Did economic reform programme fail?

At a press conference convened in Washington, DC on November 18, 2014, the head of the IMF mission in charge of following up on the progress of Jordan’s economic reform programme, Kristina Kostial, said that the objective of the programme is to reduce public debt in a way that does not hurt the economic growth rate.

If that was the sole, or the main, objective of the programme, it should be considered a failure because the opposite is the outcome. 

The programme is supposed to be achieved in the course of three years; as the period is due to expire in a few months, the outcome cannot be expected to change.

Public debt during the first two and a half years of the programme did not rise only in absolute figures; it also rose as a percentage of the gross domestic product.

Unfortunately, what actually happened is the objective in reverse.

The programme started when Jordan’s public debt was equal to 71 per cent of the GDP. At that time, the debt had already crossed the legal red line of 60 per cent of GDP.

However, the IMF now expects the gross debt to have reached 89 per cent of GDP by the end of 2014. The World Bank says it is 90 per cent.

Debt, net of government cash deposits with banks, is much less.

Neither the IMF nor the government admits that the programme has failed to achieve its objective. On the contrary, the IMF mission chief congratulated the government for its achievements under the programme.

She confirmed repeatedly that the programme was broadly on track, going in the right direction and according to plan, a contradiction that needs to be explained.

The ready excuse for failing to reduce debt is the difficult, unexpected regional circumstances which affected Jordan, especially the interruption of the flow of Egyptian gas, the rising cost of generating electricity and the troubles in neighbouring Syria and Iraq.

The above excuses are of course valid. To them one can add the huge influx of Syrian refugees, whose very high cost was not met by the meagre Arab and other foreign financial aid.

On the other hand, one can challenge the above figures of ratio of debt to GDP to prove that they are much lower than estimated by the IMF and the World Bank.

In fact, net outstanding debt at the end of 2014 did not exceed 82 per cent of the GDP. 

Jordan is now at the point of making a decision on the future of its economic reform programme, executed in cooperation with the IMF.

Either it will apply for extending the present three-year programme for two more years or it will negotiate with the IMF a new three-year programme.

The latter option is more likely to be chosen.

The Ministry of Finance is already working on a new three-year reform programme, 2015-2017, to be presented soon to the IMF for consideration.

The objectives of the coming three years will be to reduce budget deficit in, phase out electricity and water subsidies, raise the economic growth rate, generate more jobs and improve the investment environment.