Saudi Arabia, Abu Dhabi and Kuwait have pledged a $2.5 billion injection into Jordan’s central bank in an effort to stabilize the country, which is facing its largest protests in years and has already seen the removal of its former prime minister, Hani Mulki.
The Gulf allies are delivering the five-year aid package in the hope of calming unrest and quelling economic crisis in the Middle Eastern kingdom, precariously positioned between Iraq, Saudi Arabia, Israel and Syria.
But rather than threaten the government, as many uprisings in the Arab world have done, this one is economic, and poses a greater risk to the target of the demonstrations itself: a much-needed International Monetary Fund (IMF) credit line.
The country of 10 million has been struggling under tight austerity measures imposed as part of the IMF’s debt-reduction package. These included sharp tax increases and price hikes on food, fuel and power. Electricity costs have jumped 55 percent since the start of the year.
But the protests, so far, are not political, according to frontier investment bank Exotix Capital. Jordan’s ruler, King Abdullah II, remains secure in his leadership, despite having appointed 11 different prime ministers since 2000.
“So far, the protests have been mainly peaceful, involved middle and poorer class citizens and unions, appeared devoid of specific political leadership and focused on economic grievances, the PM (prime minister) and Parliament but, pointedly, not King Abdullah II,” the bank said in a client note Monday.
Jordan’s debt remains unsustainably high at 95 percent of gross domestic product (GDP) while growth remains anemic below 3 percent and unemployment is around 15 percent, 40 percent for the youth. The current deficit meanwhile sits at more than 10 percent of GDP. The austerity measures and tax increases were intended to raise fiscal revenue by over $1 billion a year, roughly 2 percent of GDP.
The $2.5 billion package is motivated by the Gulf monarchies’ aversion to a fellow monarchy falling victim to protests, as well as any social unrest that could be exploited by Iran or the Muslim Brotherhood, according to Hasnain Malik, the global head of equity research at Exotix.
The pledge, significantly larger than the current IMF loan, may come without the same unpopular austerity requirements. But it will likely be tied to “an ongoing commitment to geopolitical alignment, possibly logistics support for operations in Syria, cooperation with Israel and an anti-Muslim Brotherhood stance,” Malik said.
“Short-term, this helps avert a crisis, so it should be positive for Jordan’s bonds and equities,” he added. “But it does nothing to support the structural case, i.e. Jordan remains, like Lebanon and Tunisia, a play on the continuing generosity of its allies, not on self-help and reform.”
“At this stage, we do not envisage a crisis for the regime,” the bank’s note said, adding that the precedents of Egypt and Syria, where political uprisings were met with heavy-state violence, also likely temper any ambitions for substantive political reform.
But a majority population of Palestinian refugees and an economy that relies largely on handouts could still at any point be prone to political and social unrest as well, and since 2011, this potential cannot be taken for granted.