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How to reform the budget

Feb 28,2016 - Last updated at Feb 28,2016

Had it not been for JD2 billion in subsidies for bread, water, electricity and fodder, the central government budget would have posted a large surplus, which it could have diverted to a productive kind of capital expenditure and managed without having to borrow.

Had it not been for the debt service in principal and interest, the cost of which exceeds JD1 billion, the budget would have shown a surplus exceeding JD250 million.

The Treasury is now paying the cost of debts incurred by previous governments, while arranging for larger loans, the cost of which will be carried forward to future governments.

If the government were able to reduce the cost of salaries, wages and retirement by 15 per cent, by adopting a smaller and more efficient government, it would be able to solve the fiscal problem and reach a stage of self sufficiency, enjoying a budget without deficit.

The budget in its present form and content should not be taken for granted. Several openings could allow dealing with the budget. Alas, most of them are closed.

Subsidies are considered a red line. They are politically untouchable.

Debt service as it exists now is there and nothing can be done about it. In fact, public debt is on the rise not only in absolute figures, but also as a percentage of the gross domestic product. 

Debt is growing faster than the economy.

Salaries, wages and retirement entitlements are rising rapidly. The government still believes that it should continue to function as a major generator of jobs, so much so that the staff in the public sector amount to over 40 per cent of the total labour force, a very high rate that was never reached by a non-socialist country.

In this respect, one has to admit that the above three areas, which could be dealt with to help the budget, are not ripe for a major reform.

Debt service, for instance, is a fact that cannot be changed. However, it is possible to hold it at the level it already reached, instead of allowing it to rise.

If you find yourself in a hole, stop digging, wisdom says.

Achieving a smaller and more efficient government with lower numbers of personnel and higher productivity needs time, which may be long. But in this case, it is important for the proper trend to start, even at the speed of a tortoise.

Touching the bread, water, electricity and fodder subsidies would give rise to those waiting for such a move to condemn the government and deal a blow to security and stability.

However, it may be possible to reduce subsidies gradually. This writer suggested, a long time ago, to raise the price of a kilogramme of bread by one piaster a month for twelve months, so that the subsidy would go down to become no more than half the actual cost.

 

Let us wait and see what the next economic reform programme will say about subsidies and debt, and whether the 10-year vision is meant for implementation or for the window.

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