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Death by a Thousand Cuts—Jordan’s Ailing Economy

Image Credit: Ali Saadi (Facebook: Creative Commons)

The Hashemite Kingdom of Jordan has long struggled to manage its economy, relying heavily on the international community for support and guidance. After negotiating a $723 million USD loan in 2016, the government is again returning cap in hand to the International Monetary Fund (IMF) as it looks for new terms to stave off economic collapse.

Under the 2016 Extended Fund Facility (EEF), a phased release of capital was intended to support the government as it reduced public debt from 95.07% of GDP to 77% by 2021. However, as of May this year, debt is running at 95.8% and revenue has fallen short of projections by around $560 million, leaving the government’s ledger in the red by $613 million USD.

In a ham-fisted attempt to increase revenue, the government of former Prime Minister Hani al-Mulki introduced legislation to reform the tax system — only 4.5% of Jordanians pay tax — last month, sparking widespread protests. The proposed law had sought to lower the minimum taxable income, increase taxes on banks and crack down on tax evasion, eventually raising revenue to $1.2 billion USD per year by 2021. Ultimately though, the proposal proved to be political suicide, and after eight days of protest, Hani al-Mulki was forced to resign. While not abandoning tax reform completely, the new government of Prime Minister Omar Razzaz — a former World Bank economist — has withdrawn the proposal, embracing instead a fresh national dialogue on the economy. The collapse of a government over a law that would apply to only 10.5% of the populace is indicative of the toll cumulative reforms and austerity measures are taking on the Kingdom’s people.

Chants of “bread, freedom, social justice” speak to broader human impact of Jordan’s struggling economy. Austerity measures introduced in January have pushed the price of bread up by 100%; the cost of electricity by 55%; and unemployment has risen to just over 18.4% — 37.6% among those are aged 20 to 24. It comes as no surprise then that 68% of Jordanians were found to be in favour of the protests.

Adding further to Jordan’s woes is the economic burden from hosting nearly 750,000 refugees, the cost of which exceeds $1.5 billion USD per annum. To help offset the expense, the 2016 government negotiated a program with the European Union that aimed to put 200,000 refugees in jobs in exchange for $1.7 billion USD in aid. The program created a number of special economic zones that rewarded Jordanian companies with tax and tariff concessions if they employed a workforce of at least 15% Syrians. However, as of 2017 the program had failed to achieve its goals, with only 77,000 work permits issued. But while the weight of the refugee crisis continues to squeeze Jordan’s economy, hope is on the horizon.

A recent ceasefire in southern Syria has brought the border back under Syrian government control. Officials in Amman are hopeful that with the return of stability, the opening of the border crossings can soon follow. Importantly, while the return of refugees will be critical, an open border will once again give Jordanian businesses access to Syrian consumers — trade with Syria had been valued at $615 million USD prior to the border’s closure. While a cause for optimism, the Iraqi experience demonstrates that any economic uptick will be slow to take effect. Since the reopening of the Iraqi border in 2017, exports have reached only 85 vehicles a day, compared with pre-war levels of over 700. Despite this, with a trucking fleet of over 21,000 vehicles, future trade with Iraq and Syria will play a large part in any economic revival.

The IMF has reaffirmed its commitment to supporting Jordan, but more help is needed. Through a summit in Mecca, the Kingdom had hoped to balance its budget with the support of its Arab neighbours: Saudi Arabia, Kuwait and the UAE. But while the collapse of Jordan’s economy is in no one’s interest, their patience for propping up the Kingdom’s ailing finances is wearing thin. Unlike in 2011 when $5billion USD was set aside, a 2018 meeting saw a promise of only half that, with estimates that payments may only reach $150-300 million USD per annum over 5 years.

Having heeded King Abdullah’s call for a national dialogue, Prime Minister Razzaz is banking on the IMF to extend the EEF beyond its 2019 end date — a stopgap measure. Given that debt repayments now exceed over $2 billion a year or 21% of total revenue, the Kingdom remains in dire straits. For Prime Minister Razzaz to succeed where his predecessors have failed, he must balance the need for reform with the necessities of domestic politics a challenge – that may yet prove insurmountable.

James Baylis is the Middle East and North Africa Fellow for Young Australians in International Affairs.

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