Jordan's internal instability and the ongoing battle for reform

At the end of May, 33 Jordanian unions and professional associations declared a nationwide strike in response to a new law drafted by the government, which will introduce a rise in energy prices and income and sales tax. The proposed law, aimed at tackling the country’s debt problem, resulted in seven days of mass demonstrations in cities across Jordan, including Amman, Irbid, Ma’an and Jerash.

As a small country with limited natural resources, Jordan relies heavily on external financing for economic stability. In 2016, Jordan secured a USD 723 million three-year credit line from the IMF, which aims to cut public debt to 77 percent of GDP from a predicted 96 percent by 2021. In response to the deficit and to alleviate the rising costs of the fallout from the Syrian conflict, the Jordanian government (backed by the IMF), has introduced a raft of unpopular reforms. In January 2018, for example, the government faced a backlash over the removal of bread subsidies, the first significant rise in the price of the staple good since 1996. Small-scale protests continued in February when the government fuel pricing committee also raised the price of gasoline and diesel.

In a move to ease this month’s public discontent, Jordan’s monarch King Abdullah II restored fuel subsidies two days after the demonstrations began, and froze any proposed changes to pre-existing tax laws. He also replaced Prime Minister Hani Al Mulki with his education minister, Omar Al Razzaz (Razzaz), a former economist at the World Bank. Razzaz has opposed the free-market reforms pursued by Jordan for nearly three decades and is anticipated to take a more gradual approach to policy change. These measures have placated the public for now and bought the regime more time to tackle their demands.

A familiar script

However, these tactics are not a new response to popular protest; in 1989, for example, IMF-instigated austerity led to mass demonstrations and drove the then-King Hussein to dissolve his government. Similarly, in response to public pressure in 2011, King Abdullah II sacked his government when regional instability and rising oil prices stunted tourism, foreign investment and overall growth.

Unstable neighbours

Regionally, Jordan borders nations experiencing some of the world’s most complex and violent conflicts, with Syria to the north, Iraq to the east and Israel and Occupied Palestinian Territories to the west. Jordan’s population of over 600,000 Syrian refugees has placed additional pressure on the kingdom’s economy and infrastructure. While measures have been taken to formalise the Syrian workforce, the labour market has become increasingly saturated as businesses employ refugees at low wages, pushing salaries down and limiting job opportunities. Additionally, the influx of refugees into Jordan’s towns and cities has increased rent prices to record levels. In the northern city of Irbid, where the majority of urban refugees settled at the beginning of the crisis, the average rent rose by up to 25 percent between 2012 and 2013, creating a housing shortage and leaving many Jordanians unable to afford accommodation.

The Syrian Civil War also forced the closure of Jordan-Syria trade routes, and Jordanian export revenues sustained losses of over USD 130 million in the first three years of the conflict. These losses affected low-income blue-collar workers most significantly, as the agriculture and phosphate-mining industries experienced the biggest falls in revenue. Resultant factory closures and industrial downsizing further exacerbated the unemployment crisis. For Jordan to retain the long-term stability that is valued by investors and the international community amid a volatile region, the government will need to create an inclusive economy that takes advantage of its growing workforce. Jordan’s 2018-2022 Economic Growth Plan, which includes a flexible labour market to absorb more workers, indicates that the government recognises the scale of the challenge. However, high levels of corruption and a lack of political will and infrastructure have historically prevented the country from implementing its grand ambitions.

Timely gifts

The international community has a major role to play in the development of the Jordanian economy. Israel, for example, shares its longest border with Jordan, and a high proportion of Jordan’s population are of Palestinian origin. Jordan’s relationship with Israel is mutually beneficial; Jordan relies heavily on Israel for its national security, and Jordan has acted as a buffer zone between Israel and the self-styled Islamic State, and been a key partner in the Israeli-Palestinian peace process. More recently, Jordan has constituted an important component in the Saudi-led coalition against Iran. Notably, Jordan has taken a harder line on Iran, having recalled its ambassador from Tehran in the last fortnight. This coincides with Saudi Arabia, Kuwait and the UAE’s pledge to offer USD 2.5 billion in aid to address the crisis.

King Abdullah II has also maintained strong ties to the US; Jordan is one of only five nations in the MENA region to have a free trade agreement with the US, which has pledged an extra USD 6.4 billion in aid to Jordan in 2018. Foreign aid has enabled Jordan to increase spending in the face of domestic crises, leading to a disproportionate number of public sector jobs and unsustainably high subsidies. Government corruption has persisted, however, inhibiting lasting change and increasing public frustration at persistent economic decline.

Parallels and opportunities

Unrest in Jordan mirrors a wider trend rattling the MENA region; in December 2017, Iran witnessed its biggest anti-government demonstrations in almost a decade. In January this year, thousands of people took part in protests across Tunisia and protests in Algeria culminated in a nationwide strike in public schools and hospitals. Activists across the region have used increasingly creative methods to avoid the security services, including banging pots and pans on rooftops and boycotting companies complicit in rising inflation in Morocco. Fuelled in large part by austerity measures and resentment over endemic corruption and high levels of unemployment, there is no sign of protests across the region slowing down.

A striking feature of these protests is the role that young people have played in mobilising popular frustration. Jordan’s protests were led by Al Hirak Al Shaabi (‘the Youth Movement’), an independent organisation promoting the interests of Jordan’s youth, who have been increasingly marginalised by the kingdom’s persistent fiscal crisis. Youth unemployment has risen to between 37 and 47 percent, with young women the worst affected and university graduates subject to a stagnant job market and lack of opportunities. In addition to increased job opportunities, protestors have also called for royal intervention against public sector corruption, which in December 2017 was named the ‘top priority’ for Jordan by its Senate President Faisal Fayez. The popular movement against the tax bill saw the Youth Movement demand measures to recover looted funds taken by corrupt officials, and an overall reduction in government salaries. However, the young protestors in Jordan are also keen to ensure that these protests are not hijacked by external groups, as happened in the Arab uprisings when the Muslim Brotherhood profited from the initial protests of largely secular participants.

A balancing act

Jordan’s old tactics are too expensive to sustain. The country cannot depend on foreign aid to fund subsidies, low taxation and a bloated bureaucracy. If taxes increase in line with the IMF mandate, Razzaz must strike a delicate balance between reducing domestic dissent and implementing the necessary fiscal reforms. These include greater transparency and accountability over public spending and addressing tax distortions to reduce inequality. A new Prime Minister, suspended tax increases and extra Gulf aid may well placate the protestors for now, but the burgeoning youth population will not wait for jobs forever. While severe instability or disruption in the short term is unlikely, investors and operators should keep a close eye on the kingdom’s reforms in the medium and long term.