Economic Challenges in Jordan: When Economy Becomes a Source of Instability
This material was published in the second issue of the Jordanian Politics and Society magazine (JPS).
The Jordanian economy has been experiencing a decline in economic growth rates since 2007, the year of the global financial crisis. During the past decade, the growth of GDP has remained limited to 2-3%, compared to approximately 6.5% in 2000-2007. Over the past three years, growth rates have continued at similarly poor levels.
This stagnation has been accompanied by the creation of only a limited number of job opportunities, leading to an increase in unemployment rates, which reached unprecedented levels, exceeding approximately 23% last year. This situation has pressured the economy as the dependency ratio on the employed workforce has risen significantly. Concurrently, labor market participation levels remain low, with female participation at about 14%—one of the lowest globally—and male participation at approximately 62%. On average, the overall participation rate in Jordan in 2023 was estimated at around 39%, compared to approximately 45% in Morocco, 47% in Tunisia, 63% in the United Kingdom, 57% in Germany, and 72% in Sweden.
These numbers collectively reveal a significant imbalance in utilizing highly educated human resources, resulting in lower savings and reduced investment volumes that could stimulate economic growth. The low employment and participation rates have also negatively impacted state revenues and increased budget deficits, compelling successive governments to resort to regular borrowing. Consequently, according to the latest data, public debt has exceeded the GDP in size.
The budget deficit has, in turn, led to a decline in the quality of services provided by the state to citizens in three main sectors: education, healthcare, and transportation, as well as the quality of infrastructure. This deterioration has placed increasing social pressure on citizens, particularly among the lower and middle classes, burdened by the high costs of accessing these services through the private sector.
Over the past two years, the problem has worsened due to the continuous rise in interest rates, which has led to increased financing costs for both consumption and investment purposes. As a result, the dilemma now lies in weak GDP growth rates, rising interest rates, and escalating financing costs, all of which hinder investment. This also means that the government’s ability to expand public spending to ease the social tensions resulting from these challenges is limited, as the costs of servicing government debt have also reached unprecedented levels.
A discouraging regional environment has accompanied these economic challenges. The situation in the West Bank and Gaza has exacerbated uncertainty and instability in the region. Similarly, the ongoing developments in Syria, with no political solution in sight, have further clouded the outlook and reduced the appeal for new investments.
In the Gulf countries, the focus has shifted toward implementing their own economic visions, with efforts concentrated more on domestic priorities. Countries like Saudi Arabia and the UAE are now keen on attracting investments, achieving development, and driving significant transformations in their economies as part of efforts to diversify and reduce dependency on global energy shifts and the decline in trade liberalization and globalization policies. Historically, these nations have supported Jordan in addressing its economic crises, repairing government budgets, and absorbing surplus labor.
However, there has been a significant shift in the approach these countries use to provide aid. Their focus has shifted toward investment opportunities that promise high returns, prioritizing profitability and risk avoidance. Focusing on financial return is less suitable given the pressing regional pressures on Jordan and the growing tensions caused by developments in Gaza and the West Bank due to the policies of the Israeli far-right government.
Moreover, economic and political frustration undoubtedly creates unstable conditions, highlighting the urgent need for policies that strengthen economic resilience. Given the absence of job opportunities and the political deadlock at the regional level, efforts by extremist organizations or groups operating outside official government frameworks to recruit youth are likely to intensify.
Jordan’s leadership has thus recognized the need to establish a political, economic, and administrative framework to address these challenges, which are unlikely to dissipate soon. In response, the country launched its economic, administrative, and political modernization vision, focusing on job creation and activating growth engines through a plan extending to 2030. The success of this vision is a key pillar that could help reduce social tensions and achieve social stability, contributing to mobilizing resources and achieving the desired goals.
However, the challenge extends beyond merely creating job opportunities. Jordan faces significant sectoral challenges, particularly in being one of the most water-scarce countries in the world, necessitating substantial investments to address water shortages. The challenge could pose a serious strategic threat to the country’s stability.
Additionally, ongoing regional tensions continue to threaten Jordan with a steady influx of refugees, whose proportion of the population is one of the highest globally. The recent wave of Syrian refugees, preceded by waves of Iraqi refugees, underscores how regional events can jeopardize Jordan’s economic and social stability, particularly amidst a strained labor market and slow economic growth.
Jordan’s trade with neighboring countries suffering from instability—historically the primary destination for Jordanian exports—has experienced a significant decline. This has further dampened opportunities for regional expansion and the desired leap in economic growth.
Due to institutional weaknesses, a narrow production base, and difficulties in accessing financing, the informal sector has expanded. Approximately 1.2 million workers are estimated to be employed in the informal economy. This means that more than 30% of Jordan’s workforce lacks any form of social protection or health insurance, leaving this substantial segment of society vulnerable to shocks and external changes beyond their control. When combined with the unemployed population, the percentage of vulnerable and disadvantaged individuals in the workforce rises to about 50%, which undeniably constitutes a significant threat to Jordan’s stability.
Furthermore, the heavy reliance on foreign aid—primarily from the United States, Europe, and some Arab countries—also increases Jordan’s economic and political exposure. This reliance often restricts the formulation of public policies, particularly if such aid comes with conditions, such as the strict austerity measures imposed by the International Monetary Fund (IMF) under its reform programs in Jordan. This underscores the need to reduce such dependence and expand the scope for public policymaking in order to achieve the desired economic transformations.
Closely related to this is Jordan’s heavy reliance on remittances from workers abroad, which results from the efforts of Jordanian expatriates. However, these remittances are also tied to the political approval of the countries employing Jordanians, making them sometimes a source of pressure on Jordan.
Additionally, Jordan’s significant dependence on imported energy raises production costs. This does not necessarily mean avoiding energy-intensive sectors for manufacturing and service provision, but rather, such heavy reliance on imported energy exposes Jordan’s economy to external fluctuations, which increase local production costs and negatively affect the competitiveness of specific sectors.
The combination of slow growth, limited resources, and an unstable regional environment has repercussions on the domestic situation. Addressing these challenges requires prioritizing efforts to stimulate growth, expand the production base, and focus on leveraging comparative advantages to attract investment. This involves providing all necessary guarantees for investors, establishing a suitable governance framework, and enhancing transparency to create a new environment that can drive economic revival despite local and regional pressures.