Jordan price hikes add to instability fears

Jordan seeks revenues to deal with a debt-riddled economy.
Sunday 04/02/2018
At critical juncture. Jordanians protest in Amman against rising prices and the government's decision to impose new taxes on many goods and services, last February. (Reuters)
At critical juncture. Jordanians protest in Amman against rising prices and the government's decision to impose new taxes on many goods and services, last February. (Reuters)

LONDON - Jordan is increasing the prices of fuel and bread as it seeks revenues to deal with a debt-riddled economy after parliament set its budget for 2018. The decision is expected to draw a public backlash at a time the kingdom is marred with issues, including terror threats and the burden of hosting hundreds of thousands of refugees.

The 2018 State Budget Law will mean imposing sales taxes on items, such as sugar, tea rice and milk, that that had been exempted. The government said poorer citizens will be compensated in cash each month to make up for the hike in bread prices.

The tax hikes come as resource-poor Jordan faces a public debt of approximately $35 billion, equivalent to 90% of its gross domestic product. Taxes on fuel are being increased from 24-30% and the price of bread doubled as of the start of February, Jordanian newspapers reported.

The tax on fizzy drinks is to jump from 10-20% and cigarettes are to cost $0.28 more per pack than previously. A value added tax of 5% will be imposed on jewellery.

The government, which hopes to increase tax revenues by $761 million, pledged “financial aid” to struggling families affected by the price hikes. The Finance Ministry began compensating low-income families, allocating each member $38 for the year.

Last year, price hikes on an array of goods and services, including internet and mobile phone use, bread, domestic fuel, petrol, cigarettes and fizzy drinks, sparked protests during which demonstrators called for the cabinet to resign.

In 2016, Jordan secured a $723 million, 3-year line of credit from the International Monetary Fund to support economic and financial reforms.

“It is one thing to impose higher sales taxes on luxury goods but to impose them on basic necessities of life is contrary to common sense and justice,” said an editorial in the Jordan Times.

“The right to health includes access to not only medical treatments but also to medications that are essential part of medical treatment,” said the editorial. “True, the government needs to raise revenues to keep the wheels of the state turning but this should not be at the expense of basic necessities of life.”

Approximately 80 members of parliament demanded the government cancel the tax increase on medicine. “The government has ignored the will of the House in its decision to increase the tax on medicines from 4-10% that will shake the social security umbrella, especially due to the tremendous pressure on citizens as a result of this government’s continued hikes to prices,” the lawmakers wrote in a memorandum to be forwarded to the government.

Jordan’s economy has been rattled by the conflicts in Syria and Iraq, stretching its meagre resources.

The UN refugee agency said approximately 680,000 Syrians fled to Jordan since the start of the conflict in their country in 2011. Jordan says it hosts 1.3 million Syrians and that it has spent more than $10 billion supporting those refugees.

Jordan, along with Greece and Cyprus, called for more effective support to countries on the front line of the Middle East refugee crisis.

“It’s an international concern and host countries like Jordan need the world’s support,” Jordanian King Abdullah II said after a meeting with Greek Prime Minister Alexis Tsipras and Cypriot President Nicos Anastasiades in Nicosia on January 16. “We are shouldering an immense refugee burden and cannot be left alone as we undertake this humanitarian responsibility on behalf of the world.”

A US decision to withhold $65 million of its $125 million in funding for the UN Relief and Works Agency for Palestine Refugees (UNRWA) is also likely to hurt Jordan. It is home to the largest number of Palestinian refugees and their descendants, with nearly 2.2 million people eligible for UNRWA services. This has turned the UN agency into a major contributor to social welfare services in the country.

Most of the Palestinians eligible for UNRWA services in Jordan hold Jordanian citizenship and some argue that this ended their refugee status but most maintain that UNRWA services are vital to supporting an important US ally. Jordan, which has played a crucial role in the US-led battle against the Islamic State (ISIS), is also facing terror threats.

More than one-third of Jordan’s young people are without jobs, turning them into potential targets for recruitment by extremists. Earlier this month, Jordan’s intelligence service said it arrested 17 people suspected of links to ISIS and of planning attacks in the kingdom.

The service “foiled… a major destructive terrorist plot planned by a terrorist cell loyal to Daesh during November 2017,” it said in a statement, using an Arabic acronym for ISIS.

The group planned to carry out “several simultaneous terrorist attacks aimed at shaking national security, creating chaos and terrifying citizens,” it said.

Jordan’s intelligence service did not specify the nationalities of those arrested but said it seized weapons and other materials that were to be used in the attacks.

The targets included “security and military bases, commercial centres, media channels and moderate clerics and the suspects planned to fund them by robbing banks and selling stolen cars, the statement said.

Thousands of Jordanians are believed to be followers of ISIS and al-Qaeda.

The kingdom was hit by four terror incidents in 2016, including a suicide attack in June that killed seven guards near the border with Syria that was claimed by ISIS. In December 2016, an attack claimed by ISIS killed seven policemen and two Jordanian civilians as well as a Canadian tourist.