Opinion

Jordan and Lebanon Are Going Broke and Israel Should Worry

Living on heavy debt, Jordan and Lebanon face unpopular but inevitable cures like raising taxes. Wait for the 'good war' to erupt

Protesters are seen in front of parliament in Amman, Jordan February 1, 2018. The sign reads "Don't raise prices"
Muhammad Hamed, Reuters

With civil war raging in Syria to Israel's north and a deadly conflict in Sinai between the Egyptian government and local Islamists to Israel's south, it’s tempting to ignore what’s happening with our other neighbors.

By Middle East standards, Jordan is a citadel of stability, and even though the threat of war with Hizbollah is ever-present, Lebanon has been a placid place since its own civil war ended in 1990.

That may be about to change. Jordan and Lebanon have been living on borrowed time economically, which has left them saddled with unsustainably high levels of debt. Now they have little choice but to take unpopular measures like tax hikes and subsidy cuts.

That’s just the kind of thing that ignites popular protests that risk toppling governments, or worse.

Greece on a good day

Both Lebanon and Jordan have been hit hard by the Syrian civil war. Syria was a major export market for Jordan and Lebanon, and was Lebanon’s only land-based trade corridor. Six years of fighting just across their borders has done little to help investor confidence.

But worst of all, the war sent a flood of refugees into both countries. Today, Lebanon is hosting about 1.5 million Syrians, equal to a quarter of its population and the highest number in the world on a per capita basis. Jordan has "only" 660,000 Syrians, but it also has close to100,000 others from Iraq and elsewhere, meaning close to one out of 10 inhabitants is a refugee.

That should give some pause for thought to the Israelis so worried about our ability to absorb a mere 38,000 African refugees. Our refugee population is tiny by comparison, and the Israeli economy is strong and dynamic, and can easily make use of their labor.

That’s not the case for Jordan and Lebanon, which have been struggling with low rates of economic growth and high unemployment for years. Neither country has any competitive assets to help them thrive in the global economy: instead they have muddled along on a mix of foreign aid and money sent home by expatriates. Nor has either country addressed its problems with any courage, which isn’t surprising.

Jordan has a long history of living off foreign assistance. Until last year it was getting hundreds of millions of dollars a year from the Gulf oil powers and another $1 billion from the United States. Lebanon relies on expats depositing money in local banks to keep its economy steady. The government itself is completely irresponsible and has succeeded in passing just one budget in the last 12 years.  

Both countries have instead opted to ignore their problems and engage in expansive fiscal policies that  were politically popular but left them with big debts. Jordanian public debt has swelled to 95% of gross domestic product, from 71%, in eight years. Lebanon’s situation is even worse, with debt is now equal to 150% of GDP. The International Monetary Fund predicts it will reach 180% in five years if nothing changes.

Just to give an idea about how serious those levels of debt are, Greece’s red ink was at about 130% of GDP when its financial crisis exploded a decade ago.

Day of reckoning

Lebanon seems intent on putting off the day of reckoning. It approved tax hikes last autumn and is promising some minor spending cuts in its 2018 budget, but none of this going to change the fundamental situation of growing debt and sluggish economic growth. It secured commitments for $11 billion, mostly in the form of loans from Western and Arab countries for infrastructure development, which if acted on, it might give a boost to the economy. But given how dysfunctional the state is, the money is unlikely to be spent wisely. Anyhow, it will also add to its red ink.

To its credit, Jordan is trying to grapple with its debt problem. In February, it unveiled an austerity budget in line with IMF recommendations that raises taxes and cuts subsidies, boosting the price of bread, tobacco and public transportation. Actually, the kingdom had no choice because the Gulf powers have not renewed their aid program. The U.S. has stepped in with some extra money, but not enough to make up the difference.

So far, the reaction of the Jordanian public has been mild, confined to social media and a few scattered protests.

King Abdullah has an advantage of other Arab despots who have imposed austerity, in that he is personally popular and not oppressive by local standards. The king navigated Jordan through the Second Intifada and the Arab Spring, both of which could have led the popular unrest, and didn’t.

But declining living standards are a new kind of challenge that may prove more formidable.

Since Black September in 1970, Israel has been able to count on stability and quiet from Jordan, but we shouldn’t take that for granted anymore.

An economic implosion in Lebanon presents a different sort of problem for Israel. While it would be nice to see Hezbollah spending its days worrying about how to pay bills and to get debt relief, economic pressures could make it more trigger-happy. As Hamas is believed to reason as it contends with economic distress in Gaza, a good war can make a lot of problems go away.  If nothing else, some aid money should emerge for reconstruction.