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Caveats of staying in the comfort zone

Apr 17,2023 - Last updated at Apr 17,2023

We often feel reassured when we hear statements like "Jordan has managed to withstand various major global and regional shocks and maintain its economic stability." These were the words of Jihad Azour, director of the Middle East and Central Asia Department at the International Monetary Fund, during the spring meetings of the International Monetary Fund and the World Bank, which were recently held in Washington. However, we must be wary of this false sense of security and comfort, as it can lead to complacency and ultimately be detrimental. Why? Because this stability has been accompanied by low levels of growth and productivity in many sectors, increasing deficits in the public budget, relatively high indebtedness, reaching 38.5 billion dinars at the end of last year, or 111 per cent of output, administrative inefficiencies, and high unemployment rates, reaching about 22.9 per cent at the end of last year, especially among youth and women even before the outbreak of the Corona pandemic.

It is important to note that the relationship between GDP growth and unemployment is complex and can be causal. An increase in GDP leads to a decrease in unemployment, and vice versa. However, this relationship is not always direct and can be influenced by other factors. One way to understand this relationship is through the concept of Okun's Law, which states that for every 1 per cent increase in GDP growth, unemployment will decrease by about 0.5 per cent to 1 per cent. However, this law is not always applicable, and the relationship between GDP growth and unemployment can vary depending on the economic context. For example, in times of rapid technological development or economic restructuring, firms may lay off workers despite economic growth, leading to a disconnect between GDP growth and employment rates. The impact of GDP growth on unemployment can also differ across sectors of the economy.

When unemployment is high, it can lead to less consumer spending, lower demand for goods and services, and slower economic growth. High unemployment can also lead to a decline in labour productivity, as long-term unemployed workers may lose their skills or motivation, negatively affecting economic growth.

While stability is an essential entry point for economic prosperity, as Mr Jihad Azour highlighted, it is important to note that the Jordanian economy has not witnessed the required levels of prosperity for almost more than a decade and a half. Achieving prosperity in Jordan requires deepening reforms that improve the business environment, reducing energy costs, raising investment capacity, and benefitting from neighbouring countries' investments, especially Gulf states. There are many investment opportunities available in various economic sectors, such as traditional energy, water, agriculture, renewable energy, the environment, and solid waste. However, these opportunities need to move from paper, visions, and implementation plans to reality in the various regions and areas of the Kingdom that require more development.

Staying in the comfort zone can lead to a lack of will and desire to make changes, delay or ignore important reforms, and ultimately make the economy vulnerable to future shocks. While it may be tempting and give temporary reassurance, in the long run, it is a dangerous place that risks being left behind in regional and global markets and has a high price in the future that may not be far away.

 

Adli Kandah is an economic and financial adviser

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