Public finance in deep trouble

The government made good on its plan to shift its borrowing machine from local banks in Jordanian dinars to foreign lenders in US dollars.

Three justifications were offered: avoid crowding out the private sector in obtaining credit from banks; reducing cost of interest; feeding the Central Bank’s reserve in foreign exchange.

However, all three are unfounded excuses that can be easily refuted.

Figures issued by the Ministry of Finance indicate that the public debt denominated in dinars declined during the first half of this year by JD155 million, a good development had it not been for the rapid increase in debt denominated in dollars, to the equivalent of JD1,150 million
($1,621 million).

If this sweeping trend continues unabated, public debt will rise during this year by at least JD2 billion, equal to 7.8 per cent of the estimated gross domestic product in 2014.

This high percentage reveals the real deficit in the public sector finance, including electricity and water subsidies which are not included in the current expenditure section of the central government’s budget, an accounting method that allowed the budget deficit to be less than half the deficit in the public sector.

Data related to the National Electric Power Company, which is 100 per cent owned by the government, was not included in the statement of Independent Governmental Units, as if it were part of the private sector, a fact that confuses figures and statistics and may mislead policy and decision makers.

This also applies to the water company Myahuna.

Assuming that the economic growth rate this year will be in the order of 6.8 per cent in current prices, resulting from a real growth rate of 3.5 per cent and an inflation rate of 3.2 per cent, the GDP this year will be around JD25.4 billion.

In this case, net public debt, which will reach JD21.1 billion, will form 83.1 per cent of GDP. This is a very high rate of indebtedness that approaches the red line, if it did not cross it already.

This worrying state of affairs throw doubt on the effectiveness of the economic reform programme supervised by the International Monetary Fund, which as far as I know, did not raise objections to the too much borrowing, on the one hand, and to shifting to foreign debt, with the risk that comes with it, on the other.

The government is not borrowing to finance economic projects. Such projects can be financed by foreign grants, including those from the Gulf states.

The government is borrowing to finance its recurring operational cost, such as salaries, wages, pensions, rents, interest and subsidies.

Teachers and others who press demands for more gains at the expense of the starved Treasury should know that they are pressuring the government to borrow more money and accumulate more debt in order to submit to their selfish demands which threaten the very security of the
country.

No wonder His Majesty the King warned that the real challenge facing Jordan at this time is not of political or military nature, it is the economy.