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Abu Dhabi, UAEMonday 25 June 2018

UAE, Saudi Arabia and Kuwait agree $2.5bn aid package for Jordan

Five-year deal includes donor nations acting as guarantors for Jordan at World Bank

Jordan's King Abdullah has said a pledge of $2.5 billion from Gulf allies will help the nation overcome an economic crisis that led to more than a week of protests.

The aid from Saudi Arabia, the UAE and Kuwait was announced early on Monday, and will see a direct payment to Jordan’s Central Bank as well as other financial guarantees.

King Abdullah and officials expressed their gratitude for the support, with a Royal Court statement noting it had deepened “brotherly ties between Jordan and the Arab countries”.

The package includes budgetary backing over five years as well as finance for development projects. The support comes at a crucial time, yet economists and analysts said it would only be a temporary fix for Jordan’s moribund economy, plagued by spiralling public debt, a yawning budget deficit and unemployment that stands at 18 per cent.

They argued that the government needs to take deep action to address public resentment over tax proposals that triggered this month’s demonstrations and forced prime minister Hani Mulki to resign, warning that anything less would likely result in more protests.

New prime minister Omar Al Razzaz has said he will withdraw the original bill.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, led the UAE delegation to the meeting in Makkah. He later tweeted that the meeting had served to "preserve stability and to strengthen the Arab and Islamic brotherhood".

But Imad Hmoud, an independent business analyst in Amman, said the aid was not a solution.

"The money will not solve Jordan’s problems, although it will help diffuse tensions temporarily," he said.

Thousands of Jordanians took to the streets this month in what were the largest protests since 2011, angered by austerity measures urged on the government by the International Monetary Fund.

The most divisive proposal was a income tax law that would have seen more people paying from their wages as well as bigger taxes on companies and banks.

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“The problem in Jordan is not just about foreign aid,” said Ahmed Awad, director of the Phenix Centre for Economic and Informatics Studies in Amman. “It is about the policies that have failed to create economic growth to create job opportunities. The government needs to review them and adopt a fair tax system, one that supports the industries rather than burdening them with taxes.

“But based on our past experiences, there is mismanagement of grants that should be geared towards encouraging economic development.”

Jordan’s economy has been badly hit by regional crises that have undermined confidence among investors and seen border closures and lowered exports. The erosion of foreign grants and a soaring number of Syrian refugees – more than 650,000 are registered with the UNHCR – and the interruption of gas supplies from Egypt contributed to an economic downturn.

Jordan’s debt has reached 96 per cent of GDP, up from 57 per cent in 2010.

The budget deficit in the first quarter of this year stood at $573.5-million, including grants.

Last year’s deficit stood at almost $207-million during the same period.

Growth in Jordan will increase slightly from 2.3 percent in 2017 to 2.5 percent in 2018, with a slight uptick to 2.7 percent in 2019, according to the IMF.

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Nicholas Heras, Middle East Security Fellow at the Center for a New American Security, said: “The money is what the King needs to win more time to set and pursue a strategy to reform and modernise Jordan’s economy.

“But the fundamentals in Jordan, everything from high cost of living, scarce resources, and deteriorating youth employment, are challenging in the extreme.

For decades, Jordan’s economy has relied heavily on foreign aid.

Prime Minister Razzaz was quoted in Alghad daily as saying: "Jordan is under immense pressure to change its fixed positions."

There is also increased anxiety that Jordan would have to offer concessions to the United States, notably over its stance on the Israeli Palestinian conflict.

"The Gulf is also concerned about chaos in Jordan that will spill over to the region," said Zaid Nawaiseh, a political analyst based in Amman.

A girl and a boy hold a Jordanian flag and banner during a demonstration outside the Prime Minister's office in Amman, early Tuesday, June 6, 2018. Jordan's King Abdullah II on Tuesday appointed a new prime minister, the royal palace said, naming a leading reformer as head of government in hopes of quelling the largest anti-government protests in recent years. Raad al-Adayleh / AP
A girl and a boy hold a Jordanian flag and banner during a demonstration outside the Prime Minister's office in Amman, early Tuesday, June 6, 2018. Jordan's King Abdullah II on Tuesday appointed a new prime minister, the royal palace said, naming a leading reformer as head of government in hopes of quelling the largest anti-government protests in recent years. Raad al-Adayleh / AP

Ali Abbous, head of Jordan’s professional associations, which called for the strikes and protests that unsettled the country last week, echoed those concerns.

“If there is unrest in Jordan, it will impact the entire region. So economic aid is crucial for Jordan’s stability," said Mr Abbous. "But Jordan cannot keep asking for money, Jordan needs to invest the aid in a manner that would benefit the economy and improve transport as well.”