Jordan’s Momentum for Economic Reforms
There is no doubt for the international community and the Jordanian authorities that 2021 was to be yet another challenging year for the Hashemite Kingdom of Jordan and Jordanians. 2020 saw the coronavirus pose one of many exogenous shocks to the Kingdom, after a decade of socioeconomic strains ranging from an influx of Syrian refugees, closure of physical borders with some neighboring countries due to security concerns, and threats to energy supplies. These events put pressure on Jordan’s fiscal expenditure over time, causing a need for fiscal consolidation and a simultaneous rise in debt, since then, cries for economic and political reform have grown louder from the public.
However, Coronavirus is arguably a different case; propelled by lessons of the shocks of the past, Jordan’s economic policy responded in a timely manner to COVID, and – in actuality – the government used the opportunity of the crisis to enact healthy economic reforms.
The initial response taken by the government was able to mitigate some of the effects of COVID. As a preventative measure, the government implemented a full lockdown in March 2020. In order to minimize the lockdown’s damage on the Jordanian economy, certain sectors that contribute to employment and Jordan’s Gross Domestic Product were kept open in enclosed conditions. The Ministry of Finance also aimed to ease the initial shock on cash flow of citizens by delaying tax filings and other government fees. However, while many governments worldwide took such measures to cushion the blow of COVID, one more unique characteristic of the government’s economic policy during this period is that, over the course of the year, it’s economic reform drive did not decelerate, as one would expect.
Rather, propelled by COVID conditions, the government pushed forward many liberalizing and transparency-enhancing measures. For instance, the government introduced regulations to improve access to affordable daycare, as well as offering working mothers the option to work from home during COVID.
Flexible work became authorized by the Social Security Corporation, and Social Security requirements for start-ups and certain sectors were lowered in an effort to lower barriers of entering the workforce. On the transparency side, the government drafted a new Illicit Gains Law to increase transparency and began publishing all expenditure related to COVID-19. These reforms are significant shifts in the government’s approach to fiscal expenditure.
But the most significant of the reforms conducted were those related to encouraging tax compliance. Maintaining his promise to citizens that he would not raise tax rates on citizens, the Minister of Finance, Dr Mohamad Al-Ississ, underwent a robust and scientific anti-tax evasion institutional reform, leading to a more equitable revenue collection, maintaining his promise to citizens that he would not raise tax rates. The Income and Sales Tax Department (ISTD) digitized its internal processes, building digital interfaces to cross-check information for better risk-based auditing. As a result, although the ISTD conducted 50% less on-site inspections, they generated approximately 50% more revenue in tax differential profits from the audits conducted.
On the citizen interface side, the ISTD shifted many of its services online, with increased use of e-filing, e-payment, e-refunds, e-registration, and online clearance letters. For example, 75% of 2020 returns were submitted through e-filing, compared to 6% in 2016. Also, the ISTD ceased the requirement for paper-based tax clearance requirements and shifted into an online database applicable at all governmental entities. Previously, this was the top physical transaction at ISTD. Finally, SMS messages are now applied to remind taxpayer of unfiled returns, auditor appointments, and so on.
The most recent manifestation of the government’s fiscal response to COVID has been the 2021 General Budget, which included within it many strategic levers to address COVID’s impact on the economy, including an increase in capital expenditure; an increase in social safety net spending under the National Aid Fund; and budgeted allocations for the Government to repay a legacy of arrears to the private sector in order to inject liquidity.
In February 2021, the Jordanian House of Representatives (HoR) deliberated and endorsed the first budget of the 19th Parliament, which was submitted to the new Parliament immediately after the 19th Parliamentary Elections and its subsequent procedures [the elections of the HoR’s Permanent Bureau, Parliamentary Committees and Blocs, concluded on December 26th].
111 of the 130 parliamentarians delivered response speeches to the initial draft of the budget as independent MPs and representatives of parliamentary blocs, addressing matters of overall importance to the constituents they represent – matters that went beyond the scope of the budget. This included: economic reform; services and development [need to introduce technology in different sectors in response to the requirements of the new situation in light of the pandemic]; administrative reform and fighting corruption; human rights and support of the judicial system; security; political reform; foreign affairs; and enhancement of the role of media.
It can be argued that the government’s reforms minimized the damage that COVID could have reaped on the economy, and therefore further support should be offered to Jordan in order to encourage such reforms in the future [both in Jordan and elsewhere]. Jordan successfully passed its Second Review by the International Monetary Fund in July 2021, a review which included one of the heaviest volumes of Structural Benchmarks and required reforms amongst all IMF programs. Jordan’s Ministry of Finance also, despite pressures on its fiscal stance, met all fiscal targets set by the program. With the maintenance of macroeconomic stability, the Government maintained its Sovereign Credit Ratings with Fitch, Moody’s, and Standard & Poors, and demand for the Jordanian Eurobond issuance in 2020 was therefore six times oversubscribed.
With the impact of previous years and the inability of these policies to quell the wave of COVID on citizen’s liquidity remains. Therefore, when the 2021 budget was introduced, MPs speeches and deliberations during the budget discussion showed a strong need to accelerate the economic reform process in Jordan.
Economic reform was addressed by 109 MPs highlighting the most difficult budget in the history of Jordan; the challenges of the national economy and their repercussions on the economic performance of 2021, including low economic growth rates; high unemployment rates [almost a quarter of the population and a half of the youth]; widespread poverty; increase of debt; and -as in the rest of the world- the severe impact of COVID-19 on businesses and establishments. This sends a clear message: the reform momentum cannot be taken for granted by the international community – it must be rewarded through further encouragement and support from Jordan’s international partners.