Jordanian PM resigns but FDI likely to remain stable

Jordanian prime minister Hani Al-Mulki resigned on June 4, following several days of protests against tax hikes proposed by the International Monetary Fund (IMF) aimed at reducing Jordan’s debt. King Abdullah of Jordan has named Omar Al-Razzaz, previously education minister in Mr Mulki’s government, as interim leader to form a new government.

Hasnain Malik, equity strategist at Exotix Capital, said the identity of the new PM is less important for foreign investors than factors such as currency stability, the stability of the political system under the king, the sustainability of government debt, and the transparency and predictability of the tax regime.

“There appears very little risk on the currency given the strength of reserves. A change in PM has historically defused domestic political tension and one would expect that to repeat this time but there is no guarantee. [However], clearly the ongoing [need] for fiscal change and debt reduction are made more uncertain given that their introduction was the spark for these protests,” said Mr Malik.

Emma Whiteacre, country analyst at political risk insurer Beazley, said that Mr Mulki’s resignation could mark a turning point. “His replacement [Mr Al-Razzaz], who has market-friendly Harvard and World Bank credentials, should have a little more political capital. This should enable him to make some concessions while pursuing a mildly watered-down version of the fiscal adjustment, which remains essential to long-term economic stability. Investors in Jordan will have a relatively robust attitude towards political risk, but my sense is that there are still significant investment opportunities,” she added. 

Economic struggles

Protests have occurred since May 30 against alleged corruption and IMF-driven policies that led to recent tax increases and subsidy cuts. A steep general sales tax hike was implemented earlier this year, alongside the abolition of subsidies on bread, a staple item for the poor.

Moreover, fuel and electricity prices were raised and an income tax bill was proposed. Jordan’s economy has struggled in recent years for several reasons, including the country’s acceptance of more than one million Syrian refugees. Unemployment is high at around 15%, said the IMF.

Such protests have not been seen in Jordan since the Arab Spring of 2012. Although demonstrations are ongoing – despite the resignation of Mr Mulki – they have largely been peaceful and focused on economic grievances, not the stabilising leadership of King Abdullah II.

“The lesson of 2011 across the region was not to underestimate the momentum of protests, and it is unclear whether the sacrifice of another PM [the king has appointed 11 since 2000] will defuse them. But, at this stage, we do not envisage a crisis for the regime,” said Mr Malik.