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Former finance ministers say present approach to economy unworkable

By Omar Obeidat - Apr 25,2016 - Last updated at Apr 25,2016

AMMAN — Former finance ministers say the government needs to change its fiscal policy in order to achieve debt relief in the medium-term as requested by the International Monetary Fund (IMF).   

Jordan and the IMF have over the past six months been engaged in "tough" talks over a new credit facility, demanding the government to present a serious plan to reduce the public debt from its current level of around 93 per cent of the gross domestic product (GDP) to 80 per cent by 2021 before approving the Extended Fund Facility (EFF) that would give the Kingdom access to hundreds of millions of dollars in cheap financing. 

In separate phone interviews with The Jordan Times Monday, former finance ministers Mohammad Abu Hammour and Marwan Awad see the IMF condition as difficult to achieve in light of current government fiscal policies, which they described as growth-hampering. 

The IMF also requested a plan for higher revenue generation, according to informed sources. 

Jordan and the fund have been in talks over the new programme for almost six months. 

Finance Minister Omar Malhas said Monday that the condition was “difficult” to meet in light of the regional instability that hit investment inflows hard (see separate story). 

The demands of the IMF have prompted the government to seek the support of major allies such as France. 

Last Tuesday, French President Francois Hollande indicated during his visit to Jordan that the government had asked Paris to support Jordan’s negotiations with the IMF over the EFF that would give the Kingdom access to financing facilities worth hundreds of millions of dollars.  Hollande pledged to offer support. 

An informed source told The Jordan Times that Jordan also requested the support of the US. 


Growth-oriented policies needed


Abu Hammour said the government has to control its spending in order to curb deficit and indebtedness and also has to draw growth-oriented policies by reducing taxes to stimulate the private sector to create job opportunities. 

Recalling his experience as finance minister in 2010, Abu Hammour said the government at that time lowered tax rates on businesses and individuals and also controlled its spending, which he said resulted in a JD1.5 billion drop in the budget deficit. 

“We have been warning for three years against the approach of this government in dealing with the financial situation. The government sought raising taxes as the only option to enhance revenues,” he said, stressing that such an approach has slowed down growth and negatively affected exports and investment inflows. 

The former minister also urged the government to seek debt for development swap and debt forgiveness agreements with creditors as the per capita income in the Kingdom was hit hard by the waves of Syrian refugees, explaining that Jordan was classified by international financial organisations as a high middle-income country some five years ago, but currently it has to be classified as low middle income due to the sharp rise in population caused by the five-year Syrian crisis. 

“Being a low middle income country makes Jordan eligible for debt for development swap and debt forgiveness,” Abu Hammour said, noting that Jordanians’ incomes have seen a 5 per cent drop in the past three years. 

In regards to the IMF request to lower debt to 80 per cent of the GDP, the former official, who is currently secretary general of the Arab Thought Forum, said the condition is hard to meet and it could hit growth again if the government decides to increase taxes, indicating that authorities need to have a strong negotiation power. 

Awad also expressed same doubts about the government’s ability to present a sound debt relief programme for the short and medium-terms as public debt continues to keep an uptrend. 

Awad said the government should have worked on securing grants instead of cheap loans for hosting hundreds of thousands of Syrian refugees, noting that some of the concessionary loans Jordan received from donors will have to be repaid as bullet payment, when the payment of the entire principal of the loan, and sometimes the principal and interest, is due at the end of the loan term.

“To address public debt you have to maximise revenues but not through more taxes because that harms the economy,” he said, suggesting to focus more on revenues from higher investments that could be lured by better legislation, regulations and practices in addition to attractive tax rates. 

“We have to look at the experience of Dubai in attracting investments. It is an experience that we can learn from,” said Awad, who served as finance minister between 1996 and 1997. 

He also called for reviewing the performance of the government agencies that represent a burden on the budget and the indebtedness of the country, noting that the public sector needs to undergo dramatic changes in terms of its size though closing some agencies might be difficult in the current social conditions. 


Awad cited the tourism sector as other means to generate more revenues and create jobs but with out-of-the-box strategic planning and promotion.

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