IMF’s public debt projections

The experts of the International Monetary Fund (IMF) working on the Jordanian economy displayed a remarkable capacity to formulate mathematical equations to make their point.

They presented a detailed numerical scenario showing how Jordan’s debt/GDP ratio can decline during the coming five years from 93.9 per cent by the end of 2016 to 77.2 per cent by the end of 2021.

The chart shows projections for annual growth of both debt and GDP in a way that produces the desired outcome. It showed that this objective can be achieved on paper.

The questions are whether it can be achieved in real life and whether it is not a mere exercise to prove that achieving this objective is not impossible, provided that certain conditions are met.

We are of course interested in knowing what are the conditions that, if met, will prevent public debt from rising in five years by more than JD2.1 billion, and make the GDP growth in current prices be not less than JD10.1 billion during the subject period.

In other words, the growth rate of debt must slow down so that outstanding debt is not allowed to rise in five years by more than 11.8 per cent, and that the growth of the GDP must accelerate so that its growth in five years should be not less than 36.1 per cent.

Economists are afraid that debt may rise more than the plan, and that the rise of GDP may be lower than anticipated. And herein lies the problem, because in order for the above projections to come about, the government needs to control public expenditure and reduce budget deficit in a drastic manner while, at the same time, causing the annual economic growth rate to rise to 4 per cent in real terms, 7 per cent in current prices.

The IMF experts are quite aware of the difficulty of abiding by their conditions, therefore they did not distribute the needed changes equally over the five years. They made the early years much easier and the last years stricter.

This way, the programme performance will look successful in the short term, but will become more difficult with the passage of time.

Among the assumptions made by the IMF is that the GDP growth rate will gain speed to rise from 2.8 per cent this year to 4 per cent in the last three years of the plan period.

This may be a reasonable objective that can actually materialise if things go in the right direction.

The fund also projected that inflation will rise gradually but remain at a rather low level, starting with 1.3 per cent this year and ending at 3 per cent in the fifth, and last, year.

It has to be noted in this respect that higher inflation rates help planners reach the required ratios.

The above-mentioned scenario submitted by the IMF is only a starting point. It will be revised and updated on regular basis to reflect the actual performance.

In fact, the World Bank has already revised the economic growth rate in 2016 to be 2.4 per cent.