Although quite successful in keeping COVID-19 deaths relatively low, the Hashemite Kingdom of Jordan faces major economic challenges resulting from this global pandemic. The International Monetary Fund (IMF) predicted that Jordan’s GDP will drop by at least two percent in the wake of coronavirus restrictions, the first decline in decades.
Soon after the pandemic hit Jordan, the country was successful in containing the coronavirus. In fact, as early as January 26, Jordanian officials adopted protocols against COVID-19, five weeks before the first case was reported on March 2. As of March 17, Jordan was one of the first Middle Eastern countries to suspend air links and close off land and sea borders with all neighboring countries.
To contain the virus, Jordan’s government imposed a nationwide curfew in mid-March. In July, Jordan banned smoking electronic cigarettes and hookahs in enclosed public spaces, a policy that aligns with the World Health Organization’s (WHO) conclusion that smokers are more susceptible to the virus. This matters significantly in Jordan, which has one of the world’s highest smoking rates, estimated by the WHO to be over 80 percent for Jordanian men.
From a public health standpoint, these actions paid off. Jordan has recorded about 1,609 cases of infection and 12 deaths as of August 24. These numbers prompted King Abdullah II to proclaim that the pandemic was “under control” and that the country should shift focus toward economic recovery even as new cases have prompted the government to “implement area-specific containment measures.”
COVID-19 Devastates an Already Weak Economy
Jordan may have adopted effective measures to slow down COVID-19 transmission, but the economic impact of these actions have been devastating. Jordanian businesses have had to endure cash-flow interruptions, which complicated their ability to pay employees, utilities, rents, and bank loans. Layoffs were one of the few measures that businesses had to embrace to survive, adding to an already chronic unemployment problem. According to Shehab al-Makahleh, noted Jordanian Senior Media and Policy Adviser, youth unemployment far exceeds the official statistics, suggesting it now exceeds 60 percent—triggering a recession because of reduced aggregate demand and shrinking fiscal intake for the government.
The government has intervened, reissuing subsidies for some basic food items like bread, while compensating laid-off private sector employees’ salaries.
As in most countries, rich and poor alike, the pandemic’s overall effect has hurt the private sector in Jordan. The government has intervened, reissuing subsidies for some basic food items like bread, while compensating laid-off private sector employees’ salaries. The government has also served as the main source of capital spending to stimulate the economy and mitigate the economic shock. The burden is all the heavier given the delicate socio-political context, characterized by the Palestinian, Iraqi, Yemeni, and Syrian refugees in Jordan. Since 2011, when the war in Syria began, Jordan has absorbed some 1.2 million Syrians alone.
The refugees have intensified competition for labor and social services in a tight market with scarce resources. The Syrian war, meanwhile, has forced Amman to both extend humanitarian aid and adopt stricter security procedures. Such policies in turn have compromised the already tight distribution of social assistance funds, triggering protests over inflation and unemployment throughout 2018 and 2019. To its credit, more than resorting to repressive measures, the Jordanian government has tried to address public protests and concerns through economic reforms on one hand and socio-political co-optation of religious extremists on the other.
Chronic Unemployment and Borrowing
The pandemic has exerted pressure on an already weak job market. Jordan’s unemployment rate reached 19.3 percent in the first quarter of 2020, with youth unemployment reaching 40 percent.
The Jordanian government adopted the EU sponsored Jordan Compact in 2016 to confront the humanitarian crisis from the war in Syria. The agreement aimed at creating jobs and facilitating investment, loan, and financing terms through US$ 1.7 billion in grants to various economic sectors (granting refugees 200,000 work permits) and unemployed Jordanians. Before the Jordan Compact, Syrian refugees had to pay to secure work permits and were confined to working informally.
Jordan’s structural weaknesses have fueled discontent and mistrust of the monarchy and other institutions. Indeed, the aid packages themselves have been critical because of the Kingdom’s persistently high debt levels, having little choice but to borrow.
Credit needs force Jordan to depend on the IMF, which inevitably demands spending cuts and fiscal reforms that hurt the poor and middle class. The fiscal reforms also make Jordan less attractive to foreign investors, who prefer to invest where they find better fiscal terms and bigger markets. Aid, in exchange for political compromises, worked as a patch in the past. But it no longer addresses the needs of a population that has grown significantly and has been forced to deal with massive refugee inflows.
The pandemic has severely hurt Jordan’s tourism sector—one of the pillars of the economy, employing some 100,000 people.
The pandemic has severely hurt Jordan’s tourism sector—one of the pillars of the economy, employing some 100,000 people and accounting for well over US$ 5 billion in 2019. Tourism had already slowed in response to the instability that has affected much of the MENA region since 2011.
The Hashemite Kingdom has started to reopen the country, allowing tourists from selected countries to visit. Even if tourism resumes in the final months of 2020, the number of visitors will have failed to match that of previous years, cutting off the Hashemite Kingdom from much needed foreign currency income—a problem made all the worse by the fewer remittances from Jordanians working abroad, given the widespread economic slowdown in Europe and North America.
Israel’s West Bank Annexation Plans
Jordan also has to prepare for the possibility of unrest given the looming threat of Israel annexing 30 to 40 percent of the West Bank. With over 60 percent of Jordan’s population being Palestinian, Amman has found itself facing major security, economic, and social threats stemming from a possible annexation, which would kill the prospects for a two-state solution to the Palestinian-Israeli conflict. There is a serious possibility of Jordan tearing the 1994 Peace Treaty with Israel to shreds if Tel Aviv proceeds with the annexation process.
The government in Amman has already foreseen the possible outrage caused by the annexation and has explicitly expressed its concerns, including those related to the probability of refugees settling permanently in Jordan and the transformation of the Hashemite Kingdom into an alternative state for the Palestinians. Worries around the definitive annexation of the West Bank and Jordan Valley have been made even more relevant by the recently announced process of diplomatic normalization between Israel and the United Arab Emirates.
Worries around the definitive annexation of the West Bank and Jordan Valley have been made even more relevant by the recently announced diplomatic normalization between Israel and the UAE.
In this regard, it’s important to note that the UAE-Israeli normalization has little to do with peace or the recognition of Palestinians’ rights. Palestinians have not been, and will not be, consulted in any way. Therefore, expectations that the normalization will end the annexation in formal terms, does not preclude its de-facto preservation in practice.
Amman had rejected Trump’s “Deal of the Century” plan because it gives Israelis highly lopsided benefits with few, if any, concessions for the Palestinians. Trump’s “deal” and the expected (if temporarily abandoned – on paper at least) Israeli annexation of the West Bank have further distanced Amman from Washington, compromising Jordan’s opportunities to secure US financial aid.
The Economy is Scarier than the Virus
Such prospects are daunting enough for a wealthy country. For Jordan they are impossible to confront without substantial foreign aid, and fiscal reform, which could end up hurting the vast majority of Jordanians.
The country could try supporting some of the least affected sectors (those enabling widespread work-from-home programs), such as its budding high-tech and consulting firms. Or it could stimulate agriculture—an economic sector with much room for growth, but hampered by the fact that water resources are highly scarce and three quarters of Jordan’s territory is desert. Regardless of the sector, the government will have to adopt economic stimuli in the form of tax exemptions or other fixed cost reductions for the private sector, adding to the national debt burden.
The combination of COVID-19 and Jordan’s geographic and political position at the very heart of the turmoil in the Middle East has tested the Jordanian government’s resilience. Although the Hashemite Kingdom has shown itself to have world class capabilities in confronting medical emergencies, the pandemic has compromised government reforms, forcing it to manage a crisis through more debt. All of these troubling factors raise concerns about Jordan’s ability to survive the post-pandemic phase.