Jordan’s reforms hit by global economic shocks of war in Ukraine

Electricity subsidies to be lifted as conflict with Russia prompts sharp consumer price rises in kingdom

A driver fills up his car at a gas station in Amman, Jordan, Thursday, August, 13, 2009,as the government issued new fuel prices. (AP Photo/Nader Daoud)
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Shop owners on the main Prince Mohammad Street of Amman are loitering in the road due to a lack of customers.

It's an eerie sign that global economic fragility, accelerated by the Ukraine war, is reaching a country still struggling to recover from the shock of Covid-19. That crisis hammered the vital tourism industry but worse is to come.

Among the idling workers, one exception is solar panel specialist Ayman Badr.

The heating systems Mr Badr imports from Europe are selling briskly, although winter is not the high season.

Jordan is in severe economic downturn and consumer prices are rising sharply, partly due to the global impact on commodities caused by the Ukraine war. Unemployment is hovering at an official record high of 25 per cent.

Many in the kingdom of 10 million expect to pay more for electricity, and soon.

Subsidies on electricity are to be lifted next week, three years after price increases prompted mass anti-government demonstrations across the kingdom.

Unlike his neighbours, Mr Badr is busy answering phones and meeting customers. He accompanies them to the door and listens to their requests intently.

With a sunless March and this year's unusually long winter in Jordan, Mr Badr has been telling potential buyers that a solar water heater will make little immediate difference.

“People are hoping to save money in the long term” he says.

As much as his business acumen, his swift trade is due to policies of the International Monetary Fund and the Ukraine war.

Authorities were already under financial pressure in Amman. They announced early this year that Jordan would begin lifting electricity subsidies on April 1 ― one of the classic IMF requests to restore fiscal stability.

They did not expect the Ukraine-linked upheaval that raised prices across a range of goods needed by people every day.

Jordan said that as of April 1 petrol prices will also rise, after it refrained from increasing the cost at the pump to match the global fuel price surge in recent weeks.

Subsidies drain government finances

Lifting subsidies is a major component of the kingdom’s commitment to the IMF, which gives Jordan crucial support to cope with a massive public debt.

In return it wants Jordan to eliminate losses at the state-owned electricity monopoly.

Annual losses, which the IMF estimated at one per cent of gross domestic product last year, are adding to a public dept equivalent to 92 per cent of the size of the economy.

Jordanian officials say most people will not be affected because they use little electricity and will not be charged more for each kilowatt per hour as long as their consumption remains low.

Hussein Al Labboun, head of the Energy Regulatory Authority, told state television this week that the money saved will support other "economic sectors".

“The subsidies will be used wisely. They will be lifted on those who do not deserve them among the high income class,” he said.

But only those who are officially recognised as heading a family are allowed to register to maintain their subsidy.

Household pain

For Lina, a mother of two, the electricity bill for her middle-class family sometimes tops $140 a month in winter, despite having a solar water heater.

Come April she expects to be paying more.

“No one understands anything,” she says. “We are being hit by soaring prices from everywhere.”

Since the Russian attack on Ukraine on February 24, prices in Amman for a powdered milk bag rose from $10 to $18.

A kilo of sugar rose from 76 cents to 88 cents and cooking oil rose to $2.50 a litre compared with $1.60. Prices of some vegetables and basic processed cheese rose sharply.

The government indicated that aside from monitoring, there is little it can do.

Prime Minister Bisher Khasawneh said price gougers will receive a “red eye”, calling for “partnership” with the state to “lessen the sting of the current circumstances", in particular "the impact of the Russian-Ukrainian crisis”.

In Jordan, the prime minster is in charge of the daily running of the government while all significant powers are held by the monarch, King Abdullah.

The last time the government implemented major IMF loan conditions, in mid-2018, they consisted of raising fuel and electricity prices, as well as increasing taxes.

Peaceful demonstrations broke out in Amman and other cities, forcing the then-prime minister Hani Mulki to resign.

A crackdown on dissent has intensified since and security forces disbanded the Teacher’s Union, a major participant in the protests.

In the last few days, extra police were stationed near the Prime Ministry in west Amman, site of the largest rallies three years ago.

Coffee troubles

Down the road from Mr Badr’s business is a tiny takeaway coffee shop called Yassin’s.

A nearby cash machine is frequented by cars on their way to the neglected old downtown of Amman, and to the poorer eastern part of the city.

Yassin, the owner of the business, has kept his prices fixed at 75 cents for a cup of pure Arabica coffee, although his costs have risen this year from $77 per 10 kilo bag to $88.

He says he should raise prices by 10 cents a cup to maintain his profit margin but he cannot because he will lose even regular customers.

“People are so strapped for money,” he says.

Official data shows that inflation was 1.3 per cent last year, compared with 0.3 per cent in 2020.

Jordan's programme of economic reforms, however necessary, could now be derailed by the global commodity price crisis.

When the government announced in January that it would lift electricity subsidies, it did not expect to be affected by an economic maelstrom of global proportions.

Updated: March 22, 2022, 9:27 AM