The combination of a narrowing external trade gap and a sharp rise in the services balance caused Jordan's current account deficit to drop to its lowest level since 1990. It fell from its 1994 level by US$ 154 million, or 39.6 %, to US$ 236.2 million in 1995. This led to a drop in its ration to GDP from 6.7% in 1994 to 3.9% in 1995. In 1996, the current account deficit further declined by 12.2% from its level in 1995, to reach US$ 222.4 million, or 3.1% of the Gross Domestic Product. The outstanding performance of the current account was primarily due to the increase of 38.5% in the services balance, a total of US$ 516.5 million.
External Trade
In 1996, domestic exports registered a modest growth of 3.5%, while re-exports declined by 5% in 1996. Imports also grew in 1996, rising 17.5% to US$ 4.54 billion. The trade balance deficit increased by 30.2% when compared to 1995. The ratio of external trade to GDP increased to 79.3% compared with the 77.2% registered in 1995.
The strong growth of Jordan's exports (293% between 1985 and 1995) has been caused by a number of interrelated factors. First, the government has exerted continuous and intensive efforts to encourage exports by making available the necessary financing and support to export projects, and also by addressing their concerns. The private sector has played an invaluable role in boosting exports by penetrating new markets. Other factors include the improved competitiveness of Jordanian products abroad due to greater attention to quality standards and the increasing number of companies and projects holding or seeking to obtain ISO 9000 certificates. On the other hand, a primary reason for the increase in imports is the package of customs reduction that came into effect at the end of 1994.
The rise in imports is largely due to the increase in foodstuff prices, one of Jordan's major imports. Machinery, transport equipment, manufactured goods and mineral fuels and lubricants are largely imported too. Jordanian exports are dominated by chemicals, minerals and related products such as potash, phosphates, fertilizers. Manufactured products such as pharmaceuticals and detergents account for an increasing share of Jordanian exports.
Geographically, most of Jordan's imports originate in Europe--primarily Germany, Italy, France and the United Kingdom--followed by Arab countries, the United States and Japan. Iraq remains a major exporter to Jordan, as it supplies most of the Kingdom's petroleum products. The lion's share of Jordanian exports go to other Arab countries, followed by India and Europe.
Jordan is a signatory to numerous trade protocols and agreements with various Arab countries. However, in order to improve its export potential and further develop the region as a trading bloc, Jordan has stressed the importance of replacing protocols and quotas with free regional trade. Recent agreements signed with Saudi Arabia and Bahrain have opened up large markets to Jordanian goods, which will be free almost all customs duties. Likewise, the Egyptian-Jordanian trade protocol signed in 1996 establishes a framework very much approaching truly free trade between the two states.
The Services Balance
While the Kingdom has suffered from a chronic trade deficit, it has enjoyed large and growing surpluses in the balance of services. The services balance improved at a rapid pace in 1996, registering a 25.6% growth rate. The increase in the services balance surplus led to an increase in its coverage of the trade balance deficit, to 75.2% in 1996, compared to 70.7% in 1995. Coupled with receipts from the tourism sector, receipts from workers' remittances earned US$ 3.64 billion in 1996, representing an overall increase of 70.5% in the services balance.
Jordan is one of the few countries in the world to be both a major importer and exporter of labor. While importing unskilled or semi-skilled labor mainly from Egypt and Syria, about one-third of Jordan's labor force is employed outside the country. The vast majority of this group is employed in skilled occupations in the Gulf region. The high level of education common to Jordanians has made them a valuable part of the regional labor force, and remittances from abroad are the primary reason behind the country's services surplus. After workers' remittances, tourism was the second largest contributor to the services balance in 1995 and 1996.