Foreign Aid: A double-edged sword

Jordan Times

29-01-2025

Jordan receives three main types of foreign aid: grants, development loans and technical support. Grants help fund the government budget and support development or sectoral projects, including priority ones that are coordinated with relevant agencies. Development loans offer favourable terms, such as long repayment periods and low-interest rates, to finance important capital and development projects. Technical support aims to enhance skills and institutional capabilities through studies, expert assistance, equipment, training programs, and scholarships.
According to the Ministry of Planning and International Cooperation (MoP), Jordan received around 2.067 billion dollars in foreign aid through grants and loans during the first half of 2024. This aid included 583.59 million dollars in regular grants and 1.350 billion dollars in concessional loans. The funds came from several donors, such as the United States Agency for International Development, Saudi Arabia, Canada, Kuwait, Germany, the United Kingdom, and other countries, in addition to the World Bank, the European Bank for Reconstruction and Development, and the International Finance Corporation.
According to the Foreign Aid Financing Report from the Ministry of Planning (updated for June 2024), foreign funding totaling around 26.6 million Jordanian dinars was provided to associations, non-profit companies, and cooperative unions. This funding supported 175 projects after receiving Cabinet approval. the U.S. was the largest donor, contributing 42.1 per cent of the total, followed by the European Union with 9.9 per cent, and Germany with 8.1 per cent.
Recently, US President Donald Trump decided to suspend aid to Jordan among other countries for the next three months, raising concerns about its potential impact on the Jordanian economy. US aid has been a vital part of the strategic relationship between the two countries, with the US being one of Jordan's biggest financial and political supporters. However, this decision could also present an opportunity to reconsider the reliance on foreign aid and focus on building a more independent and resilient economy.
According to official figures, 70 per cent of foreign aid is allocated as direct support to the budget, where the external grants constitute only about 7 per cent of total public revenues. On December 9, Jordan signed a US grant agreement worth 845.1 million dollars, part of a 10.15-billion-dollar memorandum of understanding between the United States and Jordan for 2022. This grant is aimed at supporting the budget, education, healthcare, and water supply in Jordan.
Jordan's economy has demonstrated remarkable resilience in dealing with crises throughout its history. The country has overcome challenges far more severe than the current regional situation and emerged stronger each time. While foreign aid has played an essential role in maintaining economic stability and addressing basic needs, relying on it long-term could impact stability. Aid often comes with conditions tied to the interests of donor countries, and continued dependence on it may delay sustainable development, reducing the country's ability to tackle crises on its own.
On the other hand, Jordan has significant unexploited potential in various sectors, including agriculture, industry and tourism. For instance, stimulating investment in tourism could boost GDP by as much as 5 per cent annually. Instead of focusing on the short-term impact of aid cuts, this decision should push the government to explore long-term solutions for building a strong and sustainable economy. These include increasing local production, promoting exports, and diversifying international trade partnerships. Moreover, improving the use of natural resources like phosphate and potash, along with strengthening partnerships with the private sector, could help reduce the budget deficit over time.
A useful example to draw from is Singapore, which transformed its economy from relying on foreign aid to becoming one of the world's strongest economies by focusing on investments in education, technology, and infrastructure. Jordan also has a talented workforce that can be utilized if the right environment for innovation and creativity is created.
The self-reliance rate in the 2025 budget is estimated at around 86 per cent (with local revenues covering current expenses), up from 81.6 per cent in the 2024 budget. The decision to halt aid in the coming months will certainly place additional pressure on the public budget, which may impact the government's ability to finance development projects and provide essential services. However, the negative effect will be manageable if the government views this challenge as an opportunity to reassess its economic strategy, set new priorities, and build a more independent economy. Achieving this requires a clear strategic vision and ongoing efforts to diversify income sources and develop productive sectors. Financial self-reliance is not easy, but it is the only path to a more stable and prosperous future for Jordan and its people.
Raad Mahmoud Al-Tal is head of Economics Department – University of Jordan