Self-sufficiency, a strategic objective

From a fiscal point of view Jordan is not self-sufficiency. It was never so at any time. Jordan was always dependent on loans and foreign grants to cover its fiscal gap, and make ends meet.

For our purposes, self-sufficiency at its minimum level is to be able to finance the government’s current expenditure, i.e. the operational cost, from domestic revenue.

In that case the proceeds, if any, of loans and foreign grants will be used to finance capital expenditure or to repay previous loans.

The Ministry of Finance re-estimates for the present year budget, shows that domestic revenue in 2016 will reach JD6,331 million, while current expenditure may reach JD7,157 million.

These figures indicate that domestic revenue derived from taxes and other local sources, will cover no more that 88.5 per cent of the government’s operational cost.

In such undesirable and unsafe situation, 11.5 per cent of the current expenditure and all capital expenditure must be financed, either by foreign grants from donor countries, with the political cost that comes with it, or by internal or external borrowing. Such a state of affairs is neither healthy nor sustainable. Grants are not guaranteed and loans have limitations, and may not be available at all times.

In view of this situation, the budget draft for the coming year 2017 made a big step in the right direction. Self-sufficiency ratio will rise in one lot from 88.5 per cent in 2016 to 96.2 per cent in 2017.

Under the circumstances, this is of course a reasonable and acceptable percentage to look for but it is not easy to make it happen. Any improvement of self-sufficiency, small as it may be, is welcome.

To be on the conservative side, let us exclude the amount of JD450 million from the estimated revenue in 2017, as the ways and means of earning this extra amount are not defined yet, and may or may not pass, then self-sufficiency rate will be around 90.3 per cent, an improvement of two percentage points over this year.

The observation that we can not avoid looking at, is that the average Jordanian citizen feels, rightly or wrongly, that tax level in Jordan is very excessive, and that the government can not and should not, further squeeze the tax payers harder than it is doing now.

At the same time, the proceeds of these so called excessive taxes are not enough to cover the operational expenses of running the government, so much so that it has no alternative but to depend on foreign grants and local and foreign loans, simply to cover not only capital expenditure, but part of current expenditure as well.

How can we explain this irony? 

Are taxes in Jordan rather low, which allows increasing taxes as the government and the International Monetary Fund think, or is it that the size of the government is too big for the small size of the Jordanian economy, and should therefore be reduced as evidenced by the fact that the government and its public sector consume around 50 per cent of the gross domestic product (GDP).

The public sector in Jordan could be the largest in the world relative to the size of the national economy.