Analysis: Elevated Likelihood for Unrest as Parliament Approves Lifting of Bread Subsidies and New Taxes
Category: Unrest
Severity: 2 (Low)
Source: Drum Cussac
01/19/2018 (Jordan) - On Wednesday, 17 January, the Jordanian parliament approved lifting subsidies on bread and other main commodities in an attempt to address the country's debt-riddled economy. Following the announcement, the price of subsidised bread is expected to double, while tax on fuel will increase 30 percent from February. The package also includes removing exemptions on general sales tax and unifying low 4 to 8 percent rates on various items at 10 percent, while leaving it at 16 percent ceiling for others. Local media published a list of 164 items subject to a new taxation regime, including fruits and vegetables, fresh fish, frozen meat, table salt, and others. The government has also imposed new tariffs on silver, gold, diamonds and imported vehicles.
The move is an attempt to raise funds in line with commitments to creditors, including the Word Bank and the International Monetary Fund (IMF). Under the 36-month agreement approved by the IMF in August 2016, Jordan would receive about USD723 million in loans over three years to support the country's economic and financial reform program. The Jordanian government has adopted fiscal measures as part of the programme aimed at lowering public debt, which stands at 26.2 billion Jordanian dinars (around USD 37 billion) and constitutions a record 96 per cent of gross domestic product (GDP). The plan aims to cut public debt to 77 per cent of national output GDP by 2021. However, the package, however, did not include changes to an income tax law that the IMF officials had insisted in previous rounds of talks were a crucial part of reforms. The government has been hesitant to adopt these due to concerns over backlash, although has acknowledged the concern that without these reforms public external debt will spiral.
Jordan's debt is partly due to successive governments adopting an expansionist fiscal policy characterised by job creation in the bloated public sector, and by large subsidies for bread and other staple goods. Spending on welfare and public sector pay was also increased in an attempt to ensure stability in the aftermath of the 2011 regional "Arab Spring" protests. The protracted conflicts in Iraq and Syria have also contributed to a slowing of the Jordanian economy and led to a decline in large foreign capital inflows. A huge refugee influx from Syria increases the battle for jobs and resources. Economic trouble in the rich Gulf States, particularly in Saudi Arabia, has also had an impact. In addition to the debt, Jordan suffers from a high the unemployment rate, which has risen sharply in the last two years to 16 per cent.
It is highly likely that the introduction of new taxes and lifting of subsidies will stoke public tensions. Jordan previously witnessed angry demonstrations in February 2017 following austerity measures including a decision to increase the prices of a number of goods and services. Rallies took place in a number of cities across the country, calling for the removal of government and dissolution of parliament. The government is aware of the likelihood for dissent and has taken measures to mitigate the impact on the poor, exempting them from sales taxes on basic food products and medicine. The government will also issue annual cash transfer to low-income citizens to make up for rising cost of living brought about by lifting subsidies. Indeed, the 2018 draft state budget includes, for the first time, a social safety network/cash subsidy with a value of JD177 million (USD250 million).
Despite these efforts, there is a high risk of popular discontent in response to austerity measures and tax hikes in the coming days and weeks. Activists claim the policies disproportionately affect poor and middle-class families and urge the government to focus rather on fighting corruption and reclaiming embezzled state funds. The opposition has stated its intention to plan protests, including holding rallies at mosques on Friday, 19 January following midday prayers. Such unrest is likely to occur in city centres including Amman, Russayfah in Zarqa governorate, Ajloun in Ajloun governorate), Mafraq in Mafraq governorate); Karak in Karak governorate, and areas in the Jordan Valley, Irbid governorate. The risk of disruptive protest activity is particularly heightened in the south, including Maan, Karak, Tafilah, Salt, and Madaba, where the economic situation is particularly difficult. Any protests are likely to be tightly policed, which will elevate the risk of clashes between demonstrators and security forces.
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