2009 Index of Economic Freedom

Quick Facts

Population:

• 5.5 million

GDP (PPP):

• $25.6 billion
• 6.3% growth
• 6.4% 5-year compound annual growth
• $4628 per capita

Unemployment:

• 13.5%

Inflation (CPI):

• 5.4%

FDI Inflow:

• $3.1 billion

Jordan's economic freedom score is 65.4, making its economy the 51st freest in the 2009 Index. Its score has increased by 1.3 points since last year, reflecting a substantial increase in business freedom, moderate increases in trade freedom and government size, and a slight decline in freedom from corruption. Jordan is ranked 6th out of 17 countries in the Middle East/North Africa region.

Jordan has relative strengths in terms of monetary stability, strong property rights, and low tax rates on individual and corporate income. Inflation is moderate, and the government has succeeded in phasing out direct subsidies of many goods. Developed and increasingly modern, Jordan's financial sector is making serious efforts to meet international standards.

Jordan's weaknesses include large government size and non-transparent regulatory obstacles to investment. Sound public finance management and privatization are part of the structural reform agenda, which aims to reduce public debt, currently more than 70 percent of GDP, to 60 percent of GDP by 2011. A variety of restrictions have limited opportunities for foreign investment in Jordan.

Background Back to the top

Jordan, which gained its independence from Britain in 1946, is a constitutional monarchy with a relatively well-educated and socially advanced population. The economy is supported to a significant degree by foreign loans, international aid, and remittances from expatriate workers, many of whom work in the Persian Gulf oil kingdoms. King Abdullah II has undertaken political, economic, and regulatory reforms since coming to power in 1999. Jordan joined the World Trade Organization in 2000, signed a free trade agreement with the United States that same year, and signed an association agreement with the European Union in 2001. The country suffers from high unemployment, heavy debt, an influx of Iraqi refugees, and the high cost of oil imports.

Business Freedom 68.9 Back to the top

The overall freedom to start, operate, and close a business is restricted by Jordan's regulatory environment. Starting a business takes an average of 14 days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. Closing a business is difficult. Despite efforts at reform, bureaucratic obstacles and delays persist.

Trade Freedom 78.8 Back to the top

Jordan's weighted average tariff rate was 5.6 percent in 2006. Import bans and restrictions, import taxes and fees, licensing requirements, restrictive sanitary and phytosanitary regulations, export subsidies, weak enforcement of intellectual property rights, and inefficient customs administration add to the cost of trade. Ten points were deducted from Jordan's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 83.0 Back to the top

Jordan has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT) and a tax on interest paid to non-residents. In the most recent year, overall tax revenue as a percentage of GDP was 21.1 percent.

Government Size 56.9 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 37.9 percent of GDP. Some 19 companies were slated for privatization in 2008. Authorities removed fuel subsidies but countered that with wage increases.

Monetary Freedom80.3 Back to the top

Inflation is moderate, averaging 5.4 percent between 2005 and 2007. Most controls have been eliminated, but the government influences the prices of fuel products through subsidies and sets prices for electricity, telecommunications, and water. Five points were deducted from Jordan's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom50.0 Back to the top

Foreign and domestic investments receive equal treatment. There is no formal screening, but there are minimum capital requirements. Additionally, foreign investments may not exceed 50 percent in sectors like construction, wholesale and retail trade, transport, import and export services, and advertising. Foreigners may not invest in investigative and security services, sports clubs, stone quarrying, customs clearance services, and land transportation. Excessive bureaucracy, red tape, weak contract enforcement, and non-transparent regulations inhibit investment. Residents and non-residents may hold foreign exchange accounts. There are no restrictions or controls on payments, transactions, transfers, or repatriation of profits. Real estate purchases require approval.

Financial Freedom60.0 Back to the top

Jordan's fairly well-developed financial sector is dominated by banking. Along with financial-sector policies that are intended to enhance competition and efficiency, the government has brought supervision and regulation into line with international standards. More than 20 banks, including nine domestic commercial banks and eight foreign banks, operate in Jordan. The Arab Bank dominates the sector, accounting for about 60 percent of total assets. Government-encouraged consolidation among smaller banks has made progress. The government owns no commercial banks but does own five specialized credit institutions focused on agricultural credit, housing, rural and urban development, and industry. The insurance sector is small but open to foreign competition. Capital markets are not fully developed but are fairly robust by regional standards. In 2007, with more than 200 companies listed, the Amman Stock Exchange's market capitalization amounted to about 290 percent of GDP.

Property Rights55.0 Back to the top

The judiciary is generally independent, but the king is the ultimate authority. Despite a law passed in 2001 to limit its influence, the Ministry of Justice significantly influences judges' careers. Expropriation is unlikely. Jordan's record in protecting intellectual property rights has improved, but further efforts are needed.

Freedom From Corruption47.0 Back to the top

Corruption is perceived as present. Jordan ranks 53rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Use of personal ties to gain economic advantage is pervasive. There are allegations of non-transparency and influence peddling in dispute settlement and government procurement.

Labor Freedom74.1 Back to the top

Jordan's relatively flexible labor regulations facilitate employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is not easy. Regulations on the number of work hours are not rigid.