Complex Made Simple

Jordan stuck between the IMF and a hard place despite emergency funds

Jordan is selling its airport, not to mention privatizing just about every public sector entity it used to own.

And it still needs money, as the country, poor on natural resources outside of tourism, struggles to make a dent in its national debt, amid rising tension on the street.

In a recent summit in Jordan, Saudi, the UAE and Kuwait pledged $2.5 billion in aid for Jordan to ease its economic crisis following a wave of anti-austerity protests, the Saudi press agency (SPA) said Monday.

Jordan relies heavily on foreign aid, and was the recipient of $3.6bn in annual assistance program it receives from the GCC but which had been interrupted last year.

“In light of the close brotherly ties… it was agreed that the three countries would provide an economic aid package to Jordan totalling $2.5 billion,” SPA said.

The package, announced at a summit of the four nations in the holy city of Mecca, will include a deposit in the Jordanian central bank, World Bank guarantees, budgetary support over five years and financing for development projects, SPA added.

On Sunday, European Union foreign policy chief Federica Mogherini agreed to $23.5 million in aid for Jordan.

Read: More Saudi spending born out of rising oil prices would be a major slip-IMF

Where’s the fire?

Price rises and a proposed tax hike are part of government austerity measures to slash the country’s debt in the face of an economic crisis.

Jordan’s national debt amounts to $1.75bn, up to 95% of the country’s Gross Domestic Product (GDP).

The International Monetary Fund (IMF), the financial arm of the World Bank, is to provide a $723 credit line to the country but requires Jordan to take steps to bring down its public debt from 95% today to 77% by 2021.

Jordan received a $723 million loan from the IMF in 2016, as part of a 3-year plan to bring down debt levels.

The World Bank says Jordan has “weak growth prospects” this year, while 18.5% of the working age population and more than 50% of youth unemployed, its highest levels in 20 years.

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“It’s critical that the benefits of costs and reforms are balanced, across all sectors of the economy, with a greater focus on those that have a greater capacity to pay, while protecting the most vulnerable,” said IMF spokesman Gerry Rice.

“At the same time, recent events also confirm the critical importance of bold reforms to address high unemployment, particularly among youth and women.”

Angry protests over tax proposals forced prime minister Hani Mulki to resign to make way for incoming Prime Minister Omar Al Razzaz, and Jordanian authorities last Thursday announced a reappraisal of the unpopular legislation, but still face a difficult task to balance revenue needs with debt relief strategies.

“The bill came under an International Monetary Fund-supported reform program that proposed lowering the threshold for taxable income, eliminating some tax breaks, and increasing levies on some businesses,” reported Bloomberg.

Jordan’s lack of sustainable revenue sources is further complicated by economic woes born out of the country’s hosting thousands of refugees from war-torn Syria.

“Jordan has been relying on foreign aid to shore up its finances. The influx of 1.5 million Iraqi and Syrian refugees has further strained a nation whose public debt equals its economic output,” said Bloomberg.

Read: Why do the IMF and PwC have faith in Saudi, UAE economic growth?