You are here

Fiscal gap is unsustainable

Feb 09,2014 - Last updated at Feb 09,2014

It is not normal, in an independent state, to have insufficient domestic revenue to cover more than 72 per cent of the budget, but this is the case in Jordan, where the availability of funds to finance the balance depends on the generosity of donor countries and the cooperation of the lending banks.

What if the foreign grants, for one reason or another, cease to flow or are reduced substantially, as happened in 2012 when Arab and foreign grants received until the end of November did not exceed JD95 million out of the expected one billion?

What if public indebtedness gets so big that creditors are no more willing to provide additional credit, worrying that the Treasury may be unable to honour its commitments on their maturities?

These scenarios are troublesome, but not impossible. Some donor countries may decide not to pay what they promised, as Qatar did already.

At one point, lending banks might hesitate to provide more credit facilities; now there is dependence on an American guarantee in order to obtain credit from the international market at reasonable interest rates.

This state of affairs is not normal, acceptable or sustainable.

It is not enough to call on the International Monetary Fund to come over and supervise our fiscal behaviour.

The fund moves one way or another, according to political considerations, as directed by the superpowers that control its policies and operations.

More than a year after applying an economic reform programme under the supervision of the IMF, the wrong trajectory is not reversed or slowed down.

Fiscal business is still going on as usual. Budget deficit continues to rise and so is the public debt.

In fact, debt is rising not only in absolute figures, but also as a percentage of the GDP.

When the government fails to comply with the agreed conditions, the IMF will kindly offer an excuse, such as the difficult regional circumstances, meaning troubles in neighbouring Syria.

Under the so-called National Reform Programme, the fiscal map is still as described above: the financial position depends on the receipt of foreign and Arab grants to finance 14 per cent of the total public expenditure, leaving another 14 per cent to be covered by new domestic and foreign loans.

In other words, some 28 per cent of the needed revenues are not under control.

In fact, new borrowing will exceed 14 per cent of the budget because it has to also cover repayment of old loans that mature during the year, and another JD1 billion to cover the deficit in the budgets of the independent governmental institutions.

The Treasury has to borrow during this year enough amounts to cover the deficit and the maturing instalments.

More than JD2 billion will be the net increase in the stock of debt. It will reach JD20 billion, or 83 per cent of the GDP.

If that is not enough, an official at Jordan’s nuclear commission dared to suggest borrowing $10 billion from Russian companies to build two nuclear reactors.

22 users have voted.


Get top stories and blog posts emailed to you each day.