World Economy

Aid Calms Jordan Tensions, But Need for Growth

Refugees now comprise about 20% of Jordan’s population.Refugees now comprise about 20% of Jordan’s population.

Saudi Arabia, the United Arab Emirates and Kuwait pledged $2.5 billion to support Jordan’s economy after protests trying to stop an income tax increase shook the kingdom. The largesse could stabilize the country in the short term but does not remedy Jordan’s long-term structural problems.

The three Persian Gulf Arab countries offered Jordan a package of aid including a deposit in the Central Bank of Jordan, guarantees to the World Bank on Jordan and a 5-year budgetary support to Jordan, AFP reported.

“The Jordanian economic situation is challenging with low growth, high unemployment rate, large deficits and an elevated level of public debt. Public finances have been strained by a nearly 50% increase in public spending on social benefits accompanying the arrival of approximately one million Syrian refugees since the 2011 start of the Syrian conflict,» said Nassib Ghobril, chief economist at Byblos Bank.

«Refugees now comprise about 20% of Jordan’s population and the increase in government spending on social benefits has occurred amid a decline in foreign grants since 2014,” he said.

To counter the downward trend Jordan had agreed to a $723 million Extended Fund Facility from the International Monetary Fund to stabilize public finances. The loan was dovetailed with conditions to reform the economy, including the introduction of new income taxes.

That plan was denounced during nationwide protests. Jordanian Prime Minister Hani Mulki, who had pushed for the reforms, had to step down and the government announced it would withdraw the bill.

The cash infusion—three times as big as Amman’s IMF loan—could reduce tensions in Jordan.

While reforms remain essential to address the debt and limit corruption, tax fraud and tax evasion, some economists say that is not enough. There is also a need in Jordan to promote growth and development.

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