Chronicle of the Middle East and North Africa

Jordan’s Economy Struggles Amid Regional Unrest

Jordan eonomy- syrian refugee workers in Jordan
Foreign workers at the Classic Fashion factory, in Ramtha, Jordan, 1 June 2016. Excessive reliance on low-wage foreign labour has increased unemployment in Jordan. Photo TARA TODRAS WHITEHILL

Plagued by unemployment, high public debt and a rising budget deficit, Jordan’s economy has suffered in recent years. Austerity measures the government introduced in exchange for international assistance have been wildly unpopular, sparking protests around the country.

Jordan is an upper-middle-income country. Its major industries include mining, textiles and clothing production, and tourism. However, a heavy reliance on imported energy, lack of natural resources and unrest in the region since the Arab Spring in 2011 have put its economy on shaky ground.

The budget deficit currently stands at about $1.2 billion. Although some progress has been made in cutting the deficit, unemployment and debt have continued to rise. Economic growth has been sluggish, dropping to 2 per cent in 2016, although it is projected to increase slightly from 2017 to 2019.

Since 2011, the debt-to-income ratio has ballooned from 57 per cent of gross domestic product (GDP) to more than 90 per cent. A report by the Carnegie Endowment for International Peace attributed the increase in large part to the debt of the National Electric Power Company. Jordan imports nearly all of its oil and gas – 96 per cent of its total supply, according to the United States Agency for International Development (USAID), ‘mostly at global market prices, while simultaneously striving to expand energy services for its growing population and economy’. USAID noted that the total cost of energy imports amounts to about 19 per cent of Jordan’s GDP.

Unrest in the region has driven up the cost of the imported energy. Until 2011, Jordan relied heavily on gas imported from Egypt, with prices frozen at relatively low rates. However, after saboteurs attacked an Egyptian oil pipeline in 2011, gas supplies from Egypt plummeted, forcing Jordan to ‘resort to emergency importation and the use of expensive alternatives’, the Carnegie report said.

Last year 2016, Jordan inked a gas deal worth $10 billion with Israeli suppliers, leading to protests from Jordanians opposed to doing business with Israel, although the Jordanian government maintained the deal could reduce the country’s electricity costs by as much as $600 million a year.

Apart from its energy woes, conflicts in neighbouring Syria and Iraq have hurt Jordan’s tourism industry. In the past, visitors flocked to see the ruins at Petra and elsewhere, explore the desert of Wadi Rum and bathe in the Dead Sea. The tourism sector is the second-largest private sector employer and contributes more than $800 million to Jordan’s economy each year, accounting for 10 per cent of GDP, according to the United Nations Development Programme.

Since the beginning of the war in Syria, Jordan’s tourism industry has struggled, even though there have been few security issues in Jordan itself. A notable exception was the storming of a crusader-era castle in Karak, in southern Jordan, by militants in December 2016. Ten people, including members of the security forces, two local civilians and a Canadian tourist, were killed.

Yet many tourists were staying away even before that incident. In 2010, the year before civil war broke out in Syria, 8.2 million people visited Jordan, according to the World Bank. By 2013, that number had dropped to 5.4 million.

Jordanian officials also point to the influx of Syrian refugees – more than 650,000 are registered with the United Nations Refugee Agency in Jordan and the actual number is likely higher – as a drain on the economy, although some accounts say the cost of hosting the refugees has been offset by the international aid Jordan has received as a result of their presence.

Unemployment in Jordan has been rising. It stood at 15.8 per cent in 2016, up from 14 per cent the previous year. Women and young people have had particular difficulty finding work. Carnegie blamed the employment issues in part on a ‘socio-economic model burdened by decades of excessive public sector hiring, excessive reliance on low-wage foreign labour as an alternative to employing Jordanians and an education system known for its production of quantity rather than quality’.

‘So even if the regional security crisis were to somehow disappear in the near future, the weakened incentives for foreign donors to provide aid for refugee costs would leave Jordan with a new debt crisis,’ the report concluded.

Jordan has already suffered from the loss of aid money from Gulf states, which gave it a $5-billion aid package in 2011. The aid expired at the end of 2016, and there has been no move to renew it, despite pleas from Jordanian officials.

The country remains highly reliant on American aid, which has increased in recent years. Jordan will receive at least $1.28 billion this year from the United States and may get extra aid for the military.

Last year 2016, the Jordanian government signed a three-year agreement with the International Monetary Fund, giving the country more than $700 million in loans. In exchange, the government agreed to take steps to reduce the country’s deficit. Even before that, the government had undertaken a series of unpopular steps to reduce energy subsidies.

In 2012, cuts to fuel subsidies increased the price of bottled gas by more than 50 per cent, diesel and kerosene by 33 per cent and lower-grade petrol by 14 per cent. The increases sparked protests across the country.

Protests over unemployment in the town of Dhiban, south of Amman, turned violent last year, when protestors clashed with police. The police forcibly dispersed protesters who had erected a tent in the town’s main square to use as a headquarters while they attempted to negotiate with officials.

In February this year, following a government decision to raise taxes on food items and services, protests erupted again, beginning in Karak, where several hundred people gathered to call for the resignation of Prime Minister Hani Mulki. Similar protests spread in other southern cities. The 2017 budget approved by the Jordanian parliament aims to raise $643 million through additional taxes and tariffs.

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