Remittances from GCC expected to recover to pre-pandemic levels — Fitch

(Photo: Jordan News)
AMMAN — Fitch Solutions of Fitch Rating Institution expected in a special report that Jordan’s current account deficit will shrink from 11.3 percent of the GDP in 2021 to 9.2 percent of GDP in 2022, Al-Mamlaka TV reported. اضافة اعلان

The reduction in the deficit would be driven by an increase in services exports with the reopening of the country’s tourist destinations, while the strong economic growth throughout the Gulf Cooperation Council (GCC) will boost remittance inflow.

Rising foreign direct investment and continued bilateral and multilateral support will enable Jordan to finance the current account deficit, while the growing stock of foreign reserves will enhance Jordan’s external standing.

In 2022, the institution expects a recovery in tourist arrivals, expanding the surplus services trade as Jordanian destinations reopen and as COVID-19 shifts further towards an endemic situation.

At the same time, the institution indicated that the flow of remittances would boost surplus secondary income and offset the increase in the commodity trade deficit.

The main driver for narrowing Jordan’s current account deficit will be the strong arrival of tourists while easing global travel restrictions of COVID-19, which will significantly increase the surplus services trade, with tourist arrivals expected to grow by 56.6 percent in 2022.

Fitch expected the surplus in the account for trade in services to increase from JD274 million (0.6 percent of GDP) in 2021 to JD1.6 billion (3.5 percent of GDP) in 2022, where tourism will approach pre-pandemic levels in 2022.

The Fitch report added that the reduction in Jordan’s current account deficit would be supported by a gradual rise in remittance inflows, after a 3.6 percent decline in 2020, and relatively low growth in 2021.

Fitch expects transfers to rise towards pre-pandemic levels as more Jordanian citizens return to the countries where they worked before the pandemic and economic activity in these countries recovers, in particular Saudi Arabia, Qatar and the United Arab Emirates, which are major sources of Jordanian transfers. Strong economic growth in Jordan’s major trading partners such as Saudi Arabia (which captured 12.3 percent of Jordan’s exports in the first 11 months of 2021) followed by the US (26.8 percent) is likely to boost exports.

However, it is also expected that the rise in imports, and in particular the rise in oil prices, would lead to the widening of the overall commodity account deficit, where the rising oil prices in the light of the recent Russian attack on Ukraine will increase the value of Jordanian imports.

Jordan would be able to finance the current account deficit through a combination of increased FDI and continued bilateral and multilateral support. While FDI growth was slow in 2021, in 2022 FDI is expected to rise closer to pre-epidemic levels, according to Fitch.

In addition, Fitch expects to sign a new memorandum of understanding between Jordan and the US soon. In February 2018, the US pledged $6.4 billion to Jordan over four years, making Jordan the recipient of the third largest US foreign aid package at the time. Therefore, it is expected that a similar amount will be pledged in the short term as strong relations between the two countries continue.

Fitch asserted that in addition to increasing financial flows, Jordan’s stock of foreign reserves remains relatively large at $10.8 billion (eight months of import cover), which will provide greater stability to the external situation of the country.

Accordingly, the institute expects that policymakers will have sufficient ammunition to protect the long-term currency’s US dollar tie-up at 0.71 Jordanian dinars/US dollars.

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