AMMAN, 10 May 2004 — Remittances of Jordanians working abroad have played a key role in the Jordanian economy, compared to other sources of foreign exchange revenues such as export of services, tourism receipts and investment income. Remittances reached JD1. 56 billion ($2.2 billion) in 2003 compared to JD1.34 billion ($1.54 billion) in 1998, growing during this period at an average annual rate of 8.4 percent. This rate compares favorably with the 6.7 percent growth of remittances received by all developing countries during the same period. At $2.2 billion of workers’ remittances, Jordan ranked as the 9th largest recipient of remittances in nominal terms among developing countries after Bangladesh ($2.1 billion), Lebanon ($2.3 billion), Turkey ($2.8 billion), Egypt ($2.9 billion), Morocco ($3.4 billion), Philippines ($6.5 billion), Mexico ($9.8 billion) and India ($10 billion).
It is estimated that the total number of Jordanian expatriates abroad exceeds 450,000, with around 200,000 of those believed to be supporting families left behind in Jordan. Assuming average size per family of around 5, this means the total number of Jordanians supported by relatives working aboard could exceed one million. The remittances send back home by Jordanian expatriates rose from 19.5 percent of GDP in 1998 to 22.6 percent of GDP in 2003. This percentage is the highest in the Arab region, followed by Yemen where remittances accounted for 16.1 percent of the country’s GDP, Lebanon 13.8 percent and Morocco 9.7 percent. According to the World Development Finance of 2003 published by the World Bank, workers remittances to the Arab region reached an estimated $14 billion in 2002. The largest recipient by region among developing countries was Latin America at $25 billion in 2002, followed by South Asia including the Indian subcontinent at $16 billion, East Asia and the Pacific at $11 billion, and East Europe and central Asia at $10 billion.
On the other side of the equation, Saudi Arabia is the second largest source of remittances in the world after the US, with an annual outflow of $15 billion, compared to $28.4 billion from the US. The second largest source of remittances in the region is the UAE at $4.5 billion, followed by Kuwait at $2.3 billion, Oman at $1.5 billion, Qatar at $1.4 billion and Bahrain at $1.3 billion. Around $26 billion are remitted annually by expatriates working in the Gulf countries back to their home countries. This accounts for around 8 percent of the GDP of the six Gulf states.
The importance and contribution of remittances to the Jordanian economy is quite broad. In the banking sector, remittances account for 40 percent of total foreign currency deposits. As a percentage of non-resident foreign currency deposits with Jordanian banks, remittances rose from 76 percent in 1999 to 85 percent in 2003.
The importance of remittances has increased over time, as they grew from 200 percent of tourism receipts in 1998 to 337 percent in 2003. Remittances rose from 403 percent of private foreign direct investment in 1998 to more than 8 times that level in 2002, and were almost equal to 75 percent of Jordan’s total revenues from exports. These figures account only for remittances transferred through formal channels, mainly banks while informal channels such as cash carry and hawala are equally important and could well double the total amount of remittances coming to the country.
Remittances have also boosted the disposable income of individuals in Jordan as most families depend on funds remitted by a relative working in the Gulf. Remittances also contributed to the country’s foreign exchange reserves, and are considered to be one of the least volatile sources of foreign exchange earnings. While capital flows tend to rise during favorable economic cycles and fall in bad times, remittances appear to show remarkable stability over time. This is especially the case because most remittances to Jordan are intended for consumption and only a small portion is channeled for investment usually in real estate, stocks or bank deposits.
We expect remittances of Jordanians working abroad to maintain their uptrend in the foreseeable future. The economies of Saudi Arabia, UAE, Kuwait and the other Gulf countries have been growing at high rates in the past two years and are forecast to do well in 2004-2005. The current strong economic growth conditions in the Gulf are supported by higher oil revenues, low interest rates and an upturn in the region’s private sector activities. The demand for Jordanian labor in the Gulf especially in such growth sectors as telecommunications, information technology, education, finance, training, consulting and engineering among others is likely to be on the rise in the years ahead. The number of new university graduates in these fields far exceeds employment opportunities in the domestic Jordanian market. For many Jordanian graduates, the Gulf countries, with their relatively high compensation and remuneration package, remain their first choice of employment.
The remittances that these expatriates send back home have become an important source of external funding for Jordan and have greatly affected the country’s income and consumption levels.
Jordanian authorities have so far taken it for granted that remittances from expatriates working abroad will keep flowing to the country and decided to subject them to a 5 percent tax on interest income earned on their domestic deposits. The growing importance of remittances to the Jordanian economy, should motivate the authorities to reconsider such a tax and instead introduce incentives to attract more savings and investments from Jordanians working abroad.
(Henry T. Azzam is chief executive officer at Jordinvest.)