Austerity to Visit Jordan as Debt Spikes

Jordan’s high and rising public debt has worried the International Monetary Fund and prompted a downgrade from Standard & Poor’s.

So the government is planning a range of austerity measures by year-end. Tax hikes and subsidy cuts—likely to be highly unpopular—are on the agenda as the country’s debt to GDP ratio has reached a record 95%, from 71% in 2011, AmmonNews reported.

 “Postponing problems might increase the popularity of the government but would be a crime against the nation,” Prime Minister Hani Mulki told a group of parliamentarians last week.

After an IMF standby arrangement that brought some fiscal stability, Jordan agreed last year to a more ambitious three-year program of long-delayed structural reforms to cut public debt to 77% of GDP by 2021.

The debt is at least in part due to successive governments adopting an expansionist fiscal policy characterized by job creation in the bloated public sector, and by lavish subsidies for bread and other staple goods.

It also hiked spending on welfare and public sector pay in a move to ensure stability in the aftermath of the “Arab Spring” protests in the region in 2011. But the economy has slowed, battered by the turmoil in neighboring Syria and Iraq.

The economic strains reduced local revenue and foreign aid, forcing Jordan to borrow heavily externally and also resort to more domestic financing.

Although there has been some progress this year with improving remittances, tourism and some rebound in exports, there has been no pickup in growth since 2015—with officials forecasting 2% growth this year from an earlier IMF 2.3% target.

The rising debt accentuated by the protracted regional conflicts on Jordan’s borders was the main reason S&P recently downgraded its sovereign rating to B+.