If the aid package is treated as a quick fix, Amman risks returning to the same situation
$2.5 billion package gives Jordan an opportunity to restructure its economy
Jordan has been paralysed for more than a week by nationwide protests, sparked by austerity measures and economic reforms led by the International Monetary Fund, which in 2016 granted a $723 million loan to Amman. Against the backdrop of a sluggish economy, where inflation rose by 50 per cent in a decade while wages remained stagnant, the government’s decision to introduce a new tax law – which proposed lowering the income tax threshold and hitting the middle classes hardest – precipitated a major crisis that led to the resignation of prime minister Hani Mulki last week. A week later, leaders of Saudi Arabia, the United Arab Emirates and Kuwait have stepped in with an aid package of $2.5 billion to Jordan, which includes a five-year budget, a deposit to the central bank and the financing of development projects. The three nations have also agreed to serve as Amman’s guarantors to the World Bank.
In the short-term, the relief measure, finalised on Monday in Makkah, will significantly lighten the budgetary burdens faced by the Jordanian government and enable it to make immediate adjustments to defuse unrest in the country. As Sheikh Mohammed bin Rashid, Vice President and Prime Minister of the UAE and Ruler of Dubai, said in a tweet, the decision to come to Amman’s aid in its time of need will preserve the stability of Jordan while deepening Arab unity and reaffirming “Arab and Islamic brotherhood” in the holy month.
In the interests of the long-term health of the Jordanian economy, however, this aid package must be used to facilitate sound reforms; for if it is treated as a quick fix, Jordan risks returning five years later in need of yet another infusion of cash. Jordan, in many ways, is the victim of circumstances beyond its control. Conflict in the region has had a devastating impact on its economy; Syria was one of the key recipients of its exports, for example, bankrolling $239 million in 2010. It doesn't benefit from an oil-driven economy like its wealthier neighbours. National unemployment is at 18 per cent and only three per cent of the nation’s population pay taxes.
The war in Syria, already depriving Amman of revenues, has compounded its problems further by generating an influx of refugees: Jordan now supports nearly 700,000 Syrians. The ratio of Jordan’s debt to gross domestic product tops 94 per cent. All this meant that the government, which spends nearly 10 per cent of its budget on food and fuel subsidies, embarked on a series of cuts and measures to raise revenue through taxation. Yet, as we have witnessed, austerity opens the door to unrest. But thanks to the generosity and solidarity shown by its Arab neighbours, Jordan now has the opportunity to find ways to revive the economy without inflicting unnecessary pain on ordinary citizens. It must be followed through by sound financial reforms to avert a repeat performance.