecedented level of the debt-to-GDP ratio and a threefold increase in servicing the debt in the last decade.
- The level of debt doubled during the 2000s, but this went largely unnoticed as the debt-to-GDP ratio was reduced by half due to the high economic growth rates of that decade.
- The reasons why “the roof was not fixed when the sun was out” reflect political economy considerations and weak macroeconomic management that, as a consequence or intent, have reduced completion and constrained private sector development.
- Moving forward, in addition to volatile external factors – from geopolitics to interest rates – economic growth and the debt-to-GDP ratio will depend on: long-known and currently acknowledged policies by the government aiming to improve governance; the rationalizing, not necessarily reduction, of public expenditures; the reduction of growing pension liabilities and expansion of the social safety net; the raising of revenues in a non-regressive way; the attraction of investments; the increase of economic and political contestability; and the gaining of social acceptance.
Policy Affiliates
Ibrahim Saif
CEO, Jordan Strategy Forum
Authors
Zafiris Tzannatos
Senior Fellow, Jordan Strategy Forum