Raad Mahmoud Al-Tal

Jordan’s external sector has long been regarded as one of the economy’s most vulnerable areas. The country’s limited natural resources, heavy dependence on imported energy, capital goods, and intermediate inputs have historically exposed it to external shocks. Regional conflicts, border closures, disruptions in supply chains, and fluctuations in tourism and investment have further intensified these pressures.

Yet recent economic indicators suggest that Jordan’s external position is becoming more resilient. This improvement is not merely the result of temporary factors but reflects gradual structural changes that have strengthened the economy’s ability to withstand external shocks and reduced long-standing external imbalances.

The current account remains the most important indicator of external sector performance, as it measures the balance between a country’s earnings from the rest of the world and its payments for imports, services, and income transfers. For decades, Jordan’s current account deficit represented a structural challenge. However, recent data indicate a notable improvement. In 2024, the current account deficit stood at 5.9 per cent of GDP, while the cyclically adjusted deficit declined to 4.3 per cent of GDP, close to the 4 per cent benchmark that the International Monetary Fund considers broadly consistent with Jordan’s economic fundamentals. Consequently, the IMF concluded that Jordan’s external position is broadly aligned with economic fundamentals and desirable policy settings, highlighting a significant improvement in the country’s external sustainability.

This progress has been driven by several complementary factors rather than a single source. Merchandise exports have expanded considerably, with their contribution to GDP increasing from 20.2 per cent in 2021 to 26.2 per cent in 2022, before stabilizing at 24.9 per cent in 2024. Equally important, Jordan’s export structure has become more diversified as manufactured and non-traditional exports have gained prominence, reducing reliance on traditional commodity exports alone.

Tourism has also re-emerged as a major source of foreign exchange. In 2024, tourism receipts reached the equivalent of 13.5 per cent of GDP, while the sector’s value added accounted for 6 per cent of GDP. During the first half of 2025, tourism revenues reached approximately $ 3.7 billion, with 49 per cent generated by Arab visitors and nearly 30 per cent by Jordanians residing abroad, underscoring the importance of regional markets in supporting the tourism industry.

Workers’ remittances continue to provide another pillar of external stability. In 2024, remittance inflows represented approximately 7.1 per cent of GDP, maintaining their long-standing role in supporting household income, domestic consumption, and the balance of payments, particularly during periods of weaker trade or tourism performance.

Foreign direct investment has also contributed to strengthening Jordan’s external position. FDI inflows reached $1.64 billion in 2024, while the cumulative stock of foreign direct investment increased to approximately $44.1 billion, originating from more than 124 countries. More importantly, the financing structure of the current account deficit has improved significantly. The share financed through non-debt-creating inflows increased from 54.8 per cent during 2015–2019 to 67.9 per cent during 2020–2024, reflecting a healthier and more sustainable pattern of external financing with reduced reliance on debt accumulation.

Energy sector reforms have also played a critical role. Historically, energy imports represented one of the largest sources of pressure on Jordan’s trade balance. Through diversifying energy sources and expanding the use of natural gas and renewable energy, Jordan has significantly reduced this vulnerability. The energy import bill declined from 45.8 per cent of GDP in 2022 to 42.3 per cent in 2023, before stabilizing at 43.4 per cent in 2024, despite continued volatility in global energy markets. Beyond improving the trade balance, these reforms have enhanced industrial competitiveness by lowering production costs and strengthening the export sector.

Another important source of resilience is the Central Bank’s strong foreign exchange reserves, which currently cover more than seven months of imports and exceed 100 per cent of the IMF’s Assessing Reserve Adequacy (ARA) metric. These reserves provide a substantial buffer against external shocks and reinforce confidence in the stability of the Jordanian dinar.

Despite these encouraging developments, significant challenges remain. Jordan continues to rely heavily on imported capital goods, intermediate inputs, and essential commodities. In addition, geopolitical tensions and fluctuations in global energy prices remain important sources of external risk. Sustaining external stability will therefore require continued efforts to expand the productive base, increase value-added exports, attract higher levels of investment, and diversify export markets.

Jordan’s recent experience demonstrates that improving the current account is not simply a matter of reducing imports; rather, it depends on building sustainable sources of foreign exchange through exports, tourism, remittances, and investment. If ongoing structural reforms continue, the external sector can evolve from serving merely as a safeguard against economic shocks into becoming one of the principal engines of long-term economic growth and sustainable development.