Gulf countries’ grant for Jordan: Gift comes at a right moment

Wednesday, 2018-06-13 11:29:14
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Saudi Arabia's King Salman bin Abdulaziz Al Saud (right) meets with Jordan's King Abdullah II in Riyadh, Saudi Arabia, December 12, 2017. (Photo: Reuters)
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NDO – Four Gulf countries recently summoned a meeting in Saudi Arabia aiming to work out a solution to rescue Jordan from its economic crisis. By offering a US$2.5 billion aid package to address Jordan’s financial crisis, sparked by the protests against the Jordanian government’s austerity measures, the Gulf nations wish to prevent the reoccurrence of the “Arab Spring” that once hit the region, as the economic hardship and demonstrations ignited a full-blown crisis.

The four-party summit between Saudi Arabia, Kuwait, the United Arab Emirates (UAE) and Jordan took place shortly after a wave of protests broke out in Jordan. The demonstrations have “shaken” the capital city of Amman and other Jordanian cities since late May, aiming to oppose the draft income tax law and the increases in the prices of goods, as requested by the International Monetary Fund (IMF). Under the draft bill, the labour income tax hike is proposed to be at least 5%, while increases of 20-40% are suggested for corporate income tax. These are the latest measures in a series of economic reforms that Jordan has been implementing since the grant of an IMF loan of US$723 million to the Arab country over a three-year term starting from 2016. The draft law has not yet to be ratified by the Parliament of Jordan.

Under pressure from the wave of protests, Jordanian Prime Minister Hani Mulki was forced to resign amid thousands of people gathering outside the PM’s Office in Amman to protest the government’s austerity measures. Jordan’s King Abdullah II appointed Omar al-Razzaz, former World Bank economist and the education minister in Mulki’s government, to head a new government, in a move to alleviate the people’s anger over the economic policies of the outgoing government.

The monarch asked the new cabinet to review the entire tax system and immediately begin a dialogue on the aforementioned draft income tax bill. It is a challenge for the head of government, as Jordan is currently in a state of massive public debt, forcing the government to apply austerity measures by raising taxes and cutting subsidies in exchange for the IMF loans. Amman said it would ask the IMF to give them more time to implement reform measures after the recent protests are at risk of pushing the country into turmoil. The IMF said that it would cooperate with the new Jordanian government to finalise the consideration of its loan programme for the Arab country as soon as possible.

King Abdullah II’s call for a “national dialogue”, related to the draft bill that sparked protests, is seen as the right direction to put an end to the protestors’ anger and prevent things from becoming worse. International donors are also considering their support of Jordan, as the country is struggling with financial difficulties due to taking care of more than a million refugees from neighbouring Syria. The US$2.5 billion economic aid package offered by the neighbouring states is considered a “timely gift”. According to the joint statement, the aid will include deposits in Jordan’s Central Bank, guarantees for the World Bank, annual support for Jordan’s budget over five years, and finance development projects. The aid came as a result of the efforts made by the King of Saudi Arabia aiming to protect the Jordanian leader from suffering heavy criticism from the other Arab states.

Having witnessed the “Arab Spring” storm sweep through the Gulf region and devastate a number of nations in the Middle East and North Africa (MENA) region, countries in the region do not want the tragedy to happen again. Over seven years has passed, but the consequences of the wave of protests overthrowing the regimes in Egypt, Libya, and Tunisia are still severely affecting countries in the region, pushing many previously prosperous countries into a prolonged crisis. The recent developments in Jordan, if not prevented, would likely push the country into serious turmoil. In the context that the Gulf states are facing a diplomatic crisis with Qatar, if another crisis occurs, it would be a factor that destabilises the region, threatening to bring about unpredictable consequences.