x

Abu Dhabi, UAEWednesday 12 December 2018

Quicktake: How Jordan plans to get out of the public debt quagmire

The resource-scarce country's parliament passed a new income tax law on Sunday

Resource-barren Jordan relies on foreign aid and remittances to prop up its economy. Alamy
Resource-barren Jordan relies on foreign aid and remittances to prop up its economy. Alamy

Jordan's parliament approved a new income tax law on Sunday as part of reforms aimed at lowering its spiraling public debt and boost revenue and economic growth.

Members of parliament amended the 36-article bill to include raising family exemptions to contain its impact on middle class income earners. The law, which needs to be approved by the senate before it becomes law, is expected to be implemented next year. The International Monetary Fund-backed tax comes months after proposed reforms sparked protests this year over austerity measures.

Why is Jordan’s economy in such a dire state?

Resource-barren Jordan relies on foreign aid, grants and remittances to prop up its economy. A three-year oil slump reduced aid and remittance flows to the country from thousands of Jordanian expatriates residing in the energy-rich Arabian Gulf.

Official figures show that 750,000 Jordanian live abroad, with nearly 300,000 residing in Saudi Arabia, followed by 200,000 in the UAE.

The seven-year war in neighbouring Syria also dented economic growth. In 2017, the country received $3.7 billion in remittances, similar to figures in 2016.

The IMF has long called on donors to help Jordan shoulder the burden of hosting over one million refugees from Syria and Iraq that inflated the country's population to about 10 million.

The country's fiscal balance has also deteriorated as a result of Jordan’s import bill. The country imports 95 per cent of its energy needs. The kingdom's import bill has ballooned this year with the rebound in oil prices.

In June, Saudi Arabia, Kuwait and the UAE pledged $2.5 billion to prop up the kingdom's economy.

What is Jordan doing to amend its finances?

In 2016, Jordan agreed with the IMF on a three-year economic programme to help unleash $723 million in aid aimed at controlling the country’s deteriorating finances.

The plan aims to lower the public debt ratio to 77 per cent of gross domestic product by 2021 from the current 94 per cent of GDP.

The programme emphasises the need to reduce the general sales tax and custom duty exemptions and amend the income tax law.

Jordan’s high import bill, which swelled with the cut-off of supplies of Egyptian gas to the country during the Arab spring, is expected to be lowered with plans to import piped crude from Iraq and gas from Israel.

What is the outlook for Jordan’s economy?

According to the IMF, Jordan's economy will grow 2.5 per cent next year, up from 2.3 per cent this year, but below the 5.2 per cent average between 2000 and 2014.

Jordan’s current account balance is forecast to narrow to a deficit of 8.6 per cent of GDP next year form a deficit of 9.6 per cent in 2018 and 10.6 per cent in 2017.