Abu Dhabi, UAESunday 23 February 2020

Jordan’s austerity drive risks fuelling resentment

The government has defended the move, saying that those measures are needed to cut spending and increase revenues as part of an agreement inked with the IMF.
Heavy traffic is seen on one of the main streets of the capital city of Amman, Jordan, on June 13, 2012. Jordan’s government on Wednesday raised the price of fuel used in public transport, sparking calls for protests. Mohammad Hannon/AP Photo
Heavy traffic is seen on one of the main streets of the capital city of Amman, Jordan, on June 13, 2012. Jordan’s government on Wednesday raised the price of fuel used in public transport, sparking calls for protests. Mohammad Hannon/AP Photo

AMMAN // Jordan has approved a raft of austerity measures and increased taxes to unlock loans and grants from the International Monetary Fund, risking further public resentment over deteriorating living conditions.

The highly unpopular measures include increases to the prices of gasoline, diesel and kerosene and ownership transfer fees of private cars as well as reducing tax exemptions on imported cars.

The government also increased the special tax on alcohol and raised the price of cigarettes.

The prices of electrity are also expected to increase early next year depending on international oil prices. The IMF wants the kingdom to tie electricity prices to the price of oil.

The government said there will be no further hikes this year but it has also reneged on a previous decision taken in August 2015 to reduce taxes on clothes and accessories from 16 to 8 per cent and lower custom duties by between 5 and 30 per cent. The sales tax and customs will now increase after Eid next month.

The government said those measures are needed to cut spending and increase revenues as part of an agreement inked with the IMF on Monday to facilitate international aid to Jordan until 2019. It expects the new hikes would generate up to 145 million Jordanian dinars (Dh752m) by the end of the year.

Omar Malhas, the finance minister said the agreement with the IMF seeks to implement gradual fiscal reforms to ease public debt and boost economic growth.

“The agreement aims to implement fiscal consolidation in a gradual and steady pace so that public debt is reduced from nearly 94 per cent of GDP to about 77 per cent of GDP by 2021, to minimise the impact on growth,” he said.

But some economists argue that the government is coming up with yet another round of short-sighted measures that would cause a fresh bout of public resentment.

Ahmad Awad, the director of the Amman-based Phenix Center for Economic and Informatics Studies criticised the government’s decisions.

“The government is thinking inside the box,” he said. “The direct and indirect taxes including the value added tax citizens pay amount to 24 per cent, one of the highest in the world, while the income tax the government generates is among the lowest. The government says that tax evasion stands at between 800m Jordanian dinars to a billion. So it needs to solve this issue rather than burdening citizens with additional taxes and price hikes.”

Mr Awad warned that further price hikes and taxes risk upsetting Jordan’s social fabric and push more Jordanians toward the poverty line.

“Any increase will burden citizens further and will undermine the country’s fragile security. The government will eventually increase taxes that will touch everyday essentials.”

Jordan’s ailing economy, propped up by foreign donations and dependent on remittances from Arab Gulf countries, has suffered in part due to the conflicts in Syria and Iraq that have interrupted trade routes, shaken invester confidence and taken its toll on the tourism sector among others.

The government said the influx of Syrian refugees - with at least 650,000 registered with the UN - was straining its scant resources.

Many Jordanians are unhappy about the state of the economy while two terrorist attacks this month against security targets raised concerns in a country that pitches itself as a model of stability and security in a tumultuous region. On Tuesday, a suicide car bomber blew himself up outside a Syrian refugee camp in a remote desert area killing six security members and injuring 14 others, in the third security breach since November.

GDP growth last year stood at 2.4 per cent, the lowest in four years according to the World Bank.

Unemployment has reached 14.6 per cent during the first quarter of this year, an eight-year high according to official data, while poverty is on the rise.

Signs of unease are increasing. Last month, five unemployed men attempted to commit suicide by jumping off a building to draw attention to their plight, but police talked them down. A poll published by the International Republic Institute, showed that the number of people who describe the economy as good went down to 29 per cent, from 46 per cent last year. Fifty per cent also described the economy as bad, up from 33 per cent in 2015.

The government’s measures would pave the way for Jordan to access an Extended Fund Facility with the IMF for 2016-2019, in support of pledges made during a conference in London held in February this year to address the impact of the Syrian refugee crises on host countries.

In that conference, donors pledged US$1.7 billion (Dh6.25bn) and grants and grant equivalents to Jordan on condition that the kingdom reaches the agreement with the IMF and introduces more economic reforms, including lowering its debt to 77 per cent by 2021.

foreign.desk@thenational.ae

Updated: June 22, 2016 04:00 AM

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