Newly appointed Jordanian Prime Minister Omar al-Razzaz meets with union leaders in Amman, on June 7, 2018. Photo: AFP/Ahmad Gharabli
Newly appointed Jordanian Prime Minister Omar al-Razzaz meets with union leaders in Amman, on June 7, 2018. Photo: AFP/Ahmad Gharabli

After days of peaceful street protests and the resignation of the former government, Jordan’s King Abdullah swore in a new administration, Friday morning.

 The first act of the new prime minister, Omar Munif Al-Razzaz, was to withdraw the unpopular tax bill that had triggered the recent demonstrations, while commiting himself to ensuring “taxpayers’ money goes to serve them.”

Yet, pursuing this goal will likely be far from straightforward.

Jordan faces a major public debt, commitments under an IMF austerity programme and the challenge of a huge, under-funded refugee population. Meanwhile, many citizens are having great difficulty in making ends meet.

At the same time, a long-standing “social contract” between indigenous Jordanians, the country’s large Palestinian population and other vested interests may also act as a barrier to reform – with much now depending on how far the country’s popular king will go in backing the new prime minister’s efforts.

All this, in a region where many traditional alignments are now under pressure and Jordan is forced to walk a tightrope between rival powers and interests.

Pledges and Promises

However, Jordan’s neighbors and allies have so far rallied round the troubled country, with a string of financial pledges now helping stabilize its creaking economy.

In recent days, Kuwait, Saudi Arabia and the UAE have put forward a combined $2.5 billion assistance package, while Qatar has now promised $500 million of investment and 10,000 jobs for Jordanian expats.

These new offers also come amidst meetings between Jordanian officials and Western representatives, with the UK set to host an international donors’ conference in London later this year.

This wave of support demonstrates the continued strategic significance of the country. Indeed, financial aid for Jordan from the Gulf has a long and somewhat chequered history.

When the “Arab Spring” rocked the region, back in 2011, the nations of the Gulf Cooperation Council (GCC) — Saudi Arabia, the UAE, Kuwait, Bahrain, Oman and Qatar — promised some $5 billion to Jordan, along with future GCC membership.

“Keeping Jordan stable has always been viewed as part of keeping the Gulf stable,” says Amman-based political commentator and columnist Osama Al Sharif. “The Gulf monarchies were very worried about what happened back in 2011, and were totally against the protests and calls for change.”

Thus the current offers of support. Scenes of street protests in Amman over the last few weeks clearly troubled Jordan’s Arab neighbours.

Yet, Jordan’s relations with some of these have not been great.

“It’s no secret that Jordan has had a relatively tense time with Saudi Arabia in recent months,” says Ghaith Al-Omari, Senior Fellow at the Washington Institute.

In particular, Jordan’s failure to break off diplomatic relations with Qatar last year, following the Saudi, Emirati, Bahraini and Egyptian-led blockade, soured relations.

Jordan has also kept up links with Saudi and Emirati rivals Turkey and Iran, while it also made a much stronger protest over the recent US embassy move to Jerusalem than either Riyadh or Abu Dhabi.

Now though, “It’s also clear that Saudi Arabia and the UAE see stability as overriding these differences,” adds Al-Omari.

At the same time, Jordan’s position on the Qatar blockade has also now likely helped it, by keeping relations open.

“Jordan has always understood that if you close a door, always leave a window open,” adds Al Sharif.

Buying Time

The pledges made so far have undoubtedly helped, too.

Part of the $2.5 billion Saudi, Emirati and Kuwaiti aid is direct budget support, part a deposit at the Jordanian Central Bank — helping stabilize the currency. A further part should help secure lower-interest loans, easing the country’s major debt repayment burden.

Meanwhile, Qatar’s pledge may have more longer-term benefits, as it promises future investment and jobs, rather than short-term emergency aid.

Yet, despite these supports, the longer-term reform of the economy is still crucial, if Jordan is to emerge successfully from its current crisis.

“The economy is a mess,” says Al-Omari. “Decades of a bloated public sector, a small private sector and the recent challenges posed by refugees mean very difficult decisions now have to be made.”

The country is currently under an IMF programme, which has sought to address these challenges by cutting public expenditure and raising tax revenue.

The unpopular tax bill now scrapped was part of this effort.

“This may raise some concerns about the direction of fiscal policy and the future of Jordan’s $723 mn IMF deal,” says Jason Tuvey, Senior Emerging Markets Economist with Capital Economics. “After all, the law… was expected to yield fiscal savings equal to around 1% of GDP.”

Yet so far, the IMF remains onboard, while the new government seems committed to a more inclusive approach to future changes.

“The IMF will also be under pressure from the US, Europe and the Gulf countries to maintain support for Jordan, given that it is a key ally in the region,” says Tuvey.

Structural changes, however, will likely also involve challenging some long-standing ways of doing business in the kingdom.

“Reducing the size of the bureaucracy will hit some key constituencies,” says Al-Omari. “To simplify, the old social contract was one in which the ethnic Jordanians and East Bank tribal groupings dominated the public sector, while the Palestinians dominated the private.”

Since the creation of Israel in 1948, Jordan has become home to many Palestinians, who, with their descendants, now constitute a major part of the population.

The new government will therefore have to strike a difficult balance, if it is to make real changes — with much now depending on what sacrifices the prime minister’s current supporters are willing to make in order to write a new “social contract.”