Jordan’s indebtedness continues to grow year after year. Since the coronavirus pandemic, the influx of Syrian asylum seekers, and the aftermath of the Russian-Ukrainian war, public debt in Jordan now exceeds its GDP. Despite government efforts to launch economic reform, reel in government expenditure, and modernize the public sector, the gap between income and expenditure remains significant. This, in turn, affects the country’s economic landscape, and results in social repercussions that increase the cost of living for Jordanian citizens.

Statistics published on Jordan’s Ministry of Finance website show that at the end of last May, Jordan’s public debt amounted to USD 19.4 billion, and external debt was close to USD 21.4 billion, a 1.2 per cent increase compared to 2021. This brings Jordan’s total debt to about USD 41 billion, reaching 110.6 per cent of GDP in the first five months of this year.

For some, Jordan’s real debt goes beyond this figure. The Jordanian government, in agreement with the International Monetary Fund (IMF), does not factor the USD 9 billion in loans from the Social Security Fund in its published debt records, which would raise total debt to over USD 50 billion.

Economic Indicators

Economic indicators suggest an unfavorable outlook for Jordan’s economy:

Public debt exceeds GDP: According to projections, Jordan’s onerous debt is expected to continue to exceed GDP, especially since the current account deficit constitutes most of its expenditures. An increase in public debt is expected as Jordan acquires new debts for loan repayments which the government is unable to repay from domestic resources, further increasing the country’s budget deficit.

Debt financing to cope with the deficit between government revenues and expenditure can be considered acceptable, by some economists- even if the size of public debt exceeds GDP as in the Jordanian case- and would not pose a serious risk, nor undermine the probability of future borrowing, if funds are directed towards strategic development and investment projects.

Nevertheless, the effects of increased public debt remain negative, not only on Jordan’s economic landscape, but more importantly, on the social and living conditions of citizens.

Decline in tax revenues: In his 2022 budget presentation last December, Jordan’s Finance Minister, Mohammed Al-Ississ, said domestic revenues accounted for about 88.4 percent of current expenditures. Despite the Minister’s assurance that Jordan’s economy is approaching self-sufficiency more than ever before, these figures indicate that the government is heavily reliant on taxes and fees.

Thus Jordan is at a financial impasse, as the tax revenues for 2021, that supply expenditure in 2022, have fallen. This is a result of a decline in the income and profits of large corporations and banks, who make up 0.25 per cent of Jordan’s taxpayers but provide 80 per cent of all tax revenues. Moreover, aid and foreign assistance decreased from JD 851 million to JD 577 million.

Budget deficit and inflated salaries: The budget deficit is a principal driver of debt.  In Jordan, like in many emerging economies, the government relies on debt to finance current expenditures (wages, salaries, and operating expenses of state institutions), which accumulates debt annually.

According to Dr. Abdul Baset al-Athameh (Interview, Al Bayan newspaper, August 17th), the public sector’s payroll amounts to JD 550 million per month, reaching JD 6.6 billion per year; a striking and burdensome figure on the budget of a country such as Jordan. Indeed, Jordan’s public sector payroll accounts for 54.2 per cent of the state’s budget for the current fiscal year 2022.

IFI financial forecasts: In 2021, the World Bank projected Jordan’s public debt to reach nearly USD 50 billion by the end of this year 2022. Last April, Fitch Solutions, the research arm of Fitch Credit Ratings, forecasted average inflation for the current year to rise from 2.9 to 3.6 percent.

These forecasts appear realistic, as over the past year, Jordan’s already high debt ratio of 108 per cent of GDP in May 2021, increased to 110.6 per cent of GDP by the end of May 2022.

Social implications

While many more developed countries, such as the US, China, and Japan, remain heavily indebted, the size of their economies is large enough to cope with the consequences. For developing countries, however, the social and economic repercussions of crises are more serious. This is clearly evident in the case of Jordan:

Population growth and inflation: The International Monetary Fund (IMF) predicted last October that Jordan’s real economic growth would reach 2.7 per cent in 2022. “The Prospects of the Arab economy” issued by the Arab Monetary Fund (AMF) in April, expected the Jordanian economy to grow by 3 per cent, close to the rate projected by the IMF. These projections were made in light of the expected recovery of the global economy and the gradual containment of the fallout from the coronavirus pandemic. However, economic growth was undermined by population growth, and the large influx of Syrian asylum seekers since 2011. This contributed to the decline in the Jordanian citizens’ standard of living.

Although the Government had pledged not to impose new taxes during the current year, the pricing of electricity, water and other public utilities is now under review. A rise in these rates would be a burden for citizens, further exacerbating the hardship from the higher prices of food and other commodities resulting from the Russian-Ukrainian war.

Increasing rates of unemployment and poverty: The increase in unemployment, due to the coronavirus pandemic and resulting job loss, is a major cause of concern to Jordanian authorities. It is estimated that 140,000 thousand jobs were lost in 2020.

Although unemployment slightly decreased in 2021, it is still significantly high. During the second quarter of last year, the unemployment rate was 24.8 percent, down 0.2 percentage points from the first quarter, and up 1.9 percentage points from the second quarter of 2020, according to figures published by the Department of Statistics.

According to studies based on a joint report by the World Bank and UNHCR to the United Nations, Jordan’s poverty increased by about 38 percentage points as a result of the coronavirus pandemic. The Minister of Planning and International Cooperation, Nasser Al-Sharida, estimated that poverty in 2021 stood at about 24 per cent, up about 6 per cent from 2020.

Accordingly, the Jordanian Government announced a two-year road map, to commence in 2022, to address problems associated with increased unemployment.

Expenditures and Loans

In this context, it seems reasonable that the Finance Committee in the Jordanian House of Representatives has warned of the consequences of Jordan’s continued high indebtedness, both internal and external, which is attributed to the government policy of relying on increased borrowing.

The Jordanian government appears set to borrow USD 8 billion during the current year, which will increase the cost-of-living burden on Jordan’s low-income earners. The situation requires revising the government’s borrowing strategy, and a serious reduction in expenditure if it is to uphold  its announced ‘white revolution’ , which includes  a plan to downsize and modernize the public sector through the merging and integration of ministries.