Jordan’s rising economic challenges in the time of COVID-19

The Jordanian government implemented one of the most comprehensive and effective COVID-19 responses in the region. On March 17, a day in which Jordan had just 19 new cases (out of its roughly 10m population), the government declared a state of emergency; three days later, it imposed a mandatory curfew that was strictly enforced. The government closed land and air borders, banned gatherings of 10 people or more, and developed quarantine centers to prepare for a rise in cases. While the government’s stringent measures did prompt some public discontent, the population largely accepted them. The government’s rapid and broad initial response was successful in thwarting a major public health crisis: Daily new cases have never risen above 77, and for the period of Aug. 19-26 the daily average of new cases stood at 39.

Jordan has since June significantly eased restrictions on economic activity and the kingdom continues to have very low numbers of COVID-19 cases. Nevertheless, Jordan has not been able to forestall the damaging economic consequences of COVID-19, which are bound to linger for years to come.

Business activity stalled

Jordan will suffer a recession in 2020. The travel and tourism sector will be significantly weakened due to Jordan’s restrictions on tourism and diminished global appetite for travel that will likely continue through all of 2021. The kingdom’s tourism industry, which generated $5.8bn in revenues in 2019 (out of a nominal GDP of $43bn in 2019), was a critical sector for growth. Jordan was planning on reopening the country to tourists from a limited set of pre-approved countries with low COVID-19 case numbers on Aug. 5 — it has not allowed tourists into the country since March 2020 — but it backtracked at the last minute over fears about importing more COVID-19 cases. As COVID-19 shows no signs of slowing, tourism is unlikely to rebound until a vaccine is discovered, mass-produced, and distributed globally.

Jordan’s economy will also suffer from the loss of remittances, which were valued at $3.7bn in 2018. The Jordan Strategy Forum, a local NGO, reported that in 2014 an estimated 786,000 Jordanians were living abroad, and their remittances contributed around 8 percent of Jordan’s GDP. The World Bank has estimated that remittances for the MENA region will fall by 19.6 percent in 2020. Jordanians will see fewer remittances from their family members, many of whom live and work in the Gulf states, as they lose their jobs or face pay cuts. With families losing income, domestic consumer spending will decrease and businesses in Jordan will likely need to cut costs, leading to higher unemployment and reduced investment. Foreign investment will likely decline over the coming months as businesses remain hesitant to start new projects amid the continued uncertainty over the pandemic’s trajectory. 

Sovereign challenges

In order to effectively combat the COVID-19 pandemic and continue funding the government, Jordan made major forays into the debt market. The Ministry of Finance on July 1 issued a five-year, $500m Eurobond, having issued a 10-year, $1.25bn Eurobond just one day earlier. This came after the IMF provided a $396m emergency loan in May and agreed to provide a four-year, $1.3bn loan program in March. The new loans will likely push the government’s debt-to-GDP ratio from around 96 percent (December 2019) to upwards of 110 percent according to Jordanian political economist Laith Al-Ajlouni. This means that Jordan will need to allocate a greater portion of its budget toward servicing debt as opposed to investing in the growing knowledge economy, infrastructure projects, and public services. It will also make tapping bond markets more expensive in the future, since investors will likely demand higher interest rates. New debt issuances and loan programs will allow the government to continue providing benefits to the unemployed and subsidies for basic goods over the coming year. However, Jordan’s external debt will very likely force the government in the coming years to introduce austerity measures, which are highly unpopular with the public, as they often reduce social welfare programs.

Economic deterioration to contribute to instability

Living expenses in Jordan are already among the highest in the Middle East. In the coming years, as Jordan’s economy suffers the damage of COVID-19 and comes under increasing pressure to introduce new austerity measures and further cut the social safety net, there will be growing popular discontent. Jordanians view public protests as the primary tool for voicing their grievances to the government, given the constraints placed on other forms of political participation. Although Jordan has a democratically elected Parliament, it is widely perceived that the real political authority is vested in the unelected monarchy and the executive branch composed of a prime minister and cabinet appointed by the king. They will continue to use demonstrations to put pressure on the authorities.

The authorities have few means at their disposal to alleviate economic concerns. Jordan cannot spend its way out of trouble like the Arab Gulf countries, owing to a lack of natural resources. Efforts to crack down on groups critical of the government, such as the Jordanian Teachers' Association and the Muslim Brotherhood, and arrests of prominent critics will persist, but they will not address grievances or silence unrest.

Long an oasis of relative calm, Jordan is staring into a future with growing challenges that will be difficult to tackle, especially as the region enters another period of upheaval: Lebanon is undergoing a political and socioeconomic collapse; Syria remains isolated and at war; the Palestinian-Israeli relationship in the West Bank is even more fractured than usual; and the Iraqi government cannot exert control over the security environment in its own capital and its finances are dwindling. Such a regional backdrop poses unique challenges for Jordan: Amman will need to continue providing aid for Syrian refugees, trade with neighbors will continue to be difficult, and growing problems in the region will likely divert foreign aid that may have otherwise gone to the kingdom.

While the monarchy retains significant popular support, King Abdullah II will need to carefully confront the various sources of political pressure on his government. Previous methods of easing tensions will not suffice. The king dismissed prime ministers in response to popular protests six times from 2011 to present day, but this action is increasingly viewed as ineffective scapegoating.

What does the future hold?

Jordan is entering a new age of anxiety in which it will be forced by its circumstances to make strategic choices with long-term ramifications. While the government will seek to maintain its own version of a “good neighbor” policy to preserve the prospect of beneficial economic linkages with adjacent countries, it will also seek to deepen its relationship with the UAE and Saudi Arabia. This calculation likely played into Jordan’s muted response to the UAE’s normalization agreement with Israel, a deal that undermines the Arab Peace Initiative and removes a source of leverage for Arab countries pushing for an Israel-Palestine peace deal. Jordan has already been undertaking this strategy, providing military equipment to the UAE-backed, self-styled Libyan National Army and taking measures to undermine the Muslim Brotherhood in its own country in line with the UAE’s vehement anti-Islamist stance. In the future, Jordan will strongly support Mohammed bin Salman’s ascension to the Saudi throne and continue to support the UAE in places where it competes with Turkey, which supports Islamist movements in the region. However, Jordan will avoid joining the blockade and isolation campaign against Qatar, as the kingdom seeks to strengthen its relationship with the wealthy natural gas state to increase trade, aid, and investment ties.

King Abdullah II will refrain from criticizing the U.S.’s regional leadership — which he deftly managed to do while Israel’s push for annexing parts of the West Bank was reaching a fever pitch in June 2020 — in order to secure further aid agreements and the U.S.’s delivery on standing commitments. In 2018, Washington and Amman agreed to a non-binding Memorandum of Understanding, whereby the U.S. would provide $6.375bn in foreign assistance over a five-year period.

Amman will seek to leverage these relationships into further foreign aid and soft loan agreements in a bid to reduce government debt and avoid destabilizing austerity measures over the coming years. Nevertheless, the government will continue to implement economic policies to constrain the welfare state, such as reducing the public sector payroll by limiting new hires and decreasing electricity subsidies for households. The authorities will need to proceed carefully with these changes and implement reforms that do not significantly undermine the government’s support from the East Bank (Transjordanian) population, which receives a disproportionately high percentage of public-sector jobs and benefits. What remains certain is that the monarchy will maintain a tight grip on decision-making authority as Jordan seeks to pass economic reforms and get through what will likely be a rocky few years.

Alexander Werman is a political and security risk analyst focusing on the Middle East and North Africa region. In his current role at Control Risks, a global specialist risk consultancy, he leads the company’s research on Jordan, Israel and the Palestinian Territories. Before Control Risks, Alexander studied Arabic in Jordan and was a contributing writer for the Jordan Times newspaper. He holds a master’s degree in security policy studies from George Washington University and a bachelor’s degree in business administration from Emory University. The views expressed in this piece are his own.

Photo by Khalil Mazraawi/AFP via Getty Images