On January 14, Jordan’s elected parliament approved the 2016 budget law. Ten days later, the monarchy-appointed senate also voted to adopt the budget, a decision welcomed by the government. Yet assessing the bill in the broader context of macroeconomic policy shows that Jordanian fiscal policy only remains sustainable because of immense dependence on foreign aid.

The 2016 budget accounts for total expenses of 8.496 billion dinars ($11.983 billion), total revenues of 7.589 billion dinars ($10.704 billion), and a deficit of 907 million dinars ($1.279 billion), or about 3 percent of gross domestic product (GDP). Revenues are further divided into $9.558 billion from internal sources, such as customs and fees, and foreign aid of $1.148 billion. The 2016 Budgets Law of Government Units, a separate law that details additional revenues and expenses largely by the National Electric Power Company (it also includes water expenses), has total expenses of $2.685 billion and assumes revenues of $2.155 billion (including $88 million in foreign aid), leaving a deficit of $530 million ($618 million excluding aid). Combined, this means that of overall 2016 spending ($14.7 billion), roughly 79 percent is covered by revenues ($11.6 billion), 9 percent by aid ($1.3 billion), and 12 percent is new debt ($1.8 billion).

Despite this high dependence on aid and debt to cover expenses, it appears the pro-government and austerity-averse parliament passed the budget without any revisions, as the figures are similar to those in the original draft bill debated last fall. Some opposition MPs had objected to the government’s few attempts at limited austerity measures, to no effect. And much of the criticism against Prime Minister Abdullah Ensour’s budgetary measures (largely on energy subsidy cuts and increases of customs fees) is lodged without any corresponding alternative economic plan. The only outspoken political dissent is simply opposing fiscal discipline without any serious thought for the economy’s sustainability.

In the past, Jordan’s public-sector-heavy, private-sector-weak economy has staved off insolvency with foreign aid and periodic, substantial reductions in total public debt through privatization. Joining the peace process that led to a peace agreement with Israel in 1994 brought substantial debt relief. In the late 2000s, a series of privatizations substantially reduced public debt, but companies once sold off cannot be sold again. In the last several years, Jordan’s debt-to-GDP ratio has increased substantially. As recently as August 2011 Jordan’s overall national debt was $16.9 billion, about 57 percent of its GDP. But an increase of $3.2 billion in the national debt in 2015—including regular deficit, new electricity debt, and accumulated interest—brought Jordan’s debt-to-GDP ratio to 90 percent and more than doubled its absolute debt in less than five years.

The key factor in the post-2011 debt boom is electricity, or more precisely, the sovereign debt of the abovementioned National Electric Power Company (NEPCO). Until 2011, Jordan imported gas from Egypt at prices frozen at relatively low rates. Following attacks on the pipeline in 2011, Egyptian authorities were slow in repairing it, and Egypt’s contribution to Jordan’s electricity supply fell annually from 87 percent in 2009 to 14 percent in 2012. This forced Jordan to resort to emergency importation and the use of expensive alternatives. Thus by 2013 NEPCO’s contribution to the deficit was $1.36 billion—or over 10 percent of the regular budget. Due to a mixture of falling oil prices and better government planning, the electricity deficit fell to “just” $738 million in 2014 and is projected in the budget to be $530 million in 2016. Accumulated electricity debt came to an estimated 17.8 percent of GDP in January, meaning that excluding this, the rest of Jordan’s debt forms 72 percent of its GDP.

As a limited effort to offset NEPCO’s contribution to the debt spiral, the government undertook an electricity austerity measure in 2015 that is regularly described by parliamentary critics and protesters as “increasing” prices by 7.5 percent (reduced from the original proposal of 15 percent in what was likely a prearranged compromise). Yet it may be more properly described as a subsidy cut for consumers. NEPCO bills residents on a graduated system whereby customers pay exponentially more per unit for higher usage, but even with the price hike it does not charge them enough collectively to cover expenses, and the result is NEPCO’s deficit. The practical implication is that during the summer only the relatively affluent have air conditioning, as a household with high usage will pay over $200 per month, about 40 percent of the average Jordanian family’s income. This system allows poor Jordanians to have virtually free electricity, but only enough to cover lighting with no heating or cooling. Were NEPCO forced to actually balance its budget, much of Jordan would struggle just to pay for basic utilities.

Instead, Jordan is increasingly turning to foreign aid to offset its debt, particularly from the United States and the Gulf. The Congressional Research Service reports that 2016 U.S. aid for Jordan is set at “not less than” $1.275 billion, with additional aid above that level available through separate military provisions. While U.S. economic aid to Jordan dates back to 1951, it has increased substantially in recent years, and was still below $400 million per year in 2011, increasing to $700 million in 2014. Arab Gulf states, especially Saudi Arabia, also provide aid to Jordan, although Qatar’s total freeze on aid has drawn some attention, including by Prime Minister Abdullah Ensour and Finance Minister Omar Malhas during his formal budget speech last December. As of January, the government claimed that Qatar’s aid termination accounted for almost all of the disparity between its original budget deficit of $970 million to a revised estimate of $1.27 billion for 2015.

Officials routinely cite regional instability and resulting refugee flows as the reason why Jordan is so much in need of aid, and there is some truth to this. The country has suffered a drop in tourism due to security fears emanating from its neighbors (although Jordan itself is quite safe), the collapse of trade with Iraq and Syria, and increased expenses from Syrian refugee aid.

Yet aid provided by international agencies to refugees, combined with the increase in direct budget support through foreign aid, appears to be balancing out the refugee costs, as seen from comparing deficit levels before and after recent instability. In 2011 the regular budget deficit was $1.49 billion after including foreign aid, and in 2010 it was $1.44 billion. As noted above, currently estimated corresponding figures for 2015 and 2016 (including foreign aid) are $1.27 billion and $1.28 billion, respectively. And the rough equivalence between 2010-11 and 2015-16 deficits suggests that Jordan’s budget deficit (not counting NEPCO’s) is roughly $1–1.5 billion per year after foreign aid has been factored in. With the World Bank putting GDP at roughly $36 billion, that means that a minimum three percent of GDP is being added to public debt each year, not including electricity debt.

Meanwhile, the government maintains a socioeconomic model burdened by decades of excessive public sector hiring, excessive reliance on low-wage foreign labor as an alternative to employing Jordanians, and an education system known for its production of quantity rather than quality. So even if the regional security crisis were to somehow disappear in the near future, the weakened incentives for foreign donors to provide aid for refugee costs would leave Jordan with a new debt crisis.

This article is reprinted with permission of Sada. It can be accessed online here.

Kirk H. Sowell is a political risk analyst based in Amman, Jordan and the publisher of the biweekly newsletter Inside Iraqi Politics. On Twitter: @uticarisk.