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Jordan policymakers walk tightrope

4 June 2024

 

Few countries will envy Jordan right now, as one of the Israel-Palestine-adjacent countries most severely impacted both economically and politically by the inevitable spillover of the war in Gaza.

Economic growth in Jordan has inevitably been hit by the conflict, especially in the country’s trade and tourism sectors. Domestic opposition to the war has meanwhile left Ammann walking a tightrope – opposing Israel while remaining part of a broad regional Western-backed coalition that saw Jordan play its part in stemming missile attacks launched by Iran at Israel in April.

The Gaza war is only one of a number of pitfalls confronting the government, which currently faces an unemployment rate of about 22%, desperate water scarcity, and the presence of 1.3 million Syrian refugees topping up the country’s existing population of refugees from Iraq, Palestine and elsewhere.

In these invidious circumstances, the country has performed well, but has also suffered negative consequences.

“Jordan has preserved economic and political stability despite significant external shocks, including social instability in the region (Arab Spring) and wars in neighbouring countries (Iraq and Syria), but these shocks have led to lower growth and significant government debt build-up,” says Erich Arispe, a senior director in Fitch Ratings’ sovereigns group.

For now, Jordan appears to be carrying off the delicate diplomatic work in relation to Israel. It is playing a critical role in the aid effort to Gaza, distancing itself from its neighbour by withdrawing its ambassador from Tel Aviv, and mothballing a planned water-for-energy project.

But it has so far resisted pressure from domestic protesters to adopt a more assertive stance towards Israel – not least since the government is wary of putting its relationship with the US under stress and threatening the $1.45bn in annual aid it receives from Washington.

Jordan’s reliance on Israeli water supplies will also play a part in Amman’s calculus. The kingdom typically sources around 80% of its natural gas from Israel’s offshore Leviathan field.

Despite deep antipathy to Israeli Prime Minister Benjamin Netanyahu’s government, the reality is that Jordan is locked into a cooperative relationship with its neighbour, including through the Hashemite dynasty’s custodianship of the Al-Aqsa mosque compound in Jerusalem.

Economic effects

While Jordan is unlikely to take radical steps to change its relationship with its neighbour, it remains deeply impacted by Israel’s actions, with the economic implications of the conflict in Gaza being felt nationwide.

The Jordan Hotel Association reported that about half of its hotel reservations were cancelled in October 2023. Fitch Ratings expects that lower tourism inflows, weaker external demand and continued regional political uncertainty will slow growth to 2.3% in 2024, from 2.6% in 2023.

“Nevertheless, we expect that the decline in US and European tourists will be partly compensated by resilience in Jordanian expats and regional tourists. Before the start of the Gaza conflict, Jordanian expats and Arab and GCC tourists accounted for almost three-quarters of total visitors,” says Arispe. 

Although the IMF warned in May that the continuation of the war and the trade route disruptions in the Red Sea are affecting sentiment, trade and tourism, barring a significant escalation, the Jordanian economy should be able to navigate the challenges.

While Jordan is primed to run a large current account deficit, at a projected 6.4% of GDP in 2024, this is still lower than the 6.8% deficit recorded in 2023.

According to Fitch, the general government deficit will ease to 2.6% in 2024 and 2.4% in 2025, as expenditure restraint will balance lower-than-budgeted revenue growth and higher interest payments. 

“One of the main economic challenges for policymakers is to lift growth prospects to support a sustainable reduction in government debt,” says Arispe.

In its May rating affirmation, Fitch estimated that general government debt (consolidating central government debt holdings of the Social Security Investment Fund and including the Water Authority of Jordan debt and NEPCO guaranteed debt) rose to 93.3% of GDP at the end of 2023.

Although it forecast debt will decline to 91.3% by 2025, this will remain significantly above the projected 53.6% median for sovereigns rated ‘BB’.

“Jordan’s fiscal strategy aims to lower debt to 80% of GDP by 2028 based on a combination of revenue increases, through measures directed at broadening the tax base, and expenditure restraint,” says Arispe.

“Nevertheless, Fitch considers that the sustainability of the current fiscal strategy will depend on the success of reforms aimed at lifting growth prospects combined with increased employment.”

External support

For all the Hashemite kingdom’s vulnerability to regional conflicts, its strategic position also carries advantages. Jordan has attracted substantial external support in the past year, drawing on its status as a regional source of stability.

Early in 2024, the IMF began a new four-year, $1.2bn Extended Fund Facility (EFF).

“From a broader perspective, one of Jordan’s strengths in terms of creditworthiness is the strong relations with multilateral organisations and allies, including the US and partners in the region, which supports Jordan’s financing flexibility. The sovereign is projected to receive total foreign assistance of $3.5bn (6.5% of projected GDP) in 2024,” says Arispe.

In addition, Jordan is attracting significant Gulf investment. In late May, the country’s Investment Ministry announced that Abu Dhabi Development Holding Company (ADQ) had completed the establishment of an infrastructure investment fund company in Jordan. This deal was first mooted during King Abdullah’s visit to Abu Dhabi in 2023.

This company will invest in infrastructure and development projects worth $5bn.

The government also remains committed to its reform agenda, for example, by gradually increasing water utility tariffs last year.

“We expect, though, that the pace of reform progress will continue to depend on the objective of preserving social stability, the resistance of vested interests and institutional capacity constraints,” says Arispe.

Reducing high unemployment is a government priority, especially among women and younger people.

The government is moving ahead with the first phase of its ambitious Economic Modernisation Vision 2023-33, which aims to increase growth potential (5%) and create 1 million jobs over the next decade through higher private investment in strategic sectors.

“The authorities have made progress in terms of digitisation of government procedures, most notably those related to investment, and public administration reform,” says Arispe.

“Nevertheless, increased geopolitical risks make it harder for the government to achieve the 2025 targets under the Vision’s 2023-25 first phase, including reaching 3% growth and exports reaching $13.7bn.”

Above all, the government will hope that external events will not yet have a negative bearing on an ambitious political reform programme that is invariably contingent on favourable regional relations.

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James Gavin

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    MEED's November 2025 special report on the UAE also includes:

    > GOVERNMENT: Public spending ties the UAE closer together
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    Mark Dowdall
  • Finnish firm wins Jeddah Tower project subcontract

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  • UAE construction faces delivery pressures

    8 October 2025

     

    Traffic backs up most mornings on the road into Abu Dhabi’s Mussafah Industrial Area, as trucks return after making early-morning deliveries to construction sites in Abu Dhabi and Dubai.

    The traffic reflects the record levels of construction activity currently underway in the UAE. It also points to the pressures involved when delivering projects in a market that is starting to overheat.

    Record awards 

    According to regional projects tracker MEED Projects, $53bn-worth of construction contracts were awarded across the UAE in 2024 – up 27% from the $45bn awarded in 2023, which itself broke the long-standing $32bn record set in 2008.

    The majority of the awarded work consists of building projects across subsectors such as residential, retail, commercial, hospitality, healthcare and education. Other recorded contracts include earthmoving, dredging and reclamation works.

    In terms of regional distribution, Dubai led with $35bn in contract awards in 2024.

    Abu Dhabi was the second most active market with $9bn, followed by Ajman with $3.2bn, Sharjah with $2.7bn and Ras Al-Khaimah with $2.2bn. The other emirates, Fujairah and Umm Al-Quwain, did not cross the $1bn mark. 

    As of 7 October 2025, total awards stood at $24bn, suggesting that the record highs of 2024 are unlikely to be repeated this year.

    Once again, Dubai remains the most active market with $18bn in awards, followed by Sharjah with $2.5bn, Abu Dhabi with $1.8bn and Ras Al-Khaimah with $1.7bn. The remaining three emirates, Ajman, Fujairah and Umm Al-Quwain, had not awarded more than $1bn in construction contracts.

    Activity surge

    The anticipated decline in contract awards in 2025 places the UAE in an interesting position.

    Although fewer new contracts are being awarded, construction activity across the federation continues to ramp up as contracts from 2023 and 2024 approach peak execution. It is this surge in activity that contributes to the traffic congestion in Mussafah and other industrial areas each morning.

    The heightened level of construction activity is having other effects. Developers are now increasingly concerned that there are not enough contractors to deliver their projects. This problem is particularly acute in the tier-one space, where leading international contractors – as well as some prominent local players – have exited the market.

    At the same time, developer ambition has grown. In the early stages of the post-Covid recovery, the market was focused almost exclusively on villa projects. Now, buoyed by sustained growth in property prices, heightened competition and a desire to stand out, developers are launching increasingly complex projects. These include tall towers and buildings with non-standard architectural forms that demand high levels of technical expertise to deliver.

    Even longstanding developers are feeling the strain. Emaar chairman Mohammed Alabbar was the first to raise the issue publicly, stating in late 2023: “We have problems in Dubai now with execution because the market is going 30% up every year in volume, which we have to handle.”

    Delivery solutions

    Various solutions are being explored to address this delivery challenge. Some developers are forming framework agreements with a pool of trusted contractors, while others are turning to direct negotiations or issuing limited tenders to only two or three firms.

    Some developers have taken matters into their own hands by delivering projects in-house, using their own contracting arms and suppliers. As market pressures intensify, more developers are following suit, setting up their own construction divisions to secure project delivery.

    Future outlook

    Based on the total value of contract awards so far this year, the market may soon get some respite. Further relief is expected in 2026 as projects awarded in 2023 near completion, followed by the wrap-up of 2024 awards.

    If the market cools, some of the delivery challenges experienced over the past two years should ease. While this would bring relief to many, there is lingering concern in the construction sector that Dubai’s market has shown a tendency over the past two decades to swing dramatically from boom to bust. If that pattern repeats, the consequences for the industry could be profound.

    Alternatively, 2025 may simply be a pause before activity returns to record levels in 2026. Although some reports have warned of a possible correction in the property market, rising prices continue to support project launches and contract awards.

    Should that trend continue, the delivery challenges of 2025 may well become the new normal.

    MEED's November 2025 special report on the UAE also includes:

    > GOVERNMENT: Public spending ties the UAE closer together
    > ECONOMY: UAE growth expansion beats expectations

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    Colin Foreman