Fiscal position in the balance

The budget performance in the first eight months of this year gave mixed reading.

Domestic revenues, for instance, rose by 16.2 per cent over the same period of last year.

This is, of course, good news, even though this excellent growth percentage may drop if the non-recurring cash revenues, such as communication licences, are excluded.

However, the problem lies in the fact that current expenditure rose by 12.7 per cent, a very high percentage.

So why did the government allow current expenditure to rise at this high rate, which is almost double the economy’s growth rate in current prices?

This high percentage of current expenditure growth rate may have been even higher if the Ministry of Finance had settled all its obligations to contractors, vendors and others.

The end result is that the budget deficit did not shrink, as was hoped and promised, but increased, especially when the proceeds of foreign grants dropped at the same time by 10.6 per cent in comparison to the same period of last year.

This negative point may be reversed during the last quarter of the year, as some grants are slated for that period.

Budget performance this year gives an indication of what will happen to next year’s budget, as there are no radical changes in the fiscal and economic policies now practised.

Yet, the minister of finance, to his credit, obtained the prime minister’s approval for a decision not to allow current expenditure in 2015 budget to be higher than the 2014 figure.

In effect, current expenditure will freeze at the present rate.

Again, this is good news, but can the government achieve this objective and carry on, in 2015, at the zero growth rate of current expenditure?

Many observers doubt it, but one has to wait and see, giving the minister of finance the benefit of the doubt.

The rate of self-sufficiency, during the first eight months of this year measured by the percentage of current expenditure covered by domestic revenue has risen from 85.9 per cent in 2013 to 88.5 per cent in 2014, still too low.

It is not, of course, acceptable to see the government finance up to 11.5 per cent of its operational expenses by borrowing.

Dependence on loans and foreign grants to finance all capital expenditure and part of running day to day expenses is too high and not sustainable.

During the first eight months of this year, the budget deficit, after grants, reached JD591 million, while public debt rose by JD1,299 million, an indication that the losses of the National Electric Power Company and the Water Company Miyahuna, resulted from subsidies which are covered by government advances and guarantees, reached JD708 million, i.e., at the rate of JD1 billion for the whole year, which should have been included in the budget’s current expenditure section, and added to the nominal deficit.

If that had been the case, the total deficit would have gone up JD2 billion, or 8 per cent of the gross domestic product.