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Jordan ranks 4th in region on economic freedom index; experts outline shortfalls

By Mohammad Ghazal , Charlie Faulkner - Feb 16,2019 - Last updated at Feb 16,2019

 AMMAN — Jordan was ranked 4th among 14 countries in the Middle East and North Africa region (MENA) in the 2019 Index of Economic Freedom, but economists say more needs to be done to promote investment.

The country has been awarded an economic freedom score of 66.5, placing it 53rd globally in the 2019 index, launched by the Heritage Foundation think tank. 

A surge in its score for fiscal health, which outweighed declines in labour freedom, monetary freedom and judicial effectiveness, contributed to a 1.6 increase in Jordan’s overall score in the index, which evaluates government policies and economic conditions in 186 countries.

The government’s focus on economic modernisation, higher growth and job creation, and acknowledgement of the need to consolidate public finances and maintain political stability, are all highlighted by the report as factors contributing positively to the ranking, in addition to economic reforms and infrastructure projects launched by the Economic Policy Council and funded by both the government and the private sector to improve the business environment. 

Nonetheless, the report draws attention to the lack of progress in labour market reform and the impact of corruption on economic freedom. It also points out that ongoing conflicts in Iraq and Syria have severely disrupted Jordan’s economy and regional trade, and more than 1.3 million Syrian and Iraqi refugees have strained Jordan’s resources.

Yanal Barmawi, spokesperson of the Ministry of Industry, Trade and Supply, stressed Jordan’s commitment to enhancing the business environment in Jordan and amending legislation and regulations to provide investors with more freedoms and incentives.

“Jordan has been working on addressing all challenges and concerns facing investors in the country… The Kingdom issued recently a new investment law that facilitates starting businesses and cuts red tape,” he told The Jordan Times during a phone call on Saturday.

“Jordan is signatory to several free trade agreements that provide investors with access to markets with more than 1.5 billion customers and Jordan has greatly enhanced the free movement of capital for investors,” Barmawi added.

The report notes that reforms carried out in recent years have made business formation and operation “more efficient and dynamic”.

However, economist Wajdi Makhamreh says Jordan needs to do more to attract businesses, such as offering incentives and tax exemptions, to enable it to tackle “fierce competition” from several other countries in the region also keen to attract investments.

“The report is good news for Jordan and it comes a few days after a report by the International Monetary Fund commending Jordan’s progress in fiscal reforms, and this is important ahead of the London [conference to support Jordan’s economy] slated for end of February,” Makhamreh told The Jordan Times.

“More incentives to investors and better economic freedoms are likely to help attract more investments and eventually create much-needed jobs for Jordanians,” he said. 

The Kingdom’s unemployment rate reached 18.6 per cent at the end of the third quarter of 2018, according to the latest available figures by the Department of Statistics.

The combined value of Jordan’s exports and imports is equal to 92.6 per cent of the GDP, according to the report, which also notes that the average applied tariff rate is 4.3 per cent. 

As of June 30, 2018, Jordan had 20 non-tariff measures in force, according to the World Trade Organisation and, in general, foreign and local investors are treated equally under the law.

Economist Mazen Marji told The Jordan Times that although the report does highlight positive elements for businesses operating in Jordan, such as the lack of taxes on exports and an ability to import capital assets without paying customs fees, he believes the country is still lagging behind. 

“There are clearly incentives being provided by Jordan but this report is referring to 2018, so it is not taking into account the new change in the Income Tax Law, which increases the levy from 4.5 per cent to 10 per cent on profits gained through buying and selling in the financial market,” Marji said.

“This change affects the competitiveness of businesses and perhaps it will force some to move their trade to other countries in the region such as Egypt, Dubai or Turkey, which are offering greater incentives,” he added.

The report outlines that Jordan’s top individual income tax rate is 14 per cent, the standard corporate tax rate is 20 per cent and the overall tax burden equals 16.3 per cent of total domestic income. 

Over the past three years, government spending has amounted to 29.8 per cent of the country’s output (GDP), and budget deficits were at an average 3.6 per cent of GDP, while the public debt currently stands at 95.6 per cent of GDP, according to the report’s calculations.

Political economist Zayyan Zawaneh says that for Jordan to be ranked fourth out of the 14 countries constituting the MENA region is very positive news for the country, stressing however the importance of strengthening the public sector — described in the report as “bloated” and in need of reform — to improve Jordan’s economic freedom and encourage further foreign investments.

“Government spending is still very high and the public sector remains inflated, yet the efficiency of services is decreasing,” Zawaneh told The Jordan Times.

“The government needs to downsize the number of public sector workers and increase the efficiency of employees’ expenses,” he elaborated. 

“Jordan’s growth rate is currently around 2.3 per cent — this is not enough to pay off the country’s public debt.”

“The use of family, business and other connections to advance business and individual interests is endemic in Jordan,” the report added, noting as well that weak investigative journalism, limited access to information and limited institutional jurisdiction undermine efforts to combat corruption.

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