The 2016 budget bill was approved by Jordan’s elected parliament, on January 14th, followed by the monarchy-appointed senate’s vote to adopt the budget ten days later. However, with the current macroeconomic policy in place, the sustenance of Jordan’s fiscal strategy seems only possible by immense dependence on foreign aid.
According to a Carnegie Endowment for International Peace and Sadda Middle East Analysis report, total expenditure for 2016 accounted for in the new budget amounts to JOD8.496 billion, with expected returns at JOD7.589 billion, and a JOD907 million deficit for the same year; about 3 percent of the GDP. In addition to expenses and revenues on and from other entities and sources, mainly the National Electric Power Company, and “Water” subsidies.
Even though the new bill features figures similar to those of the original draft debated in 2015, with the same high dependence on aid and debt to cover expenditure, it appears the pro-government and austerity-averse parliament passed the budget without any revisions.
Some opposition MPs had objected to the government’s few attempts at limited austerity measures, but to no effect whatsoever. And much of the criticism against Prime Minister Abdullah Nsoor’s budgetary measures, especially on energy subsidy cuts and increases of customs fees, is resounded without any corresponding alternative economic plans. The only outspoken political dissent is simply opposing fiscal discipline without any serious thought for the economy’s sustainability.
In the past, Jordan’s burdened public sector, with a weak private sector economy has staved off insolvency with foreign aid and periodic, substantial reductions in total public debt through privatisation. Accordingly, substantial debt was also relieved by the 1994 peace agreement with Israel. Further privatisation in 2000 contributed to further debt relief, but the government is technically out of companies to sell, and sold ones cannot be resold, while recently, Jordan’s debt-to-GDP ratio has been substantially increasing.
The key factor in the post-2011 debt boom is electricity, or more precisely, the sovereign debt of the National Electric Power Company (NEPCO). Until 2011, Jordan imported gas from Egypt at prices frozen at relatively low rates. Following attacks on the pipeline in 2011, Egyptian authorities were slow in repairing it, and Egypt’s contribution to Jordan’s electricity supply fell annually from 87 percent in 2009 to 14 percent in 2012. This forced Jordan to resort to emergency importation and the use of expensive alternatives. Thus by 2013 NEPCO’s contribution to the deficit was USD1.36 billion—or over 10 percent of the regular budget.
Due to a mixture of falling oil prices and better government planning, the electricity deficit dropped to USD738 million in 2014 and is projected in the 2016 budget at USD530 million.
Accordingly, accumulated electricity debt came to an estimated 17.8 per cent of Jordan’s GDP in January, meaning that excluding this, the rest of Jordan’s debt forms 72 percent of its GDP.
As a limited effort to offset NEPCO’s contribution to the debt spiral, the government undertook an electricity austerity measure in 2015 that is regularly described by parliamentary critics and protesters as “increasing” prices by 7.5 percent (reduced from the original proposal of 15 percent in what was likely a prearranged compromise).
Yet it may be more properly described as a subsidy cut for consumers. The practical implication is that during the summer only the relatively well-off have air conditioning, as a household with high usage will pay over USD200 per month, about 40 percent of the average Jordanian family’s income. This system allows poor Jordanians to have virtually free electricity, but only enough to cover lighting with no heating or cooling. Were NEPCO forced to actually balance its budget, much of Jordan would struggle just to pay for basic utilities.
Instead, Jordan is increasingly turning to foreign aid to offset its debt, particularly from the United States and the Gulf. While U.S. economic aid to Jordan dates back to 1951, it has increased substantially in recent years, reaching USD700 million in 2014. Arab Gulf states, especially Saudi Arabia, also provide aid to Jordan, although as of January, the government claims that Qatar’s aid termination accounted for almost all of the disparity between its original budget deficit of USD970 million and the revised estimate of USD1.27 billion for 2015.
Officials routinely cite regional instability and resulting refugee flows as the reason why Jordan is so much in need of aid, and there is some truth to this. The country has suffered a drop in tourism due to security problems emanating from its neighbours (although Jordan itself is quite safe), added the collapse of trade with Iraq and Syria, and increased expenses from Syrian refugee aid.
Yet aid provided by international agencies to refugees, combined with the increase in direct budget support through foreign aid, appears to be balancing out the refugee costs, as seen from comparing deficit levels before and after recent instability. In 2011 the regular budget deficit was USD1.49 billion after including foreign aid, and in 2010 it was USD1.44 billion. As noted above, currently estimated corresponding figures for 2015 and 2016 (including foreign aid) are USD1.27 billion and USD1.28 billion, respectively. And the rough equivalence between 2010-11 and 2015-16 deficits suggests that Jordan’s budget deficit (not counting NEPCO’s) is roughly USD1–1.5 billion per year after foreign aid has been factored in. With the World Bank putting GDP at roughly USD36 billion, meaning that a minimum three percent of GDP is being added to public debt each year, not including electricity debt.
Meanwhile, the government maintains 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.
(Sadda— Middle East Analysis)
The Carnegie Endowment for International Peace
Kirk H. Sowell