The Aid Conundrum

Jordan has received generous amounts of foreign aid over recent years. So why has it had such little impact on the economy?

Jordan has long depended on foreign financial assistance to get by. Aid has played a crucial role in economic development, especially in building the country’s infrastructure. Between 2012 and 2015, however, foreign aid comprised almost 20 percent of the budget’s total revenues. More aid has been received due to the huge influx of Syrian refugees. The Gulf grant for that purpose reached $3.75 billion. The United Sates increased its annual financial grant to Jordan to more than $1 billion. It was declared that the Gulf and the American grants were mainly program oriented financing in order not to use the money in funding the chronically distorted fiscal deficit.

However, the question is what is the real economic impact of those windfalls if they were used for development programs? A rough calculation of the inflows between 2012 and 2016 shows that the government has received over $10 billion in project based assistance. To read the impact of such a huge amount of foreign money one should look into their reflection on three main macroeconomic indicators as well as on the real growth rate. Those indicators are investment, production, and unemployment. If those together were positively affected then the real growth rate should be better. If not, however, then we are in a paradox in which money is being pumped into the areas that are not really helping the economy. The puzzling facts show that investment, production, and unemployment were not better off during this period. Actually, unemployment increased from 11.2 percent to almost 16 percent, while growth fell from 2.8 to less than 2 percent.

This doesn’t mean that the foreign aid is the sole reason for this deterioration. Actually we have to ask what would have happened to the above figures had the generous donors not helped to improve the situation. Nevertheless, we can also ask what if such a huge amount of cash was properly used in areas that are actually needed such as to enhance the ailing infrastructure in the hosting refugees communities, or were substantially used to create proper financing to micro, small, and medium projects. What if the money were directed to engage the productive refugee communities in production projects that could help them gain some income while granting the country better economic growth and even absorbing some of the unemployed youth, especially in hosting communities?

One has to say that the recent use of foreign aid has not been the best in the history of Jordan, which used to be a great example of proper usage of financial assistance. Both the government and the generous donors have to work on acceptable KPIs that are mainly set to make sure that foreign aid is rationally directed towards the main economic development needs of the country. Foreign aid that isn’t directed to what local communities or what the public are in need of are considered nonproductive. Finally, a transparency report should be issued on an annual basis by an independent body to show the implication of foreign aid on the economy. It should also show to what extent the KPIs of any foreign donations has