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Jordan’s economy and the war in Gaza — Facts and solutions

Dec 17,2023 - Last updated at Dec 17,2023

His Majesty King Abdullah recently emphasised the importance of cooperation between the public and private sectors to adapt to the economic conditions after the war in Gaza. He explained that due to the effects of the war, Jordan economy after October 7, 2023, will not be the same as it was prior. He also stressed the importance of cooperation and coordination between all productive sectors to help the Jordanian economy overcome this anticipated economic depression. He cited that, Jordan has always managed to overcome regional and global crises that posed a great danger to it, it emerged from them with strength and effectiveness, proving to the world the depth and resilience of its economy.

As we know, peace and stability are essential conditions for sustainable economic development in any region. However, a state of instability and the outbreak of wars will have catastrophic consequences for the economies of countries, negatively reflecting on the level of services, production and growth rates. During which time, we will observe the effects on these countries’ economic growth indicator. These effects include rising unemployment rates, rising inflation rates, falling growth rates, and a lack of confidence in the economy, among other factors that negatively impact overall growth rates and contribute to the deterioration of their economies.

 

Impacts of the war in Gaza on regional economies 

 

Regarding the outcomes of the war in Gaza on the economies of the region, I believe such effects are catastrophic and tragic, first from a human perspective and second from an economic and social perspective. It will have a significant impact on the economies of Jordan, Palestine, Egypt and Lebanon in the coming phase. Unless emergency economic policies and measures are adopted to deal with this situation, it is expected that Jordan economy will face financial and economic challenges as a direct and indirect impact of the war. For example, economic stability and growth will be affected due to the decline in tourism and foreign direct investment, and the deterioration of confidence in the economy, so the influence is clear.

Secondly, the humanitarian and social crisis in Gaza and the West Bank will have direct effects on Jordan, as we may have to bear the burden of a new humanitarian crisis resulting from the repercussions of this ugly and unjust war. These developments will lead to the depletion of government resources and pose a major strain on the general budget of the state, therefore resulting in a corresponding decline in economic growth rates.

Furthermore, foreign trade and trade exchange between Jordan, the Gaza Strip, and the West Bank will also be heavily affected, which will in turn affect the movement of goods, services, exports, and imports. Trade restrictions and obstacles will also likely be an additional burden on Jordanian companies and factories, making it difficult for them to find promising economic opportunities. Finally, we will likely see a decline in foreign investment flows to Jordan, which will leave negative marks on economic growth in both the short and long term. As such, this shall require the government to take preventive measures to deal with the situation in an expedited manner.

 

Sectoral impacts

 

The investment and business sector will be heavily affected by the war. The inputs of the investment and production processes will be affected due to rising costs, rising energy prices, the impact on production lines and exports, and other negative indicators. This could potentially lead to Jordanian industries becoming uncompetitive and expensive. It is predicted that this shall create a repulsive investment environment, which is believed to eventually reduce the sectors’ GDP contribution from 25 per cent to 17 per cent.

As for the tourism sector, it shall be the most directly affected sector. The tourism forecast predicts that the number of foreign tourists to the region will decrease. We have already begun observing this as a result of the cancellation of an estimated 50per cent of tourist bookings to date. This means that we will witness an impact on the treasury’s tourism revenues, which constitute 14-15per cent of the GDP (about 4.8 billion dinars annually). It is likely that the tourism sectors’ contribution will also be significantly reduced to low levels, which will create an additional pressure on growth rates in the coming year.

The trade and transport sector will also be affected due to the disruptions in the region, and the costs of shipping, insurance, and delivery will rise due to the existence of restrictions on the movement of goods and internal trade. This will complicate the economic scene and make it difficult for individuals and companies. In line with the general trend, it is expected that the GDP contribution of this sector will decline from 7.5per cent to 5.2per cent.

In addition it is also possible that the Jordanian strategic food security reserve will also be affected. Despite Jordan occupying a good position in the Global Hunger Index for 2022 as a food-secure state, we may nonetheless face difficulties in meeting local food needs in the coming period. Therefore, it is essential to work to increase food reserves and follow a government policy that supports the agricultural sector to bridge the expected gap in the food security system.

 

Proposed solutions

 

With regards to the proposed solutions to address these challenges, the government must adopt bold economic policies and take stimulating measures to overcome the challenges of war and post-war to enhance economic stability and protect the various sectors of the state. These measures may include: protecting investments, supporting businesses and companies, improving and facilitating the business environment, stimulating creativity and flexibility by developing distinctive tourism programmes that respond to new challenges, promoting international and regional trade, promoting innovation and entrepreneurship, such as relying on alternative energy, for example, strengthening financial reserves and providing emergency funds to finance small and medium-sized enterprises. 

Finally, we should also look to stimulate the local economy and restructure it to create new job opportunities. Given that the business environment is expected to be heavily affected, we must be prepared to provide financial assistance to ensure business continuity, securing salaries, postponing bank installments and interest, implementing economic incentive packages, and support the banking system. Ensuring banks stability shall be integral to preserving the strength of the national economy and the stability of the Jordanian dinar.

In addition to this, we must not forget the important role of the government in convincing the international community to maintain and continue its support of Jordan in facing these economic challenges, such as external grants, loans, financial facilities and providing economic assistance so that there are no catastrophic consequences that might affect the stability of the region as a whole.

In conclusion, in his meeting, His Majesty the King stressed the upcoming economic events and cemented his views on the importance of cooperation with the government to develop sound strategic plans and form specialised task teams capable of diagnosing the dimensions of the Gaza war crisis and its impact on the national economy. It is in the Jordanian national interest to protect the economy and support it. This target requires the cooperation of all economic sectors, with their two axes, the organizational and productive, to develop plans that enable Jordan economy to compete and stand firm when facing these challenges, such as benefiting from the community boycott of products that support the Israeli enemy in providing alternative national products that contribute to covering the shortage in the boycotted products and help to reduce the qualitative gap between the local and foreign product.

 

Haider Al Majali is an economics and investment expert

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