Saudi Arabia, Kuwait and the United Arab Emirates have agreed to provide a $2.5 billion economic package to Jordan, aimed at solving the economic crisis that triggered anti-austerity protests across the country for the past few days.

The financial aid includes World Bank warranties, annual support for Jordan’s budget over five years, funding of development projects and a deposit into Jordan’s central bank.

On Sunday, Saudi Arabia’s King Salman initiated a meeting in Mecca attended by Jordan’s King Abdullah II, United Arab Emirates’ Prime Minister Sheikh Mohammed bin Rashid Al-Maktoum and Kuwaiti Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah as well as Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed.

In a separate occasion on Sunday, the European Union (E.U.) Foreign Policy Chief, Federica Mogherini, announced the bloc had pledged €20 million for Jordan’s social protection programs that help the most vulnerable Jordanians. The E.U. has provided Jordan with €1 billion in aid over three years, Mogherini added.

What caused Jordan’s crisis?

Jordan received a $723 million aid package from the International Monetary Fund (IMF) in 2016, yet the country has struggled to reduce its debt. In 2018, a new IMF-backed austerity program aimed to cut subsidies and increases taxes for individuals and corporations.

Jordan’s plan to implement the I.M.F. program sparked anger across the country. Thousands of Jordanians held protests against the policy and forced Hani Mulki to resigned as the country’s prime minister.

Mulki’s successor Omar Razzaz has vowed to withdraw the draft law proposing the I.M.F. measures and will develop a new one.

The story of the IMF’s austerity measure: Lesson learned from Greece

An austerity measure is a policy that aims to cut government’s  spending to boost tax revenue. Most governments will not choose such policies unless they are forced by lenders or bond markets. Austerity programs work like contractionary fiscal policy by forcing governments to slash spending and subsidies for the poor, raise taxes, and privatize vital sectors.

Unfortunately, I.M.F. austerity measures do not always produce a success story. The Washington-based creditor admitted its failure in solving Greece’s debt crisis by poorly understanding the country’s debt sustainability following the first bailout in 2010. In 2015, Greece became the first developed country to default to the I.M.F. after failing to pay debt worth  € 1.5 billion.

“The Fund approved an exceptionally large loan to Greece under a stand-by agreement in May 2010 despite having considerable misgivings about Greece’s debt sustainability. The decision required the Fund to depart from its established rules on exceptional access. However, Greece came late to the Fund and the time available to negotiate the programme was short,” the IMF stated.

Along with the I.M.F. bailout, Greece raised taxes, cut government salaries and banned early retirement, triggering a widespread protest across the country.

The impact of Jordan’s crisis

Amman has the highest cost of living in the Arab world but many Jordanians feel that the higher cost of living is not offset by increased salaries or government services.

“The typical rent for a four-room apartment is at least 350 Jordanian dinars (€420, $490) per month. And if the average income is 400 dinars, you can imagine that there won’t be much left over. On top of that are health expenses, and those for education. There’s a state-funded education system, but the middle class wants to guarantee their children a good education. So children are often enrolled in private schools, which of course cost money,”  Tim Petschulat, head of the Friedrich Ebert Foundation’s Amman office said.

Jordan is not rich in natural resources like Saudi Arabia or Iraq. The country has a large military expenditure due to conflicts in neighboring countries. Jordan is also home to one million Syrian refugees, but the country has only received a small portion of the international financial assistance promised to them for Syrian refugees. International donors have only disbursed one-fifth of 4.8 billion euro needed for the current year, as the UN’s refugee agency (UNHCR)  said.

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