Jordan's Battle With Coronavirus Is yet to Start
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Commentary

Jordan's Battle With Coronavirus Is yet to Start

Laith Fakhri Alajlouni
09 April 2020

Amid the global turmoil caused by the COVID-19 outbreak, the Hashemite Kingdom of Jordan looked resilient in combating the virus outbreak. Jordan adopted harsh measures for the population and the economy with an unwavering intent to eliminate the virus. However, despite the proven efficiency of those measures in containing the virus, their economic impacts are still hard to fathom. These economic impacts show that Jordan’s real battle with the virus is not only on the health front but also on the economic front as well.
To contain the virus, the government of Jordan enforced a nationwide curfew in mid-March. This measure brought the Jordanian economy to a standstill, with all economic activities shut down.
 

A stalled business cycle

The shutdown provoked a shock to both sides of the economy, the supply side and the demand side. Hence, Jordanian businesses started to suffer interruptions in their cash flows which made it harder for them to meet their fixed costs (wages, bank installments, rents, water and energy costs, etc.). Accordingly, Jordanian businesses started to search for possible ways that could help them reduce their costs until the economy operates again. For instance, 67% of Jordanian employers considered laying off some of their workers if the shutdown continued for a longer period, according to a survey conducted by the Center for Strategic Studies at the University of Jordan. If this move is made by Jordanian businesses, it will add to the already high unemployment rates that had reached 19% by the end of 2019. Consequently, this will mean a decline in already low aggregate demand on the Jordanian job market and hence a longer time for Jordanian businesses to recover. More importantly, this will mean a drop in the Jordanian government’s tax revenues on business profits and consumption as well.

In addition to the above, a huge part of the Jordanian labor force works in the informal sector and most of them are day laborers, accounting for more than 52% of the Jordanian labor force. They are currently struggling to meet their daily financial needs.
Besides the shutdown and its resultant consequences on Jordanian businesses and labor, COVID-19 will have a long-term negative impact on one of the most promising Jordanian sectors: tourism. This sector will be impacted not only by the shutdown, it will also be negatively impacted by the lower amount of trust and increasing cautiousness among international tourists about traveling abroad and global tourism. As a result, it’s expected that it will causes losses in a main source of foreign currency and job creation.
Externally, Jordan is highly dependent on remittances from Jordanian workers abroad. Those cash inflows to the country are expected to decline due to the expected global economic recession.

Based on the above, the government of Jordan will need a massive amount of funds – which are usually unavailable – to mitigate the emerging economic crisis. These funds will be needed to compensate the vulnerable groups like day laborers and informal workers and the government will need to subsidize private sector wages to sustain employment; finally, the government will need to increase its long-term capital spending to stimulate the economy and accelerate its recovery. However, securing these funds will not be an easy task for the Jordanian government. Jordan suffers from a chronic fiscal deficit and mounting public debt. The spending needed will increase the country’s public debt to risky levels that may jeopardize its credit rating. Yet, the main challenge will be the debt source and its cost: the options of getting this credit are few because the liquidity of international credit markets is drying up due to financial shock caused by COVID-19. The main options will be getting concessional loans from the World Bank and the IMF, or, in worst-case scenarios, the option will be getting credit from the local banks. However, getting credit from the local banks will exasperate the SMEs’ financing issues if the government is crowding them for the funds available in Jordan’s local credit market.

Prospects of recovery

Increased economic hardships for Jordan and perhaps a recession will be inevitable. However, what Jordan will need to look for is the acceleration of economic recovery. Despite the few options that Jordan has, it needs to fight its economic battle maybe even harder than the health battle.

To succeed in accelerating the recovery, Jordan needs to stimulate the sectors that were not impacted by the COVID-19 crisis, like ICT, logistics, consulting services, agriculture. For example, the Jordanian ICT sector was able to keep its businesses running where it was able to activate remote working and continue to export services. Such sectors could be the key drivers of the Jordanian economy if they were given the needed incentives to boost their production. Moreover, ifthey grew, these sectors could also absorb the newly unemployed workers of the sectors that were negatively impacted by COVID-19, like the tourism sector.

To stimulate the economy, Jordan will need to offer tax exemptions, customs duty exemptions and perhaps subsidies to the private sector. Yet these stimulus packages will be of tremendous cost to government finances and may add long-term pressure on the government’s budget.

Jordan is living unprecedentedly exceptional days that necessitate exceptional measures. To survive, Jordan needs to be brave in stimulating the economy in the short run and much braver in implementing market reform in the future.

 

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jordan MENA coronavirus
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AUTHORS

Laith Fakhri Alajlouni
Political Economy Researcher and Journalist

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