The IMF Led Tax Reforms in Jordan

Jordan is a small nation in the Middle East with a population of close to 6.6 million people. However, it is considered to be strategically important to the Muslim world because of its proximity to Jerusalem. The problem is that Jordan has been in the midst of a revolution of sorts. The people are on the roads protesting against some of the financial measures that are being taken by the new government. Mob violence and vandalism have become the norm since the common people are trying to fight against what appears to be a corrupt government.

In this article, we will have a closer look at some of the financial problems in Jordan as well as their causes and effects.

Steep Tax and Price Hikes

Jordan is already a poor nation. More than 20% of the working-age population in Jordan is unemployed. Similarly, more than 18.5% of the population lives below poverty levels. The problem is that the government has started hiking the price of goods drastically which is threatening the very existence of these people.

For instance, in 2018, the Jordan government has already raised the price of fuel more than five times! Similarly, multiple increases in the price of electricity have led to a 55% surge in the prices since February 2018.

Essential commodities have not been spared either. The price of bread has more than doubled in the past six months.

The subsidies on many important groups have been dropped. Instead, a hefty value-added tax is being levied on many goods which can be regarded as staples. This is drastically affecting the ability of the lower class of the society to even survive.

The Jordanian government is also implementing punitive measures on the taxpayers. Individual taxpayers now have to pay an incremental 5% tax on their income. The tax raises for corporations have been even more horrendous. On an average, corporations are seeing their tax bills rise from 30% to 40%.

The sudden increment in prices in taxes is because of a massive fiscal deficit that the Jordanian government is facing. The government had borrowed $723 million from the International Monetary Fund in 2016. Now, the government has spent most of the money.

Hence, firstly it owes the money back to IMF, and secondly, the IMF has asked Jordan to shore up its tax revenues and drop its subsidy bill if it wants to obtain more loans. This is the reason behind this sudden action being taken by the government.

Many Jordanians are interpreting this action to be the fall of the sovereignty of the Jordanian state. It is also being interpreted to be a perfect example of the predatory lending practices that the IMF and World Bank are infamous for.

Syrian Refugees

The heavy influx of Syrian refugees has undoubtedly put a massive strain on the financial system of Jordan. The country has become home to more than 1.4 million refugees. Hence, the refugees have suddenly increased the population of this small state by more than 25%. The strain on public infrastructure is palpable.

For instance, Jordan has had to undertake several projects to increase the water supply in the region. The water supply was adequate for the residents. However, with the number of refugees increasing, more water is needed, and hence new projects are needed. The problem is that the government did not have the money to fund the projects and has relied on borrowings from IMF.

Similarly, all other public amenities like roads, housing, and transportation are suddenly inadequate. The urban areas are seeing increasing congestion because of this refugee crisis. The Jordanian state also has to pay for other increased expenses like schooling of the Syrian children.

Schools in Jordon now work two shifts. They teach Jordanian kids in the morning and Syrian kids in the afternoon.

Jordanians have suddenly become very resistant to Syrians. They believe that these Syrian refugees are taking over their employment. Also, many Jordanians believe that these refugees are the reason why the state is facing a shortfall of a massive $3.5 billion its refugee handling budget. The increase in budgetary deficit has been unprecedented in world history ever since World War – 2 ended in 1945.

Aid Has Stopped

The Jordanian problem has been compounded by the fact that the nation doesn’t really have an industry. It has always been dependent upon aid from Saudi Arabia and the United Arab Emirates.

The problem is that Saudi Arabia is facing problems of its own. Dwindling oil prices have left the Saudi economy reeling. Saudis have been reducing unnecessary expenses and hence have been forced to cut down on foreign aid.

Similarly, investors from UAE have also become very stingy with their money. They are asking Jordan to lower its tax rates if it needs more investments. Hence Jordan is facing opposing pressures, i.e., the pressure to increase rates from IMF and the pressure to reduce rates from investors.

The bottom line is that if proper measures are not taken to address this crisis, it will quickly spill out of proportion and Jordan may be added to the list of unstable nations in the Middle East.

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