Jordan: Tax increases spark protests across the country

31 March 2017

Jordan will experience low-level protests in the short term outlook in opposition to tax rises and the purchase of gas from Israel’s Leviathan gas field. Public debt levels will remain elevated despite the government’s attempts at fiscal consolidation, heightening sovereign credit risks. Attempts to develop domestic renewable energy capacity will create investment opportunities for international companies.

Security Environment

There is an elevated risk of low-level protests and civil unrest in opposition to sales tax increases announced by the government in January 2017. In February 2017 hundreds of people protested in a number of cities, including Amman, Karak, and Salt, calling for the prime minister’s resignation and a reversal of tax hikes. Continued protests of this nature are likely in 2017, and although they are unlikely to lead to violence or property damage, investors should be aware of the potential for business interruption in urban areas. The agreement to purchase gas from Israel’s offshore Leviathan gas field has also been subject to domestic criticism in Jordan.

Half of the Jordanian population is of Palestinian origin, and the decision to engage with the Israeli state in energy policy has been controversial. A poll at the time of the deal suggested that 90% of Jordanians opposed the Leviathan gas purchase agreement. In September 2016, hundreds of Jordanians protested the deal in central Amman. This was followed by a larger protest in October 2016, which attracted thousands of people and was organised by a coalition of civil society groups, lawyers and activists.

Trading Environment

Jordanian public debt will remain sizeable and elevated in 2017, despite ongoing efforts at fiscal consolidation. By the end of 2017, total government debt is forecasted to reach 96.3% of GDP, an increase on the 95.2% of GDP seen in 2016. This is the second largest public debt load in the Middle East and North Africa region, behind Lebanon’s 137.9% of GDP.

The government has started to implement reform measures aimed at reducing the debt burden. The 2017 budget contains provisions to raise an additional USD 643 million through increased taxes and tariffs. These measures will also allow Jordan to meet the terms of the three-year USD 723 million Extended Fund Facility, which it signed with the International Monetary Fund (IMF) in August 2016.

Despite these measures, significant structural weaknesses will persist in Jordanian public finances, elevating  sovereign credit risks. Financial stability is dependent on the continuation of sizeable foreign aid inflows. Between 2011 and 2015, the budget deficit averaged 5.3% of GDP, when incorporating foreign grants. This figure was 8.9% of GDP when foreign grants were excluded. In February 2016 Jordan secured approximately USD 700 million in grants from international donors to support the country’s refugee response plan in 2017/18, and this should ensure the stability of foreign aid flows in this period.

Investment Environment

Developing domestic renewable energy sources is central to the government’s energy policy, creating opportunities for investors in this space in the medium term. The Ministry of Energy and Mineral Resources has estimated that Jordan relies on imports for 97% of its energy needs, and is keen to increase domestic energy supply to improve Jordan’s energy security and reduce import costs. In December 2016 the government announced its plans to tender 300 megawatts (MW) of solar and wind power projects by the end of 2017.

This will contribute to the country’s aims to source 10% of energy (1,500 MW of capacity) from renewable sources by 2020. To support the renewable energy sector, the government has created a supportive regulatory environment to attract further investment. This includes energy production payments, tax reductions and net metering, whilst the use of auctions has reduced solar power costs and made the sector competitive with fossil fuels. As a result, non-hydropower renewable capacity is forecasted to reach 1 gigawatt by 2025, up from less than 200 MW in 2015.

graph showing risk pricing table for Jordan

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Turkey, Peru, Somalia and Argentina, all of which have been the subject of recent enquiries from JLT's client base.

Spider chart of JLT World Risk Review Ratings

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com

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