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Jordan has been implementing, since 1989, with the support of international institutions and countries, a strong stabilization and structural reform program. As a result, the improvements achieved in a number of important areas have been satisfying. Real GDP grew between 1992-1997 by seven percent. Investment to GDP increased substantially from 22 percent in 1989 to 33.1 percent in 1997. National savings increased from a negative amount in 1989 to 4.7 percent in 1997. Excluding grants, the budget and current account deficits were reduced from over 20 percent of the GDP at the beginning of the program to 3.6 percent and 4.9 percent, respectively, in 1997. Moreover, inflation was reduced from 25.6 percent in 1989 to an average of 3.8 percent between 1992-1997. Simultaneously, the exchange rate was stabilized while the reserves increased from US$400 million two years ago to approximately US$ 1700 million at the end of 1997, an amount sufficient to cover more than four months of imports.

Additionally, as a result of the prudent management of new borrowing and debt buy-backs, the stock of external debt to GDP has fallen steadily from 190 percent in 1990 to 83.7 percent in 1997. This, besides rescheduling operations, resulted in the reduction of the debt service ratio to 7.7 percent in 1997.

In 1992, Jordan's GDP grew by 16.1 percent, the highest in the Middle East and North Africa region. By 1993, the GDP had grown by 5.6 percent against a regional average of 4.8 percent. The steady growth rate in GDP continued in 1994, as Jordan experienced an economic growth of 8.5 percent against a regional average which declined to a low of 2 percent. In 1995, growth in the GDP continued, this time at a 5.9 percent rate. However, the rates of economic growth in the past two years have not been as high as the rates stipulated in the reform program. Real GDP grew by 0.8 percent in 1996 and by 1.5 percent in 1997—these are the preliminary yet most recent estimates. This trend of decelerating growth to levels well below the target rates may continue in 1998.

Jordan has made dramatic progress in boosting exports and reducing imports. The Kingdom's trade deficit decreased by 14 percent in 1994, and by another 1.1 percent in 1995, as exports skyrocketed by 26.5 percent and imports grew by 9.6 percent during 1995. Between 1985 and 1995, Jordan's exports grew by 293 percent, while imports increased by only 141 percent. However, exports—which grew steadily from 23.7 percent of the GDP in 1992 to 27.1 percent in 1996—declined to 26 percent of GDP in 1997 and are projected to fall further to 25.7 percent. Domestic exports, which grew in absolute numbers by 2.5 percent, are estimated to have grown by 1.0 percent during the period January-March 1998, with exports of miscellaneous manufactures declining by 2.1 percent. On the other hand, imports are expected to fall by 0.4 percent between January-March 1998, with raw materials and machinery and transport equipment declining by 25.8 percent and 9.7 percent, respectively, for the same period.

The decline in economic activity that has been recently experienced is due to several factors, each contributing in a unique way toward this adverse economic situation. Prominent among the causes of the recent decline is the situation in the West Bank and Gaza (WB&G), where Jordanian exports (US$ 17 million in 1997) to this area remain marginal in comparison with previous expectations. In the first third of 1998, exports only reached US$ 5.24 million—down by 3 percentage points from their level for the same period last year. The seemingly intractable political situation in the WB&G has taken its toll on the economic welfare of the residents of the WB&G and on their purchasing power, which has significantly impacted their ability to trade with Jordan. This has affected not only trade with the Palestinian National Authority areas, but also the optimism and the spirit of goodwill that were generated after the signing of the peace treaty between Jordan and Israel in 1994.

Additionally, the situation in Iraq continues to reflect negatively on the Jordanian economy. The shrinkage of the Iraqi market due to economic sanctions has limited the capabilities of the private sector in Jordan to export to what has been among Jordan's largest export areas. Further, inspections at the Port of Aqaba have hampered the flow of goods to Jordan and imposed delays on the receipt of inputs, thus causing production delays and making several Jordanian industries less competitive.

Also, the Gulf market has been a traditional source of employment to Jordanians since the oil boom of the early 1970s. Consequently, training and education became oriented toward employment opportunities in the oil economies of the Gulf. However, these opportunities were severely depressed after the Gulf War and the disastrous repatriation of almost half a million Jordanians who remain now unable to return to their old posts in the Gulf. They continue to impose a massive strain on the domestic economy in terms of infrastructure and job creation.

While the labor market in Jordan may be capable of adjusting in the long run to this demand-pull shock, its justifiable inability to meet this pressure in the short run continues to have adverse permanent and distributionary effects on the welfare of the work force in Jordan. Moreover, the low oil prices of last year have affected the availability of employment opportunities in the Gulf and depressed Jordanian exports to the region. These exports, together with exports to the Asian markets, which are deeply depressed at the present, comprise 50 percent of Jordanian exports. This trend will persist in abating Jordanian export activities.

In spite of these regional developments, Jordan remains committed to structural reforms and economic stability. Its approach continues to underscore the role of civil society and democratization in the making and adoption of policy by all parties concerned.