Refugees Strain Jordan's Economy

06/03/2013 7:00 am EST

Focus: GLOBAL

Long serving as a home for displaced Palestinians, the once-strong frontier market is now buckling under the strain of the influx of refugees and the impact of the wider conflict in neighboring Syria, writes Tom Arnold of The National.

Ducking and diving between the neat rows of whitewashed mobile homes, children play chase as the sun sets behind the gently rolling desert plains in Jordan's Halabat district.

They are among the 2,900 Syrians seeking shelter in the UAE-funded Emirates-Jordanian Camp, located 80 kilometers (50 miles) northeast of Amman. Many of the 770 homes are empty, ready for their intake of more families escaping the terror of Syria's bloody civil war.

By year's end, the number of Syrian refugees across Jordan is forecast to swell from the existing 500,000. Jordan's King Abdullah estimates the percentage of Syrians in Jordan's overall population could rise to 20% by then, from 10% now.

Long serving as a home for displaced Palestinians, Jordan is now buckling under the strain of the latest influx of refugees, and the wider impact of the conflict in neighboring Syria. Standard & Poor's Ratings Services last week lowered the kingdom's sovereign rating a notch further into junk status to BB-minus, while warning about further downgrades.

"Jordan has been facing some exogenous shocks from Syria, not only in refugees but transit trade, tourism, and regional stability," said Masood Ahmed, the director of the Middle East and North Africa Department at the IMF.

Another shock has emerged from the repeated disruptions to the flow of Egyptian natural gas that Jordan relied on for about two years, through the end of last year. As a result of the disruption, Jordan was forced to secure energy from other sources, pushing up the cost of its energy bill to a record 4 billion Jordanian dinars ($5.65 billion).

Both shocks have ravaged public finances. The budget deficit swelled to 9.7% of GDP, and public debt swelled to 75% of GDP last year.

In an effort to bolster its depleted finances, Jordan plans to raise as much as $2 billion in bonds backed by the United States government, finance minister Umayya Toukan told Bloomberg.

Last year, Jordan signed a $2 billion loan deal with the IMF. Under the agreement, the government is gradually swapping costly energy subsidies with more targeted cash transfers, a move it hopes will cut its deficit to 8.9% this year.

"We are confident the reforms we're taking will lead us to economic recovery and future prosperity. We're already seeing positive signs in terms of strong foreign reserve levels, fiscal consolidation, and of higher gradual growth rates," Abdullah Abdulkarim Hamdan Ensour, the prime minister of Jordan, said during the weekend's World Economic Forum on the Middle East and North Africa.

Funds from $5 billion in grants from GCC members will allow the Jordanian government to lift capital spending from $900 million last year to $3.1 billion in the next two years, he said.

But the government is also keen that spending is better channeled than in the past. Many ordinary Jordanians complained of not feeling the benefits of the average 6% annual GDP growth achieved from 2000-2010. Economic growth this year is forecast by the IMF to reach 3.3%.

Joblessness stands at nearly 13%, while the challenge businesses face of excessive red tape and difficulty accessing finance has been exacerbated by the influx of Syrians.

Crime is also a problem. Families in Amman report a rise in people from tribal areas stealing cars and kidnapping maids before demanding a ransom for their release.

"We seek inclusive growth: the key to economic growth in the future," said King Abdullah at the World Economic Forum.

But whatever the hopes for the future, the immediate fate of Jordan's economy is only likely to improve when conflict in Syria subsides and the hundreds of thousands of displaced Syrians return home.

Read more from The National here...

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