Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
Jordan is a developing, poorly diversified and small economy within the Middle East region. Jordan’s GDP returned to growth in 2021, mainly due to the recovery of tourism and related services, retail trade and the restart of construction. Given the previous slump in 2020, growth of 2.5% indicates a slow pace of economic recovery. It should continue, however, exceeding the value of 3% before 2023 would be an unexpected surprise given the state of the Jordanian economy and the postponement of the necessary reforms. Official unemployment fell from a record 25% to 22%. Despite efforts to reduce the public debt by formally dividing the billions owed by the state energy concern, the social security fund and other items, it remains at over 100% of GDP. The Jordanian budget is permanently in deficit and relies on foreign financial aid every year for its existence. An important source of cash inflows are remittances from Jordanians working abroad, amounting to around JOD 1 billion (approximately €billion) per year. The government is preventing more significant price increases as a result of the war in Ukraine by regulating the prices of basic food and fuel. Even so, inflation could approach 4% in 2022, which is a significant difference compared to previous years. Check ebizdir for economical facts of Jordan.
Jordan has long been plagued by a lack of capital, whether private or for public investment. The Jordanian economy is strongly oriented towards services, which in the long term create up to 2/3 of GDP and employ 3/4 of the economically active population. The key segment is tourism, including healthcare, followed by financial services, retail, transport, and the share of ICT is growing. The industry contributes about 20% to the GDP, although in 2020 it experienced a dramatic drop by almost a third, the following year brought a fundamental positive change in the form of 37% growth, which should continue, albeit to a lesser extent. The main share in this is the chemical industry, which significantly strengthened in 2021 and became the main driver of Jordanian exports. After the chemical industry, the food industry is important, although it cannot cover even a part of the country’s needs. It is caused, among other things, by that agriculture has difficult geographical conditions and requires artificial irrigation. It consumes about 2/3 of the available water, while generating only about 5% of GDP. One of the priorities is to modernize it and increase its own food production. Jordan imports 98% of food items and 97% of energy resources. In addition to oil, gas and food, the most important imports are passenger cars and other means of transport, engineering equipment, electronics, pharmaceuticals and other missing raw materials, such as steel. Jordan exports (and produces) a relatively narrow range of goods, which reduces the benefits of its relatively high-quality network of trade agreements, increases the risk arising from fluctuations in international demand and supply, and causes a significantly negative trade balance. The main export items are potash and phosphates (and their products), general chemical products and textiles.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | 3.8 | -5.1 | 2.5 | 2.7 | 3 |
| GDP/population (USD/PPP) | 9,810.00 | 9,380.00 | 9,720.00 | 10,200.00 | 10,530.0 |
| Inflation (%) | 0.8 | 0.3 | 1.4 | 3.4 | 2.7 |
| Unemployment (%) | 19.1 | 25 | 22 | 18 | 17.5 |
| Export of goods (billion USD) | 8.3 | 7,8 | 8.2 | 8.5 | 8.7 |
| Import of goods (billion USD) | 19.1 | 14.3 | 18.6 | 21.5 | 23.5 |
| Trade Balance (Billion USD) | -8.7 | -7.4 | -9.5 | -10.5 | -11.1 |
| Industrial production (% change) | 1.5 | -30 | 37 | 9 | 3.2 |
| Population (millions) | 10.6 | 10.8 | 11 | 11.2 | 11.5 |
| Competitiveness | 57/63 | 58/63 | 49/64 | ON | ON |
| OECD export risk | 05.VII | 05.VII | 05.VII | ON | ON |
Source: EIU, OECD, IMD
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -6.7 |
| Public debt (% of GDP) | 101.9 |
| Current account balance (billion USD) | -3 |
| Taxes | 2022 |
| AFTER | 20% |
| F.O | 5-30% |
| VAT | 16% |
The Jordanian budget has been in deficit for a long time, the deficit for 2022 is expected to be around 9%. The main sources of the state treasury are taxes and foreign aid. More than two-thirds of the state budget relies on tax revenues, and money from donations and loans makes up about 10% of expected state budget revenues. Increasing taxes is a controversial topic in the current situation, although it will probably be necessary in the foreseeable future – the surprise of 2021, when the new tax collection system brought an unexpectedly positive effect (including a 2% lower deficit), will probably not be repeated. At the same time, social tension has already been significantly increased by even a partial easing of extensive subsidies for electricity and water prices in 2022, which are one of the permanent burdens on Jordanian state coffers. A novelty of the budget is the planned revenue item from taxes from grants from 2022, an amount of at least 100 million EU per year is expected. The largest part of the budget goes to the security forces (30% + an additional approx. 15% for army pensions) and the state administration (25%). Debt service regularly requires about 15% of the budget. In 2022, 43% more is earmarked for capital expenditure than in the previous year (now approx. JOD billion, i.e. almost EUR 2 billion). The reduction of the national debt from 122% of GDP in 2020 to 101.9% in 2021 was achieved by dividing the amount related to the state energy concern NEPCO (now almost 7 billion USD), the debt of the Social Security Fund and other items. Half of the foreign debt is with private creditors, the rest are preferential loans from states and international institutions such as the International Monetary Fund or the World Bank. The foreign exchange reserves of the central bank are currently close to 21 billion USD, and gold is 15 billion USD.
Banking system
The banking sector in Jordan generates roughly 18% of GDP. The key regulation is Banking Law No.28/2000, which, among other things, specifies different conditions for Islamic banks. The central bank supervises the financial market and grants licenses for banking activities. From a monetary policy perspective, a long-term peg of the Jordanian dinar to the US dollar at a rate of 0.71 JOD to 1 USD is essential. During the pandemic, the level of the base interest rate was reduced to a historic low of 2.5, currently at 3.25%. There are now 20 banking houses operating in Jordan. Five of them are foreign, while only CitiBank remains on the market from non-Arab ones. There are 4 Islamic banks on the market, one of which is foreign.
The Jordanian banking sector was established in 1948 when the Arab Bank, the first private financial institution in the Arab world, moved its headquarters to Amman. It continues to be the largest banking institution in Jordan (approx. 60% of all banking assets). It has more than 200 branches on five continents (including London, Frankfurt or Singapore), of which 81 are in Jordan. Bank of Jordan is a commercial bank with more than 100 branches, 18 of which are located in the Palestinian territories. Arab Jordan Investment Bank (AJIB) has 36 branches in Jordan and one in Cyprus. It has had an eponymous subsidiary in Qatar since 2006, in 2010 an association with London-based Jordan International Bank, which primarily focuses on trade finance, and in 2022, AJIB took over the Jordanian branch of the National Bank of Kuwait. Capital Bank was established as Export & Finance Bank in 1995 and specializes in a complete service for companies in Jordan and Iraq, while also owning a 61% stake in the National Bank of Iraq, and in 2022 it took over the Jordanian branch of Société Générale. Jordan Kuwait Bank was founded in 1976 by a group of Jordanian and Kuwaiti investors. It was the first in the country to introduce electronic banking. In addition to Jordan, it has branches in the Palestinian territories and Cyprus. Cairo Amman Bank also has branches in the Palestinian territories, as well as in Bahrain. In addition to Jordan, it has branches in the Palestinian territories and Cyprus. Cairo Amman Bank also has branches in the Palestinian territories, as well as in Bahrain. In addition to Jordan, it has branches in the Palestinian territories and Cyprus. Cairo Amman Bank also has branches in the Palestinian territories, as well as in Bahrain.
Tax system
The Jordanian tax system is quite confusing, the problem is mainly the large number of different exemptions and its frequent changes. Completing the review of Jordanian tax policy is also one of the main demands of the IMF in the field of economic reforms. Due to the state of state finances, a specific component of income tax is the national contribution tax intended for repayment of the state debt in the range of 1-7%. A general increase in taxes is also expected, but is still being delayed in view of the expected backlash from a large part of society.
You need to apply for VAT payment if your taxable turnover is over 30,000 JOD. Basic VAT is 16%, reduced between 0% – 10%. For some, especially luxury goods, it is significantly higher. Income taxes are paid once per calendar year by individuals who have resided in the country for 183 or more days per year, and only on income generated in Jordan. The rate is progressive according to the amount of income, the lowest tax is paid by people with incomes up to 5,000 JOD, namely 5%, its amount gradually increases to 30% for incomes above 1 million JOD. In the case of legal entities, the obligation to file a tax return arises automatically upon registration with the Ministry of Industry, Trade and Supply, without which it is not possible to carry out business activities in Jordan for even a single day. It is possible to choose whether it will be applied for a fiscal year or a calendar year. The basic tax, i.e. valid for non-exempt sectors, is 20% + 1% national contribution tax. It has been temporarily reduced by some sectors, but is raised annually to reach the standard level of 20% in 2024. Banks pay the most (35% + 3%). Very specific rules apply to companies registered in special free zones.
