Jordan’s economic problems are longstanding and solutions are difficult. The country has few natural resources, and its population has practically doubled since 2001. Jordan is relatively stable (politically?); while its neighbors have been wracked by violence that sent waves of refugees to Jordan’s borders. Tourism has been hurt by years of violence, and trade with Iraq has yet to recover from the collapse that followed ISIS’ domination of Iraq’s Sunni west. The International Monetary Fund provided a critical $723m loan in 2016, but the funding came with a mandate that Jordan undertake reforms to reduce its whopping $35 billion public debt. Jordan’s economic problem have persisted, and the country is running a budget deficit of more than $500 million in the first three months of this year alone, more than double the figure at this time last year.
Painful Reforms Have Failed
Amman has attempted to institute painful reforms but they have proven more than the public would tolerate. Fuel, water, and price hikes may have satisfied IMF demands, but they made Amman the Arab region’s most expensive city. Electricity bills have five times already in 2018. That puts a heavy burden on a country with 18 per cent unemployment and where one in five Jordanians lives below the official poverty line of 70 dinars ($99) per month.
Sentiment toward the now former Prime Minister Hani Mulki soured after the imposition of a sales tax on basic commodities that hit the poor particularly hard. The doubling of bread prices, a 20% increase in tobacco costs, and a nine per cent increase in the price of public transportation dug deep into the pockets of Amman’s struggling poor, many of whom have seen stagnant wages.
Norman T. Roule, Former National Intelligence Manager for Iran, ODNI
"But some citizens have done well in Jordan amid growing income disparity and reports of corruption that have driven a wedge between the street and the government. It is increasingly common for the poor to cite opulent building projects as evidence that the wealthy few should be the ones to bear the cost of reform."
Despite the tense atmosphere, Mulki launched a tax reform proposal that hoped to produce $350-$400 million in additional revenue by 2021. With less than five per cent of Jordanians required to pay income tax, and this bill would have raised the number of Jordanians liable for that tax to a modest ten per cent. Individual tax liability would begin around $11,400. And the tax bite on businesses would grow between 20 and 40 per cent. Penalties were also stiffened to make tax evasion a felony, an understandable change given the hundreds of millions of dollars a year lost to tax evaders. But the tax proposal proved to be the final straw. Workers, unions and small business owners took their anger to the streets to an extent not seen since the 1996 food riots.
King Abdullah, whose 19-year reign has witnessed a number of difficult moments, responded quickly and cancelled the planned fuel and electricity hikes. Ominously, the crowds stayed in the streets. His deeply unpopular prime minister, the sixth incumbent of that position since the Arab Spring, refused to withdraw his tough economic proposals and was removed from office earlier this month. Abdullah, however, remains generally popular with the public ire focused instead on his associates, allowing the King some breathing room to change his leadership.
That’s what he did earlier this month, appointing his popular, Harvard-trained Education Minister, Omar al-Razzaz, as Mulki’s successor.
What to Expect Under Razzaz
Razzaz brings valuable experience from his time at the World Bank and is known to oppose free-market policies which negatively impact the poor. In an effort likely aimed at reassuring the IMF that reforms would continue, while also addressing the grievances of the street, Abdullah instructed Razzaz to review Jordan’s tax system and to ensure that any new proposals would be developed in cooperation with parliament, labor unions and other concerned parties. Among Razzaz’ first actions was the withdrawal of his predecessor’s proposed income tax bill.
In the wake of Razzaz’s appointment, protests have diminished, but not ended. Jordanians may recognize that they live far better than their counterparts in Syria, Iraq, and Gaza, but their anger is deep and grievances genuine. On June 6, labor unions called for a one-week halt in ongoing strikes. But crowds responded by protesting outside union offices, and the labor unions reversed their halt order. The Islamic Action Front, the political wing of the Jordanian Muslim Brotherhood, is seeking to exploit the situation by calling for early elections. Clearly, the King needed to do more.
Yet King Abdullah and his new prime minister have few easy options and more unrest seems inevitable. Jordan cannot escape reform. Like most of the region, the country requires deep structural reform which will reduce its generous subsidies and bloated public sector, develop a reliable and fair tax base, and promote domestic employment as well as access to new markets abroad. Its people are unhappy with the unrelenting and grinding poverty which seems inescapable, and consuming more and more of its population.
The Syria Problem
Jordan’s geography will continue to contribute to its pains. Surrounded by the maelstrom of Iraq, Syria and Palestine, Jordan’s stability has become a magnet for hundreds of thousands of refugees which cost the country more than $2.5 billion a year. The Syria conflict hit Jordan particularly hard. Ninety per cent of the more than 655,000 refugees are Syrian, and of this number, around 90% live under the poverty line. Mainly dispersed in Jordan’s crowded cities, refugees depress local wages while placing heavy demands on the country’s already overburdened health care and education services (51% of Syrian refugees are children). International contributions have compensated Jordan for about two-thirds of its refugee costs. Looking East brings little relief: trade with Iraq remains a fraction of what it was prior to when ISIS seized the territory near the Jordanian-Iraqi border.
Jordan’s Unrelenting Dependence on Aid
For several decades, Jordan has needed international and regional financial and military assistance to maintain its economy. Gulf aid has been a critical element of this support. Qatar is a significant investor in Jordan, although annual trade has dropped since the initiation of the blockade against Doha, despite Amman’s reduced diplomatic contact over the past year. Abu Dhabi has been especially generous. In 2016, the UAE disbursed $244.5 million to Jordan, mainly in the form of grants and Emirati aid in 2017 exceeded $600 million. Saudi Arabian funding has been equally important and generous. In 2015, Riyadh provided Jordan with a $473 million. Tight Saudi budgets and allegedly cool relations caused this number to fall to $165 million in 2017. Worse, the Gulf Cooperation Council failed to renew its annual $3.7 billion aid program last year and this placed tremendous strain on Jordan’s finances.
Some commentators have suggested that the decline in Saudi and Gulf support was the result of political differences between Amman and its main Gulf donors. Jordan and Saudi Arabia have different approaches to the Palestinian issue. For months, it has been clear that Riyadh has edged out Amman as the lead Arab voice in Washington on Palestinian issues. This frustrates Jordan, which feels that its historical experience and large population of Palestinians entitle it to a larger voice on any peace negotiations. Further, Jordan’s support for Saudi-coalition operations in Yemen has been meager in a coalition in which even the Sudan found reason to participate. Although Amman reduced its diplomatic ties with Doha in support of the blockade, Jordan’s delicate relations with its domestic branch of the Muslim Brotherhood prevented it from lambasting the group with the enthusiasm Riyadh and Abu Dhabi require in their campaign against regional Islamists.
For the West and the region, the need to support Jordan remains a strategic imperative. Washington recently pledged $6.3 billion in aid through 2022, in addition to an additional $32 million to support the refugees Jordan so generously hosts. Jordan rightfully remains at the top of recipients of American foreign assistance and the size of the U.S. aid package is a rare sign of support under the current administration. In the wake of last week’s unrest, the case for aid is simple: provide support to sustain Jordanian stability or risk possible collapse of one of the region’s most strategically located countries. Plans to develop the Red Sea make Jordan’s stability even more of an imperative.
Fortunately, the scale of unrest in Jordan did not go unnoticed. The June 8 visit to Amman by EU foreign policy chief Federica Mogherini was quickly followed by news of a fresh EU grant of a modest $23.5 million dollars along with a statement of strong European support for Jordan and recognition of its “vital role” in the region. One can hope further European economic support is being developed.
The Mecca Rescue Plan
Jordan’s rescue, however, came in the form of the June 10 gathering in Mecca by the leaders of Saudi Arabia, the UAE, and Kuwait to discuss with King Abdullah how best to support Jordan during this latest economic crisis. The meeting concluded with a generous $2.5 billion dollar aid package which included support for Jordan’s economy over five years and some of the money will be targeted at developmental projects. Although one could make a strong case for self-interest being at the core of the generosity, it would be overly cynical not to applaud Riyadh, Abu Dhabi and Kuwait for their collective leadership at an important moment.
What’s Next?
Beyond this welcome regional assistance, meaningful structural reform will require international patience, targeted financial support, and Jordanian commitment to reform.
- King Abdullah needs to enhance his relationship with the Gulf states and ensure Jordan’s economy and well-educated population benefits from the Saudi modernization program.
- A stronger Saudi-Jordan relationship is a necessity and both King Abdullah and the Saudi Crown Prince should work to achieve this.
- Jordan will also likely approach the IMF and seek more time to execute reforms. The King is likely to find a receptive audience and his requests will likely be endorsed by the U.S., Europe, and Israel.
- Domestically, King Abdullah should continue to promote national dialogue, especially with the 70% of Jordan’s population which are under the age of 30. Additional steps to bring Jordan’s youth into the Kingdom’s political dynamic will decrease their feelings of exclusion and marginalization.
- Jordan can best assure its security by reinforcing its national sense of identity. A strong anti-corruption program and broadening support to Jordan’s most vulnerable via the National Aid Fund need to be critical elements of any domestic strategy.
The Jordanian crisis may have eased, but its roots – like those in Tunisia and Iran – are deep. It is increasingly clear that many of the complaints which produced the Arab Spring remain unaddressed. Declining living standards, unemployed connected by social media, and evidence of income disparity can only be addressed by programs that promote employment. Like Tunisia, Jordan deserves robust international support. Let’s hope the Mecca Summit is the first step on the road to increased regional integration and support to promote Jordan’s stability.
