‘Subsidy cuts, higher housing costs may keep inflation in Jordan high’

AMMAN — It might be difficult for the Jordanian government to hit its inflation target of 4.2 per cent in 2014, according to the Oxford Business Group (OBG).

“Though some agencies, including the International Monetary Fund, have predicted inflation will ease in 2014, the consumer price index may be pushed up as the government scales back subsidies and housing costs rise,” OBG said  in its Jordan Year in Review 2013 issued this week.

The report added that following  a 15 per cent hike in electricity prices last year, power prices are expected to increase along with a forecast rise in the cost of fuel and food imports.

According to the 2014 draft budget, there will be an increase in capital spending, especially targeting energy, water and food security, while subsidies are set to be lowered.

OBG noted that inflation remained high in 2013, running at 6.1 per cent in the fourth quarter, higher than the government’s estimate of 5.9 per cent for the full year and well up on the 4.2 per cent of the final three months of 2012. 

Besides inflation, OBG mentioned the external environment as a factor that could slow recovery this year.

Noting that growth in Jordan picked up pace in 2013, the report listed the war in Syria as the foremost among the government’s foreign challenges.

“The war in Syria has severed land links with trade partners, closed an important export market and, most significantly, seen Jordan become one of the main refuges for Syrians seeking safety,” OBG said. 

“According to the UN High Commissioner for Refugees, as of mid-December Jordan was hosting more than 565,000 Syrian refugees, though this number is likely to be much higher as many of those who fled the conflict in Syria are not registered with aid agencies,” it added.

The Jordanian government has estimated that by early December, around $2.1 billion had been drained out of the economy in 2013 as a result of housing and supporting Syrians who have fled their homeland. 

This figure will rise in 2014, the UN has predicted, with the cost of providing humanitarian assistance predicted to reach $3.2 billion.

“This cost does not take into account other pressures on the economy, such as an increase in the prices of housing and food as the result of the influx of Syrians — and before them Iraqi refugees,” the Jordan Year in Review 2013 said. 

Energy issues weigh on economy

The continuing unrest in Egypt has also touched Jordan’s economy, the report said, noting that repeated cuts to gas supplies from Egypt, caused by sabotage to the pipelines running through the Sinai, have caused electricity shortages, affecting industrial output and broader economic activity. 

Faced with uncertainty over its gas supplies from Egypt, Jordan has been pushed to look to the open spot market for alternative sources, adding to an already-high energy bill.

“With Jordan having to import around 95 per cent of its energy needs, any disruptions to supplies and the continued high cost of oil mean that up to 20 per cent of the gross domestic product is spent on fuel imports,” OBG indicated. “Though longer-term plans to reduce dependence on overseas energy supplies — including developing oil shale deposits for conversion to fuel and constructing a nuclear power station — will ease the situation, it will be some years before these solutions take effect,” it said. 

Modest growth 

Despite the pressures being brought to bear, Jordan’s economy has continued to grow. The IMF has said that economic expansion in 2013 will be shown to be 3.3 per cent, rising to 3.5 per cent this year, both improvements on the 2.7 per cent growth in the gross domestic product posted in 2012. 

However, some analysts are less optimistic, suggesting the combination of the high cost of humanitarian efforts and the ongoing lack of energy security could keep the final tally of 2013 growth below 3 per cent, rising slightly this year.

The government budgeted for growth in 2014, planning to boost its expenditure from $10 billion in 2013 to $11.4 billion. Revenue has been forecast at $9.7 billion, with the deficit to be funded through borrowing and foreign aid. 

“The fact that Jordan has managed to expand the economy, albeit at a slower rate than the government had hoped for, is an achievement, serving to highlight a degree of resilience in a country that has been hit by many external difficulties over the past decade,” the report said.

While 2014 will likely bring challenges, with unrest in Egypt and no end in sight to the Syrian crisis, Jordan’s hard-won resilience should see the economy maintain its steady climb, OBG concluded.