Ending Subsidy for Water Prices and Reviewing Economic Austerity Policies- Ahmad Awad

The recent decision by the Jordanian government to phase out subsidies for water prices comes within the context of ongoing economic austerity policies that have been implemented for approximately three and a half decades. These policies aim, in part, to end the subsidies for basic commodities, and instead to provide direct support to those most in need.

This decision sheds light again on the feasibility and effectiveness of policies abolishing subsidies for basic and strategic goods and commodities. This approach has been actively put in practice since the first agreement between the government and the International Monetary Fund for economic restructuring in 1989. It is considered one of the fundamental pillars of financial austerity measures, which the IMF identifies as a primary approach to ‘economic reform.’

It has to be stated that there is no consensus among philosophers and economic thinkers worldwide regarding the feasibility, validity, and effectiveness of financial austerity policies, including ending subsidies. The majority of different economic schools and ideologies continue to emphasize the importance of the state’s commitment to subsidize the prices of basic and strategic commodities, and consider it an important measure to ensure economic stability and decent living standards for citizens, as well as a means to secure their economic and social rights.

It is important to understand that that these policies came as a result of the “Reaganism and Thatcherism” that came prominence in the1980s, and that demanded the state’s withdrawal from its responsibilities towards society. The IMF, one of the most prominent supporters of this approach, imposed these policies on various countries, including Jordan, leading to the exacerbation of the economic and social challenges facing its citizens. These became known as as the “Washington Consensus” policies.

However, the majority of the world’s countries withdrew from this approach relatively quickly. Many countries, including the United States – one of the world’s biggest economic powers and one of the main defenders of the free market economy – along with Western European countries, continue to subsidize basic commodities, understsanding the importance of state intervention in ensuring economic and social stability. This is illustrated by the support these governments provide to both crop and livestock agriculture, public transport prices, children’s goods, and others.

In the case of Jordan, the insistence of the IMF on abolishing subsidies has had a long-term impact over more than three decades, affecting the access to basic commodities for citizens and residents alike. The intended goal was to preserve the state’s resources, with the aim of reducing the general budget deficit and ensuring the state’s ability to pay off its debts. In contrast to these objectives, the outcomes proved unsatisfactory, marked by a persistent rise in the budget deficit and public debt, both in absolute terms and as a percentage of Gross Domestic Product.

In reality, experience has proven that the results of implementing this policy have been harmful and ineffective, despite the government’s narrative of economic success and presumed stability. The tangible indicators tell a different story. The increases in poverty rates, unemployment rates, and public debt, in addition to a continuous pattern of general budget deficit, and the decline in the living standards for the majority of citizens are clear evidence of the ineffectiveness of these policies.

The justification of successive governments and experts from the IMF was based on the belief that subsidy should be directed to those most in need, not by subsidizing the commodity itself, as the wealthy benefit more from this kind of subsidy. Reality has shown that these justifications were short-term arguments used to justify the decisions to eliminate subsidies, as the promised compensation processes for those most in need have not extended for more than a year after abolishing the subsidy. This is what happened for compensation mechanisms after subsidies oil derivatives, bread, and electricity have been abolished.

In conclusion, the recent decision to end water subsidies is expected to increase the pressure on the living standards of the vast majority of citizens. It is likely to deepen social inequality more and more, especially as the government has no plans to increase the income of workers, and low-wage policies remain in place.