Jordan’s Economic Crisis

Prime Minister Abdullah Ensour was appointed by the King as a caretaker on October 11th, and will serve only until the upcoming parliamentary elections on January 23rd. That’s 134 days. He is (supposedly) the last PM to be appointed directly by the King, and parliament will chose his successor after the January 23rd elections. Of course, we’ve heard similar promises of reform from the government before, and nothing has really changed – but we will return to that subject later.

During his short time in office, Prime Minister Ensour has been faced with a serious issue: Jordan’s ongoing fuel crisis, caused by the JD2.2 billion (US $3.1 billion) annual bill that the government pays for fuel subsidies – an amount that is larger than Jordan’s budget deficit of JD1.2 billion. The government is considering implementing drastic measures to reduce its subsidy bill – including “alternate driving days” where people with even or odd license plates would be able to drive. Other measures under consideration include reducing expenses on streetlights, limiting the hours of electricity to public buildings, or even rolling blackouts. The bottom line is this – governments don’t do these things as routine measures to reduce power expenditures, they do it when they are desperate.

The central problem is the fact that Jordan’s budget is fundamentally unbalanced. In 2012, the budget consisted of JD6.8 billion ($9.6 billion) in expenditures offset against revenues of JD5.7 billion ($8.1 billion). This leaves a deficit of approximately JD1.1 billion ($1.5 billion). Of the expenditures in the 2012 budget,

This has resulted in a substantial increase in Jordan’s public debt. It is important to remember that these deficit figures are after taking into account grants that have been received by the government from other nations. If grants are not taken into account the deficit rises to JD2.1 billion ($3 billion).

Because of the substantial amount of aid Jordan receives in the form of grants and loans, it is worthwhile to go over the assistance that the country has received recently, this includes, according to the Congressional Research Service report about Jordan released about a month ago:

Grants:

  • Saudi Arabia, UAE, Kuwait, Qatar: $5 billion ($1 billion annually over five years)
  • United States: $460 million (includes $284 million in budget support)
  • European Union: $280 million (over 3 years from 2010-2013)
  • China: $7.9 million (for projects)

Loans:

  • IMF: $2 billion (over 3 years)
  • World Bank: $250 million
  • Japan: $156 million (3 years, low interest)
  • France: $193 million (soft loan)

Other:

Recent deficits have resulted in an increase in Jordan’s public debt. At the end of August, the debt stood at JD15.7 billion ($22.21 billion), up from JD13.4 billion ($18.9 billion). Of this debt, 69.6% (JD10.948 billion or $6.74bn) was domestic while the remaining 30.4% (JD4.771bn or $6.74bn) was external. Major international creditors include the World Bank (JD814.2 million or $1.15 million), the Arab Fund for Economic and Social Development (JD564.2 million or $797.1 million), and the International Monetary Fund (JD276.4 million or $390.5 million).

The makeup of the expenditures in the recent budget underscores the economic crisis that Jordan is facing. Of the JD6.8 billion ($9.6 billion) of expenses, JD1.6 billion ($2.3 billion), or 24% is spent on subsidies, with the remaining JD5.2 billion ($7.3 billion) spent on public sector salaries and other expenses.

Jordan’s must import 84% of its food needs (see footnote on pg. 7 of this CRS report), along with 96% of its energy needs. This leaves the Jordanian economy particularly vulnerable to increases in food or energy prices on the global market, as well as to problems of a more local origin, such as the disruption in gas supplies from Egypt following numerous attacks on the pipeline, which cost an estimated $2 billion, and forced an increase in the price of electricity earlier this year.

As mentioned above, Jordan imports approximately 150,000 barrels of oil per day, meaning that it has to spend approximately $4.03 billion on energy costs annually (it would be $4.68 billion annually, but there is a discount of $65.7 billion due to the reduced price oil imported from Iraq). It is clear that due to its reliance on imports Jordan is vulnerable to price increases on the global market for either food or fuel.
The government has sought to address this by providing subsidies on food and fuel, but the cost of these and other subdies is substantial (JD 1.6 billion or $2.3 billion). With the unrest in Middle East last year that saw revolutions topple authoritarian regimes in Egypt, Tunisia, and Libya, the government sought to reduce discontent by raising spending on subsidies.

However, this situation cannot indefinitely continue. Under the terms of its agreement with the International Monetary Fund, Jordan has committed to eliminating such subsidies, meaning that the present situation cannot indefinitely continue. However, any move to reduce subsidies has caused unrest in the past, and King Abdullah was forced to backtrack on a subsidy reduction. The government has since moved to eliminate such subsidies again, but the Prime Minister has pledged that those making less than JD1000 per month would not be affected by the elimination of subsidies because they would receive cash payments of approximately JD70 annually per person. It is unclear how this situation will play out.

The larger issue here goes deeper than the economy though, as bad as the situation is. The economic situation is very difficult, with high levels of unemployment, particularly among the youth, as well as rampant corruption. With these economic problems people do not want to things like subsidy reductions implemented without them having any say in the matter. Those within the government might see protests following subsidy cuts and assume that those out on the street want the country to go bankrupt, but that just reflects their elitist mentality.

The problem is that people have for a long time been denied any say in the matter. King Abdullah says that Prime Minister Ensour will be the last PM who he appoints, but I am skeptical. If he were committed to democracy he would not be attempting to rush measures like this through. This is just another example of an authoritarian regime flouting the will of the people.

 

One thought on “Jordan’s Economic Crisis

  1. Pingback: Jordan Explodes Over Fuel Price Hikes | impatient bedouin

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