Harsh blow to Jordanian economy

The political turmoil sweeping the Arab world has dealt a harsh blow to the Jordanian economy, deepening the kingdom’s budget crisis and forcing the country to rely increas-ingly on financial support from the US and the Gulf.

Jordan’s resource-starved economy has been under pressure since the start of the year, pounded by the twin forces of regional instability and the sharp rise in commodity prices. The government hopes to limit this year’s budget deficit to 5.5 per cent of GDP, but warns that it will need more foreign aid to reach that target.

“Today, with the Arab spring, we in Jordan do have a crisis, but it is an economic crisis not a political crisis,” said Jafar Hassan, minister for planning and international co-operation. Jordan, he added, was in talks with G8 countries as well as Arab states to provide further grants to cover the funding gaps.

“What we are telling them is that it is far more effective to help countries that are pursuing reforms with stability than to wait until they are in turmoil. It is also cheaper,” he said.

In an attempt to quell popular discontent, the government promised earlier this year to keep energy and food prices artificially low, while raising wages and pensions for bloated public sector. The government was then forced to spend at least $500m to cover a fuel shortage that resulted from the sabotage of a pipeline carrying subsidised gas from Egypt to Jordan. Tourist arrivals have also dropped sharply since the start of the year, hitting an important source of revenue and employment.

In response, the US and Saudi Arabia have decided to step up their financial support. The Saudis announced earlier this month that they would provide a fresh grant worth $400m to the government in Amman. The US had earlier promised to “mobilise several hundreds of millions of dollars” in extra funding for Jordan, topping up the previously agreed annual transfer of about $660m. Washington said it would also provide 50,000 tonnes of wheat to the kingdom.

According to diplomats and analysts, it is likely that the flood of foreign aid will continue. “I think they will get more money – whether from the Gulf or from the US or from the Europeans,” one senior western diplomat in Amman said.

“The stability of the country is in everyone’s interest. Jordan is a buffer for Israel, and that is a strong argument for the Americans. But it is also a buffer for the Gulf vis-à-vis what is happening in Syria.”

Jordan’s strategic importance was also underlined by the offer to join the Gulf Co-operation Council, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Membership of the GCC has been a goal for Jordan, which hopes to improve its economic situation by moving closer to the cash-rich and oil-soaked states of the Gulf.

“Jordan has three chronic problems: the budget deficit, the lack of energy and the lack of water. For two out of those three problems – money and oil – the address is down south, with the GCC,” said Nawaf Tell, the director of the Amman-based Center for Strategic Studies.

Analysts and diplomats argue, however, that helping Jordan weather the political turbulence is also a key Saudi interest. Riyadh, they say, is deter-mined to show that conservative, pro-western monarchies such as Jordan and Saudi Arabia can stand apart from the Arab spring.

Jordan has so far avoided the popular unrest that erupted in countries such as Egypt, Tunisia and Syria.

But the regime is facing pressure over its failure to provide economic opportunities for a fast-growing population. Public discontent has been further fuelled by a spate of high-profile corruption cases.