Jordan is in the throes of an economic crisis, and widespread protests and strikes related to the introduction of deeply unpopular tax reform legislation threaten to destabilize the country.
A relatively small, nearly landlocked country with a population just over 10 million, Jordan has long been considered a relatively stable and staunchly Western-oriented stronghold in an exceedingly turbulent region.
During the early modern era, the Transjordan region was controlled by the Ottoman Empire. The British, however, managed to claim the region following the 1916 Great Arab Revolt, which significantly weakened the Ottoman’s grip over the Transjordanian territory. In fact, the Great Arab Revolt was encouraged by the British, as detailed in the McMahon-Hussein Correspondence, and the British government even went so far as to promise to recognize Arab independence after the war in exchange for the Sharif of Mecca launching the revolt. In 1921, the British established the Emirate of Transjordan and installed Abdullah I, the son of one of the leaders of the Great Arab Revolt, as emir of the newly-formed kingdom – a kind of consolation prize for the son whose father had been promised a vast pan-Arab kingdom. However, the emirate remained under the protection of the British until 1946, when it was formally recognized as an independent nation as the Hashemite Kingdom of Jordan. All this to say that even from its earliest days, Jordan has maintained a close relationship with Britain.
Indeed, Jordan has long been the West’s favorite Arab broker, and diplomacy quickly became the tiny nation’s biggest export. As a result, the country – which has no virtually no oil or gas and little arable land – depends on foreign aid from its powerful allies to keep its economy afloat. However, this aid has been stretched thin by the successive waves of refugees who have settled in Jordan over the course of the past fifty years or so. And now, a series of diplomatic shifts threaten to reset regional relations, rendering Jordan’s once-strategic positioning moot and cutting off the much-needed lifeline of foreign aid from the Gulf countries.
Jordan’s economic crisis is serious: 18.4 percent of Jordanians are unemployed, and the nation’s debt shot up from 60 percent of its GDP in 2011 to a whopping 93.4 percent of its GDP by 2016. The reasons for Jordan’s increasing debt load are myriad, but most of them can be traced back to the turmoil in the region, which has had deleterious effects on tourism and foreign investment, and has also necessitated increased military and security expenditures.
Against this backdrop, Jordan accepted a 2016 stimulus package from the International Monetary Fund. The package may have been sorely needed, but it came with a price: a series of draconian austerity measures that the IMF set as a prerequisite for the aid offer. And while the austerity program did succeed in preventing the nation’s debt from rising above 95 percent in 2018, it also hit many poor and middle-class Jordanians hard, particularly with the removal of subsidies of wheat and fuel.
So, when the Jordanian government announced its sweeping tax reform plan, the reaction against it was swift and uncompromising. The proposed legislation would expand the nation’s tax-paying base – currently, an estimated 4.5 percent of Jordanians are taxed, but the plan would more than double that figure. By lowering the taxable income, 10 percent of Jordanians will see their incomes taxed under the new legislation. The other 90 percent, according to the government, will not be required to pay income taxes due to low incomes and a plethora of family exemptions.
The proposed reform would also raise tax rates for banks and seek to combat tax evasion across the board by reclassifying tax evasion from a criminal misdemeanor to a felony.
Taken altogether, the changes to Jordanian tax law that would take place under the reform would increase government revenue to an estimated $350-430 million by 2021. The government claims that such an increase is necessary in order to make the annual interest payment — $1.5 billion – to service its nearly $40 billion debt.
However, it has been a hard sell. Jordanians already pay a huge 16 percent sales tax on goods and services, and they are feeling the pinch of rapidly rising prices on those basic necessities no longer covered by government subsidies. They are also feeling overwhelmed by Jordan’s ever-changing income tax law, which has been modified four times in the past eight years.
Claims of government corruption are also rife. As a country that relies on foreign aid, there is little accountability for expenditures, and an alleged $1 billion has vanished from state coffers.
The protests that broke out in response to the proposed tax reform have been the largest seen in Jordan in recent years. And they’ve already shaken up the government.
Earlier this week, Jordan’s Prime Minister Hani al-Mulki resigned in a move meant to put an end to the protests. King Abdullah II appointed Omar Razzaz, a leading reformer who served as the education minister and a former senior World Bank official, to the position. Nonetheless, the protests show no sign of abating.
The protests are being organized by Hirak Shababi (“youth movement” in Arabic) and some 33 professional associations, including the engineers’ association and the teachers union. Protesters are calling for the new law to be scrapped; some have even begun to demand a complete overhaul of the government’s economic policy.
It seems that the protesters may soon get what they want – in his appointment letter to Razzaz, King Abdullah II asked for the new government to produce a new tax bill.
However, even the scrapping of the reviled tax reform cannot address a more troubling trend: the decreasing importance of Jordan’s strategic diplomacy.
Diplomacy was long one of Jordan’s key exports, earning the country some $1.2 billion in American assistance each year and securing lucrative aid packages from regional ally Saudi Arabia. But now, the growing rapprochement between Israel, Saudi Arabia, and the U.S. threatens to write off Jordan’s role as the region’s most prominent diplomatic broker.
Much of the changing balance of power seems to center on Saudi Arabia’s abandonment of the Palestinian cause in favor of forming an alliance against Iran. In this light, Jordan’s condemnation of the new American embassy in Jerusalem may have jeopardized the nation’s much-needed Saudi aid package – and, indeed, Saudi Arabia initially declined to renew the package.
However, Jordan cannot feasibly turn its back on Palestine – after all, more than half of the nation’s population is Palestinian. So, what can we expect from Jordan? Tottering on the verge of an economic collapse, will the nation abandon its traditional Western orientation to turn toward the East? Only time will tell