Jordan's account deficit will narrow in 2023, Fitch report predicts

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(File photo: Jordan News)
AMMAN — In a report, credit agency Fitch Solutions said Jordan’s current account deficit will narrow from an estimated 11.5 percent of GDP in 2022 to 8.1 percent of GDP in 2023.اضافة اعلان

The narrowing deficit will be mostly driven by higher tourism inflows and a lower import bill, as commodity prices will ease.

Despite the relatively wide shortfall, risks to Jordan’s external position remain limited. Continued support from international players will allow for foreign reserves to stabilize above $17 billion, suggesting sufficient firepower to defend the dinar’s peg to the dollar.

Tourist arrivals expected to increaseDespite the revision, the agency believes that an increase in tourist arrivals will allow the current account deficit to narrow in 2023.

This increase, they said, will help the services trade surplus widen from 3.8 percent of GDP in 2022 to 6.4 percent of GDP in 2023.

Goods trade deficit to decreaseThe current account deficit will also narrow due to a smaller goods trade deficit, which will decrease from 25.2 percent of GDP in 2022 to 23.9 percent 2023, the report said. 

This is because easing global oil and food prices, which together account for around a third of total imports, will lower the country's import bill.

Goods exports will also shrink, as lower fertilizer prices will weigh on the value of exported phosphates and potash, which account for around 25 percent of Jordan's total exports.

However, exports volumes will remain strong amid the ongoing expansion of the Aqaba port.

Secondary income surplus to decreaseFitch projects a fall in the secondary income surplus from 11.1 percent of GDP in 2022 to 10.6 percent of GDP in 2023. This is largely because of slower remittance growth (which represent roughly four fifths of total secondary income credit) amid slower economic activity in GCC markets, where most Jordanian immigrants reside.

Despite the wide shortfall, risks to Jordan’s external position remain limited. Indeed, Jordan will be able to fund its current account deficit through sustained bilateral and multilateral support, as well as via higher investment inflows.

Foreign supportAmman will continue to benefit from IMF financing (including the $2 billion loan between 2022 and 2024), as well as grants from the EU, various UN agencies, GCC markets and the US.

This will include the first instalments of the seven-year $10 billion financial aid package pledged by the US Biden Administration in July 2022, as well as the final instalments of the five-year $3 billion foreign aid package from Saudi Arabia, the UAE and Kuwait in June 2018.

Rise in foreign investmentFitch also expects a moderate rise in foreign investment, including pledges by Saudi Arabia as part of the $24 billion Middle East and North Africa investment plan.

As a result of the above-mentioned external financing, the total reserve stockpile will stabilize above $17 billion in 2023, allowing the import cover to remain above six months.

Overall, Jordan’s reserve position will allow policymakers to preserve the long-standing dinar peg with the US dollar at JD0.71 per dollar.

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