Will Gulf aid package help resolve Jordan’s economic crisis?

Analysts say the aid offers more symbolic weight than actually helping Jordan wither its worst economic crises in years.

Jordan summit
Analysts fear since the pledge was not a binding agreement it could be subjected to political pressures by the donor countries [Saudi Press Agency via AP] [The Associated Press]

The Gulf states’ pledge of $2.5bn aid package to Jordan carries more symbolism and moral solidarity than a tangible solution to the country’s economic crisis, several current and former Jordanian officials say.

Analysts say the aid package, offered by Kuwait, Saudi Arabia and the United Arab Emirates, might only provide Jordan with an estimated $150-$300m of annual direct budget support over a five-year period, falling short of the Middle Eastern nation’s immediate needs to balance its budget.

A one-time payment of between $500m and $1bn will go towards a direct deposit to Jordan’s Central Bank and the World Bank.

Hani al-Mulki was removed as prime minister after his efforts to reduce the budget deficit and implement tax reforms and subsidy cuts – backed by the IMF – sparked widespread protests.

The latest aid package, however, appears to have disappointed Jordanian officials and the public, who were hoping for a much larger package, similar to the one given by the Gulf nations between 2011 and 2017.

It carries more symbolic weight to Jordan than actual tangible economic solutions to its current crisis

Jawad Anani, a former Jordan deputy prime minister

Jawad Anani, a former Jordan deputy prime minister for economic affairs in the previous government, told Al Jazeera that the aid package’s details were “vague”.

“It carries more symbolic weight to Jordan than tangible economic solutions to its current crisis,” said Anani, who currently chairs Amman’s stock exchange.

‘State of flux’

The current Gulf aid package appears to be structured towards helping Jordan get more favourable loans from international lenders, something Jordan was hoping to avoid, had the Gulf states offered a cash grant.

This arrangement, according to analysts, puts the country in a state of flux because it does not address its immediate need for a cash infusion to cover its more than $1bn budget deficit.

Under the 2011 agreement, Jordan received $3.75bn from the three countries over a five-year period, structured to inject cash directly into the economy to generate growth and revenues.

Jordan’s debt has now reached around $38bn and its debt-to-gross-domestic-product ratio is currently at a record 96 percent up from 71 percent in 2011.

A major one of the problems that bedevil Jordan’s finances is the payments to service its debt, which in 2017 amounted to 21 percent of total revenue, or about $2bn, according to official figures.

Anani said: “it is still too early to say how the Gulf nations will decide to structure their pledges to Jordan, but nevertheless, the amount falls too short of Jordan’s expectations and immediate needs”.

For that reason, Anani argues, Jordan “must work with the European Union and other countries to bring capital investments to the country to create jobs and generate revenues for the state’s budget”. 

The government should have reduced taxes and cut down on prices and fees to stimulate spending and generate growth

Senior economist at Jordan’s Ministry of Finance

‘Political pressures’

The three Gulf states pledged the total amount collectively, but it is still unclear how much each country will pay, a critical detail for Jordan.

Analysts fear that since the pledge was not a binding agreement, it could be subjected to political pressures within the donor countries especially if there was a change in leadership in their countries.

The absence of UAE crown prince and its de facto ruler, Mohamad Bin Zayed, from the meeting in Mecca where the aid package was discussed is also worrisome, according to senior Jordanian officials who spoke on condition of anonymity.

This could mean the UAE is less committed to helping Jordan than other states at this critical juncture, according to Jordanian government sources.

Sheikh Mohammad Bin Rashid Al Maktoum, the ruler of Dubai, represented the UAE at the meeting, which was attended by the heads of states of other two countries.

Upon his return from Saudi Arabia on Monday Jordan’s King Abdullah II expressed his “appreciation for Saudi Arabia, Kuwait and the UAE and Saudi King Salman Bin Abdel Aziz for their “brotherly Arab solidarity with Jordan”.

Wrong economic policy?

A senior economist at Jordan’s Ministry of Finance told Al Jazeera that successive governments followed an incorrect procyclical fiscal policy, a “policy that focused on increased taxation and prices hikes to cover its uncontrolled expenditures”.

“This policy resulted in less consumer spending which in turn limited the growth of the economy,” said the official on the condition of anonymity because he was not authorised to speak to the media.

“The government should have used a counter-cyclical approach by increasing government spending and reducing taxes to stimulate spending and generate growth,” he added.

Mohamad Halaiqah, a former deputy prime minister for economic affairs, told Al Jazeera that while the Gulf aid while does not help much to ease his country’s finances directly, it would, however, help stabilise the country’s currency, the Dinar, and improve its creditworthiness to international lenders.

“At this stage, it’s better than nothing and we should use any help we can get,” he said.

Follow Ali Younes on Twitter: @ali_reports

Source: Al Jazeera