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French Version

Despite real growth in 2004 : Budget 2005 burdened by debt service

"Next year’s budget would be outlined different to previous years, where we will fix ceiling limits for public expenditure and categorize the priorities for public institutions,” said Minister of Finance Mohammad Abu Hammour, noting that there will be no more tax increases in the foreseeable future, but rather insisted on further hikes in fuel prices.

“The government’s five-year plan would enhance the efficiency of the taxation system and propel a gradual increase in fuel prices,” said Abu Hammour earlier this week. He noted that the 2005 budget would offer further financial support for the development projects in the Kingdom.

“We will make sure the projected economic plan would not affect the economy, the treasury or the citizens. It would also balance the public expenditure in a way that enhances justice for all economic sectors in the Kingdom by 2010”. Abu Hammour did not hide his anxiety over the possibility of the suspension of fuel supplies coming from the Arab Gulf states, mainly Saudi Arabia and Kuwait. He said these countries have pledged to support Jordan in the past and hopefully they would keep on in the future. Saudi Arabia would continue to support Jordan with more than nine million barrels in grants for the coming six months, ending on April 30. Its oil supplies were launched in May. “

The continuity of fuel supplies from the Gulf states would help the government to trim down the repercussions of the rising fuel prices in world markets. The government is expected to subsidize the fuel products by JD 300 million in case the price of oil remains below $42 per barrel. A rise of $1 would increase the financial burden on the budget and the economy”. Government Spokesperson Asma Khader denied Monday the Cabinet made a firm decision to raise fuel prices, but said, “A long-term plan is currently under consideration, and would not be ready for implementation before next spring.”

The government’s five-year plan was outlined in view of the International Monetary Fund’s (IMF) “positive reception” of Jordan’s economic and financial performance over the past decade. According to the IMF’s Managing Director, Rodrigo de Rato, the fund would continue to provide “selective technical assistance” that would remain important “to consolidate progress achieved” and assist the government in further improving its policy-making and institutional capacity. Jordan has recently graduated from IMF’s 15-year supervisory programs, in which the Kingdom pursued fixed and relatively strict financial policies to adjust the economy after the 1988 financial breakdown. Last month the IMF established its Middle East Technical Assistance Center (METAC) to enhance the domestic institutional capacity in Jordan and neighboring countries. De Rato maintained that METAC would not replace the other forms of IMF’s assistance, but would deepen its involvement in providing technical assistance toward the financial and economic adjustment. The Center would offer a number of important benefits, including more flexibility in responding rapidly to Jordan’s economic emerging needs, a closer coordination with regional economic and financial organizations, enhancing Jordan’s accountability through its participation in the decision-making process, and producing efficient and sustained support for regional economic integration. “

One of the main challenges facing the region today is stepping to a higher growth path,” De Rato said. “For many years the economic performance of many countries in the region has fallen significantly below its potential. This gap must be bridged if any of these countries (notably Jordan) is to grow to levels sufficient to meet the needs of a rapidly expanding labor force and to achieve real and sustained improvements in the standard of living”.

De Rato praised the government’s Administrative Development Strategy, saying it would meet the IMF’s objectives in the long run. “While the economic policy agenda may differ from one country to another, we see four main priorities in the region: Refocusing the role of the public sector and improving its efficiency; enhancing public sector transparency and accountability; strengthening institutions; and increasing regional cooperation as well as integration into the global economy.”

A recent study by the IMF urged the Kingdom to expedite the projected steps in its privatization program and provide better incentives for the private sector to take part in the process. Abu Hammour said the government is committed to implement “strict financial policies that would preserve the economic growth and maintain the financial stability”. He predicted the economy would grow by about 6 percent at the end of this year, despite the fact that the consumer price index would grow this year to around 4 percent. However, Abu Hammour pledged that the government would raise the per capita real income in 2005 to $2000, up from its current $1670. Economists, meanwhile, believe the government has fallen short of achieving its main objectives. “

Expanding the public debt has reduced the government’s chances to apply the open-market policy,” said economist Bassam Kasasbeh. “Our national interests oblige us to get rid of the rising public debts to redirect the cash we pay in debt service to other beneficial development projects.”

Kasasbeh pointed out that the growing public debt would not have been a “chronic crisis” if previous governments had pursued “more virtuous economic policies over the past 15 years”. “I believe the government must put the issue of public debt as a priority on its agenda and solve it proficiently. A national economic program must be implemented in the coming 15 years to gradually remove the financial effects of debt on the economy,” he said. Among the ideas Kasasbeh proposed is to lessen public expenditure by an annual cumulative ratio, and enhance the Kingdom’s GDP by inviting more investments. “

The GDP increased from JD 2.66 billion in 1989 to JD 7.1 billion in 2003, a fact that helped in reducing the negative effects of public debt on the economy. However, the debt continued to rise in the past four years thus increasing the burden of the debt service,” he said.

Amman,11 15 2004
Ghassan Joha
The Star
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