IMF deal: Jordan is on the road to stability
After a sluggish decade, the country is balancing the wants of its people and getting its finances in order
Doing a deal with the International Monetary Fund is rarely easy. Negotiations often take years, as countries engage in a process of self-reflection and reckon with hard truths. IMF beneficiaries are normally required to undertake dramatic structural reforms, which are difficult to swallow for the average citizen. But the end result, they hope, will be a clear path out of difficult economic straits towards a lasting prosperity.
Last week, in a culmination of its latest, months-long round of IMF talks, Jordan announced that it had finally secured such a deal, on the order of $1.3 billion to be disbursed over four years. Based on the country’s recent efforts, the prognosis is good.
Jordan previously agreed to an IMF deal in 2016, but reforms were slow to implement and success was limited. Consequently, a fresh assistance package was an important pursuit for Omar Al Razzaz, who was appointed prime minister in June 2018.
The Jordanian economy has been in a state of listlessness for the last decade. In that time, growth of the gross domestic product has stalled around the 2 per cent mark. The hardships, of course, are not entirely of Jordan’s own making. If anything, its spirit of generosity – it has absorbed millions of Syrian refugees and been a major force in regional security – has taken a large toll on its fiscal stability. In the past 10 years, Jordan has absorbed around $17 billion in external shocks.
Jordan previously agreed to an IMF deal in 2016, but reforms were slow to implement and success was limited
Today, the country’s total public debt stands at over $40 billion – approximately 92 per cent of its GDP. That fact is particularly unnerving for Jordanian youth, who will be the ones eventually servicing the mounting debt repayments. Adding to their woes is an epidemic of joblessness. In his recent interview with The National, Mr Al Razzaz reiterated the importance of tackling youth unemployment as a priority, as nearly one in five young people is unemployed.
The country’s traditional respect for trade unions and a wave of protests in recent years have made it even more difficult for policymakers to make tough decisions to get the country’s fiscal house in order.
Mr Al Razzaz, however, has shown an admirable willingness to make those decisions. In November, he announced a major shake-up of his cabinet, appointing Mohammad Al Ississ, a Harvard-educated economist and former planning minister, to the finance portfolio. Together, they secured the new arrangement with the IMF and announced a budget for 2020 that is intended to be “realistic” and sensitive to the plight of the average Jordanian.
The country has a bloated public sector, but its new budget recognises that those employees also need a break; public salaries will see a 330 million dinar raise. There will be no tax increases, as steep hikes in 2018 had the counterproductive effect of slowing domestic consumption and triggering protests. Instead, Amman is redoubling efforts to crack down on tax evaders, who officials say cost the public purse hundreds of millions of dollars annually.
The broader reform efforts also signal a recognition of what will be crucial to economic sustainability in the next decade. The IT sector, for instance, has already been exempted from many taxes, allowing it to grow by 11 per cent. Additionally, the role of youth and small and medium enterprises in the economy is receiving considerable attention, as is female participation in the labour force.
Jordan’s government has shown an uncommon willingness to balance its people’s sentiments with the demands of the IMF. Its forward-looking strategy and its combination of fiscal prudence and fairness are likely to prove a winning combination in its mission to revive the economy. If that mission succeeds, Jordan may become a force for regional stability in the economic sphere as it already is in the political one.
Updated: February 2, 2020 08:52 AM