Jordan PM resigns amidst protests

Jordan PM resigns amidst protests
Jordanian PM Hani Mulki has announced his resignation after widespread protests against an IMF-backed plan that has increased living costs. The protests...

Jordanian PM Hani Mulki has announced his resignation after widespread protests against an IMF-backed plan that has increased living costs. The protests were sparked by a new bill that would almost double the number of taxable citizens.

Mulki was the 12th prime minister since King Abdullah ascended the throne in 1999.

Background

The Hashemite Kingdom of Jordan is a small country in the Middle East between Israel to the West and Saudi Arabia to the East. It has been inhabited since the Paleolithic period. It has been home to three major kingdoms, Ammon, Moab, and Edom. Due to its strategic location near the West Bank and Jerusalem, Jordan has played a significant role in the politics of the region. Jordan has been ruled by the Roman Empire and the Ottoman Empire. Modern Jordan was formed after the Great Arab Revolt and the dissolution of the Ottoman Empire. The region of Transjordan was created by British mandate in the 1920s. The first ever elections were held in 1929.

Jordan is a constitutional monarchy where the King holds substantial executive and legislative powers. The current ruler Abdullah II bin Al-Hussein ascended the throne in 1999 after the death of his father, King Hussein. The King is the Chief of State. The head of government is the Prime Minister. Current Prime Minister Hani Mulki was elected in 2016.

Today, the country has a population of over 10 million, of which 98% is Arab. Arabic is the official language and Islam is the official religion. Sunni Muslims make up a majority of the population. Jordan has accepted refugees from neighbouring countries since 1948. It currently houses over 2 million Palestinian refugees, over 650,000 Syrian refugees and 66,000 Iraqi refugees. Jordan’s economy is one of the smallest in the Middle East, however, it has a high Human Development Index.

Over 70% of the population is employed in the service industry. King Abdullah has instituted a number of economic reforms during his rule; however, the country remains highly reliant on imports for energy, as well as other natural resources. Energy makes up between 25-30% of Jordan’s imports. It suffers from high unemployment rates (officially 18.4%, unofficially 30%), and public debt currently stands at 94% of GDP.

Analysis

Jordanian Prime Minister Hani Mulki has announced his resignation after four consecutive days of protests against a new tax draft law. The law proposes a 5% increase in tax for anyone with an annual income of over 8,000 dinars ($11,000). Businesses would face increases of 20-40%. Malki had refused to scrap the bill, telling reporters that the "Parliament is its own master."

This bill is the latest in a series of IMF-backed measures to address debt. In August 2016, Jordan signed a $723 million Extended Fund Facility with the IMF to help reduce public debt. The three-year credit line would help Jordan reduce public debt from 94% of its GDP ($37 billion) to 77% by 2021.  IMF plans have caused similar dissent in the past. In 1996, there were widespread protests over increased food prices due to suspended subsidies. In 2012, Jordan underwent days of civil unrest due to scrapped fuel subsidies.

Despite Mulki’s resignation, Unions have called for a general strike on Wednesday, and for protests to continue until the policies are amended. The demonstrations are organised by an independent group Hirak Shababi (“youth movement”), along with 33 professional and civil society organisations. The largest of these organisations, Jordan’s Engineers Association and Jordanian Teachers Syndicate have a combined membership of approximately 300,000.

Protesters argue that the government has already imposed a number of taxes on citizens, including a 16% goods and services tax, and scrapping subsidies on bread. Since the beginning of this year, the price fuel has increased five times and electricity has increased by 55%, Al Jazeera reported. These measures have impacted the middle and lower classes. Protestors have therefore called for subsidies on oil and bread, a staple food item, to be re-introduced.

Last week, King Abdullah ordered the government to freeze new hikes on fuel and electricity during the holy month of Ramadan. The King has asked the parliament to begin “comprehensive and reasonable national dialogue” on the proposed income tax law. “It would not be fair that the citizen alone bears the burden of financial reforms,” he said. 80 of Jordan’s 130 members of parliament have promised not to support the law when it is brought into parliament. According to the state-supported newspaper Al Rai, the King has asked Education Minister Omar al-Razzaz to step in as interim Prime Minister.  

Counterpoint

The government has said that it needs more funds for public services. Economists have noted that it requires funding to service its debt. Government officials have argued that the tax changes would reduce social disparity by taxing those with higher incomes.

A report from Moody’s Investor Service says the tax reform would result in a “positive credit rating.” “The bill would help enhance fiscal stability and reduce the financial deficit to 1.9 per cent of the total GDP by 2019,” the report stated. Positive rating will improve investor confidence which is necessary for the growth of Jordan’s industries.

Assessment

Our assessment is that the government of Jordan may have to take stringent measures to reduce public debt. As stated previously, we believe that the Jordanian economy requires large-scale structural overhaul to boost employment and industrial growth. However, this must not come at the cost of public wellbeing. The state will have to strike a balance between the demands of the IMF and its citizens.

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