Public debt exceeds budget deficit

Jordan’s public debt has been rising steadily year after year because its budget deficit had to be covered by borrowing.

Things being so, the additional debt in any given year must be equal roughly to the budget deficit.

For some reason, however, this straightforward formula did not work.

During the first half of this year, budget deficit stood at JD354 million, while public debt rose by JD 995 million in the same period. The difference of JD641 million needs to be explained.

One wonders why debt rose three times more than the budget deficit. Where did the money go?

The reason for the discrepancy is that certain public expenditures are not recognised in the budget books of account. They are financed by bank credit facilities guaranteed by the Treasury.

A prominent example is the cost of subsidising electricity, which is treated as a loss in the books of the National Electric Power Company (NEPCO), 100 per cent owned by the government.

Loans and bonds to finance the losses go directly to the public debt, without influencing the formal budget deficit. The budget, therefore, does not reflect the actual facts anymore. 

The same is the case with the water subsidy. It also finds its way into the public debt without having to go through the recurring expenditure section in the central government’s budget.

In this respect, it should be stressed that NEPCO’s accumulating losses exceed JD5 billion, representing the accumulated losses on electricity resulting from selling the power at a tariff that does not allow cost recovery. 

Such losses should have appeared in the current expenditure section of the budget, just like the subsidies on bread, fodder, cooking gas, etc.

One wonders why the government uses this accounting method that does not allow the budget reader to realise the fact.

Why does the Accounting Bureau, the official government auditor, allow this to be the case without objection?

International Monetary Fund experts also speak of the artificial budget deficit as if it were the real deficit. 

They express satisfaction that this deficit is declining as planned, even though it would have risen if the cost of electricity and water subsidies had been brought into account as a recurring expenditure, not recognised by the budget. 

Apparently, the government is adopting this misleading method of accounting to give the impression that the budget deficit is less than 5 per cent of the gross domestic product, while in fact it is above 10 per cent.

The government will be able to claim that the budget deficit is lower than last year, which would have been, of course, an achievement had it not been for the fact that debt has more than doubled the formal budget deficit.

The financial problems Jordan is facing need financial, not accounting, solutions.