Jordan’s troubled economy

Mungo Drake , Friday 29 Jun 2018

Some measure of calm has returned to Jordan after recent protests, but without fundamental economic reform crisis will only reoccur

Protest in Amman
Police officers secure the office of Jordan’s prime minister during a protest in Amman (Photo: Reuters)

When mass demonstrations and strikes erupted across Jordan earlier this month, King Abdullah acted quickly to try and stabilise the precarious political situation.

By commanding parliament to postpone controversial austerity measures that would have seen the price of electricity rise by nearly 20 per cent, and succumbing to the demands of protesters to remove former prime minister Hani Al-Malki from office, he averted a larger political crisis.

Now it seems after the formation of a new government under Omar Razzaz, the well-respected former education minister and World Bank economist, that a degree of calm and stability has returned to the country.

However, many believe that the king’s moves only amounted to a superficial bid to save time before the Jordanian government has to face the harsh reality of its financial position.

The IMF loan of $723 million secured by the government in 2016 came with a commitment to reform the public sector, particularly the costs incurred by extensive subsidisation programmes, and to tackle its massive national debt of $32 billion.

The Jordanian economy has struggled through years of faltering growth and stifling recession which has seen unemployment rise to 18 per cent and living costs skyrocket as inflation has doubled since 2006.

This has particularly hurt the kingdom’s middle class who were the mobilising force behind the recent mass demonstrations and those who would have been hardest hit by the proposed change in income tax.

The situation has only been exacerbated by the immense pressures created by the chaos in neighbouring Syria. Since the start of the civil war there, Jordan has accepted around 623,000 Syrian refugees and spent an estimated $10 billion on accommodating them.

As the war rages on with no end in sight, and support from UNRWA reduced after the US drastically cut back on its funding of the organisation, the refugee crisis will continue to be a strain on state resources.

What became evident from the unrest last month was growing popular dissatisfaction with the government’s handling of the economy. Despite the king’s continued popularity, there is a sense that the essence of the problem is not a lack of public funds but that the political system is so riddled with corruption that it squanders what it has.

In an interview for the Middle East Eye, Ziyad Abu-Rish, a Jordanian professor of Middle Eastern history at Ohio University, suggested that the root of the problem is a lack of transparency on the part of the government.

In explaining the discontent with the political establishment, she said: “We don’t know what the budget actually looks like to determine if these are the necessary cuts as we’ve very little sense of what percentage of the state budget the military and royal institutions represent, and how that money is being used.”

The irony of Jordan’s situation is that the only immediate solution to the current economic turmoil is also part of the problem — namely its unhealthy dependence to foreign aid.

Increasingly the government has been dependent on aid, predominantly from the US, EU and the Gulf, to support public spending in such areas as security, development projects and refugee programmes.

Interruptions to the stream of this revenue, such as the expiration of the Gulf Cooperation Council’s (GCC) five-year long aid package of $5.6 billion at the end of January 2017, have shaken the country’s economy.

Thankfully for King Abdullah the recent protests have acted as a sharp reminder to the international community, and especially Jordan’s allies in the Gulf, of the need to bolster the kingdom financially.

German Chancellor Angela Merkel at a press conference with King Abdullah last Thursday in Amman said that her government would “give a untied loan to the tune of $100 million… in order to make it easier to implement the IMF reforms”.

Germany’s loan pales in comparison to the $2.3 billion loan from Saudi Arabia, Kuwait and the UAE. The deal was agreed upon at an emergency summit held in Mecca 10 June that was attended by the leaders of the three states.

The aid package will certainly do a lot to assuage immediate financial uncertainties. Salaweh Derawi, an economic analyst and editor of Al-Maqar Website, summed up the impact of the Gulf’s support in how it “will be a boost to Jordanians who will feel that they are not alone”.

However, economic analysts are quick to point out that such agreements do little to resolve long term structural issues in the economy that make them necessary in the first place.

Kirk Sowell, an expert on Middle Eastern economy and principal at Utica Risk Services, made it clear that “if this aid allows Jordan to avoid structural reforms ... in just a few years Jordan will be right back in crisis.”

Furthermore, there has been a lot of speculation about the political motivations and repercussions of the agreement made at the Mecca summit.

Hassan Malik, the head of equity research at Exotix Capital, wrote of the deal that Saudi Arabia and its Gulf partners were “motivated by a desire not to see, firstly a fellow monarchy threatened by protests, and secondly, any social unrest which Iran or the Muslim Brotherhood might exploit to weaken an allied state”.

Due to its strategic position bordering both Syria and Iraq, Jordan is seen as an important and necessary partner in the struggle to curb the encroachment of Iranian influence in the region. It is speculated that with greater financial support from the GCC will come an expectation of an increased alignment in their geopolitical interests and regional strategy.

This is a challenging and uncertain period for King Abdullah and his government. Despite the committed support of his allies, it is clear that greater efforts need to be made to reform the public sector and diversify the economy in order to preserve Jordan’s cherished stability.

*The writer is a freelancer.

*A version of this article appears in print in the 28 June 2018 edition of Al-Ahram Weekly under the headline: Jordan’s troubled economy

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