Highlights

Jordan was hit hard by the challenging global context, notably the increase in global commodity prices. The war in Ukraine combined with COVID-19 aftershocks has led to a sharp rise in global food and energy prices, exacerbating inflationary pressures and threatening food and energy security. To control rising inflationary pressures, many central banks in both advanced and emerging economies, including Jordan, have reacted with monetary policy tightening, which is expected to exert an additional drag on global economic activity.

Despite this challenging environment, Jordan’s growth during the first half of 2022 exceeded expectations, buoyed by a strong rebound in tourism and exports.

Inflation has reached its highest level since 2018 but remains contained compared to regional peers. An intensification or prolongation of the food and energy crisis would pressure the already elevated external deficit and impact food security.

Wheat subsidies are expected to reflect on full year-figures as the bulk of spending took place in the second half of the year when the authorities
resumed replenishment of strategic food reserves. These additional spending pressures are expected to be taking a toll on capital spending in 2022, which is likely to remain restrained to meet the fiscal targets.

Unfavorable import prices, particularly of food and energy, are hiking up Jordan’s import bill despite the partial protection brought by the high level of strategic wheat strategic reserves and the favorable long-term gas import contracts.

Uncertainty and risks surrounding Jordan’s outlook remain relatively high, with major disruptions expected from the external environment. The tightening of financial conditions will substantially raise borrowing costs on international and domestic capital markets, which could further strain already high debt levels.
Additional downside risks include a prolongation of the Ukraine-Russia war, and a possible intensification of global political rifts, with damaging implications on food and energy crisis. The latter could put further pressure on the external deficit and directly impact Jordan’s capacity to meet its food security needs. Food security risks could further be exacerbated by the impact of climate change, notably lower precipitation and rising temperatures, on Jordan’s already stressed water supply.