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Jordan: Report lays bare IMF's failure to revive the kingdom's economy

The reforms of Jordan's economy demanded by the IMF have seen the selling off of government assets and spending on social protections for the poor and middle classes dramatically reduced
A street vendor reads a newspaper in Jordan's capital Amman, on 4 April 2021. Spending on social protections for ordinary Jordanians has been greatly reduced in recent years (AFP)
By Mohammad Ersan in Amman

A recent report by the Friedrich Ebert Foundation says that even though Jordan has begun a corrective programme with the International Monetary Fund, the economic situation has reached such lows that it has caused a rise in the national debt and a continuous budgetary deficit.

This has all happened while spending on the social protections given to citizens has been greatly reduced.

The report, Uncovered: The role of the IMF in Shrinking the Social Protection - Case Studies from Tunisia, Jordan and Morocco, argues that the “strengthening of social spending in Jordan requires financial reform based on a long-term reorganisation in order to lower expenses".

It also states that Jordanian citizens receive social rewards (free medical services, university scholarships, public service employment) in return for their allegiance to the ruling regime.

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Therefore, the state will always cover these social services to guarantee the continued political support of its citizens. Nevertheless, these social services were not provided in an orderly and measured system based on comprehensive social protection.

But these services do not extinguish the ticking timebomb of an army of poor and unemployed citizens, who constitute the core of a social movement the Jordan government is worried could explode into protest like the Arab Spring movements.

According to official statistics from the Higher Housing Council, more than 15.7 percent of the population in Jordan lives under the poverty line.

Laith Alajlouni, an economics researcher who contributed to the Fredrich Ebert report, told Middle East Eye: “Jordan has witnessed during the last 10 years a clear retraction of its economic status for Jordanians. The percentage of the poor had reached 24 percent in August 2021 according to estimates by the Ministry of Planning and International Cooperation.

"Unemployment has also seen a noticeable increase, reaching 22.8 percent at the end of the first quarter of 2022. It reached a high of 25 percent a year earlier in the first quarter of 2021.

“This retraction is a mix of historic, political and other factors all connected with the governmental financial and political administration and are connected to the reforms of the IMF.

"The weakness of the social protection network and a general policy that is built on the rentier economic policies which consecutive governments have applied as an alternative to building up a democratic life, all these caused the government to be weaker in its ability to manage its resources successfully.”

Total surrender to the IMF?

Jordan’s relationship with the IMF dates back to 1989, when Amman requested IMF assistance after a severe economic crisis hit the country in the later part of that decade. The first agreement (a stand-by arrangement) was signed that year with the goal of reducing the account deficit.

This agreement was then followed by six others until Jordan “graduated” from these programmes for the first time in 2014. Harrigan et al, in The IMF and the World Bank in Jordan, divided these reform agreements into three phases: “The first phase consisted of a brief period of liberalisation of the financial sector, the capital account, and the exchange rate regime, which culminated in a twin banking and currency crisis."

'When Jordan responded to the pressure from the IMF, it applied a series of neoliberal economic and financial policies which caused economic recessionary results'

- Fahmy al-Katut, economist

In January 2020, only two months before the Covid-19 pandemic hit Jordan, the authorities reached the final extended fund facility agreement with the IMF. This agreement aimed primarily to improve the competitiveness of the business environment and boost inclusive growth.

Unlike the previous agreements, this facility did not focus on fiscal reforms, except for tackling tax evasion and reforming tax administration with a view to improving collection.

Opponents of Jordan’s government argue that what it has done since the 1980s under the title “economic reform programme” is nothing short of total surrender to the IMF and a direct application of economic policies that have caused the state to lose its rights in government institutions that it sold to the private sector.

“When Jordan responded to the pressure from the IMF, it applied a series of neoliberal economic and financial policies which caused economic recessionary results that affected the poor and some middle-class sectors in society," economist Fahmy al-Katut told MEE.

These decisions focused on removing subsidies and the increase of direct taxes, while opening up foreign trade and removing customs restrictions and lowering government spending on services.

These actions also included removing any protection on domestic products and leaving the private sector to run the economy. Restrictions on foreign investment were cancelled and the financial markets were freed, while removing subsidies on important items and selling off government-owned companies.

According to Katut: “The IMF programme didn’t produce any positive economic or social results, while key financial indicators showed a widening of the crisis as unemployment went up, poverty increased, and the tax policies have had painful effects on the economic and social situation.”

Increasing dependency on loans

Ahmad Awad, director of the Marsad al Umali (Jordan Labour Watch), says that "the IMF policies increased the dependency of the economy on loans and foreign grants while failing to guarantee the independence of the Jordanian economy and weakening the ability of different domestic productive sectors”.

Awad says that in 2007 and 2008, Jordan's economy produced 70,000 new jobs, while in 2015 it was down to 48,000 jobs and in 2019 just 35,000 new jobs. This would explain the continued increase in unemployment, which reached 24.1 percent in 2021. Among male youths, the figure was 48.5 percent.

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Former finance minister Mohammed Abu Hammour believes many factors other than the IMF policies had a role in the retraction of the economy.

“The environment and states surrounding Jordan, the Arab Spring, the pandemic, the Russia-Ukraine war and the cessation of Gulf-based grants, have all hurt the Jordanian economy,” he tells MEE.

“Gulf aid used to help development as we were able to spend more and keep the deficit at an acceptable rate with the IMF. Also, the government’s tax policies have reduced the money in people's pockets.

“One of the problems we have been facing is that we are not encouraging investment and we are constantly amending investment law. The government came with economic reforms but those plans often end when the government is replaced. Our problem is the absence of continuity to our economic plans.”

The Friedrich Ebert report also talks about the failure of government to address the huge problem of tax evasion of small and medium-sized companies. The report notes official estimates that Jordan loses $1.128bn a year in tax evasion, representing 17 percent of the annual tax revenue.

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