Foreign assistance is a significant part of the economy

There are several reasons why external aid plays such an important role in Jordan’s economy. The country’s modest geographic footprint and dearth of natural resources are chief among them, as is Jordan’s position between Israel, Syria, Iraq and Saudi Arabia. There are myriad geopolitical reasons why regional and global donors have determined that a stable Jordan is crucial to the security of the Middle East, and the funding that the nation has received as a result has allowed it to overcome a range of economic challenges.

Support

During the early years of Jordan’s existence as a sovereign state, British financial aid provided a crucial means of support as the young country established itself. As time went on, the US and the GCC countries assumed more prominent roles in supporting the economy. Various multilateral bodies, such as the IMF, the World Bank, the Islamic Development Bank, the EU and European Commission, and the European Bank for Reconstruction and Development have also been major benefactors of Jordan’s development. The models of economic support adopted by these donors have followed a variety of approaches, from direct military and economic aid to budget support, development assistance and sectoral assistance.

The volume of aid has fluctuated as economic and political threats have emerged and receded over recent decades. These threats have usually manifested themselves locally in the form of significant demographic changes as a result of regional strife, which have seen Jordan receive waves of refugees: from Palestine in 1948, 1967 and 1973; from Lebanon in the 1980s; and from Kuwait and Iraq in 1991. (Kuwait was mainly a source of Palestinian Jordanian refugees expelled following Iraqi defeat in the Gulf War.) More refugees arrived in the mid-1990s, when Jordan became home to many Bosnian Muslims, and in 2003 it once again acted as a refuge for many Iraqis fleeing war. More recently, the conflict in Syria has pushed many citizens of that nation across the Jordanian border. According to the International Committee of the Red Cross (ICRC), some 600,000 refugees from Syria had crossed into Jordan by May 2014. The result of these sizeable shifts is that Jordan’s population, estimated at 6.4m in 2012 by the IMF, is now around six times what it was in 1960 and nearly twice what is was in 1990.

Aid Agreements

The factors that have necessitated foreign aid to Jordan over the decades remain in place today. According to the ICRC, around 400 Syrians cross the border every day, and during periods of heightened conflict this number rises into the thousands. Domestic youth unemployment remains high, the provision of basic utilities – water and power – continues to be a challenge, and the structural budget deficit remains firmly in place despite the government’s attempts at fiscal tightening. As of 2013 US military and economic aid to Jordan totalled $13.8bn, according to the US Congressional Research Service. A five-year economic aid deal which saw the US grant the Jordanian government $660m per annum comes to an end in 2014, and attention is now turning towards efforts to reach a new arrangement. In 2014 the US Congress took further steps to support Jordan, most notably with the Consolidated Appropriations Act, which provides Jordan with $360m in economic aid and $300m in military aid, sets aside more funding for costs related to regional instability and authorises aid to be used for loan guarantees for the Jordanian government.

The IMF, meanwhile, is lending $2.38bn to the country over a three-year period, while the Arab Gulf states have established a multi-year, $5bn aid package. Jordan’s importance to the region means that it has plenty of friends to look to when it comes to its funding needs, but its structural dependence on foreign aid is nevertheless a concern. According to a January 2014 report by Rabobank, some 60% of the budget deficit in 2013 was covered by international aid. Subsidy reform and a reining in of the public-sector salary bill will be key to reducing this. Both of these goals, however, are sensitive issues which carry political costs. Their achievement is likely to come as a result of a gradual approach.

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