How viable is the government’s economic stimulus package?

Earlier this week, Prime Minister Omar Razzaz and his cabinet announced a number of economic measures aimed at promoting economic growth. These measures are considered the first phase of a comprehensive plan to stimulate the economy. This phase includes a variety of measures, including enhancing the investment climate, reducing energy costs for productive sectors and reviving the real estate sector. As the government claims, these measures will contribute to its main priority of job creation. However, the central question that needs to be addressed is: How viable are these measures? And what will make this plan different than those that preceded it?

In an effort to improve the climate for investment, the stimulus package includes a variety of measures to attract investors. The critical measure is the adoption of business incentives that will be linked to performance indicators, not announced yet. Such a move is highly important and should have been adopted long ago. In the past, such incentives caused a number of distortions in the economy, as well as the loss of public revenues due to their weak design and a lack of monitoring of the businesses benefiting from them, where the incentives used to be granted to the investors without oversight or performance indicators. Given that the incentives will be linked to gains for the Jordanian national economy, if implemented correctly, they could result in a win-win situation for both the government and the private sector. However, before announcing those measures, the government must take into consideration their impact on the fiscal situation so as to avoid any fiscal losses, both in terms of revenues and expenditures. Moreover, the government must effectively employ its media and PR tools in order to communicate these incentives to the potential investors in the various sectors. 

With regards to the reduction of energy costs, Energy Minister Hala Zawati said that the government will lower the tariffs on additional electricity consumption. This measure will be vital in allowing businesses, especially those in the industrial sector, to benefit from “economies of scale”, as they will be able to produce more at a lower cost which will contribute to higher exports. On the other hand, it might have very serious consequences for the financial revenues of the government, which might lead to higher fiscal deficits for the government. 

Next, in an effort to revive the real estate sector, which has been suffering from longstanding stagnation, the government exempted property owners from registration and transfer fees by 50 per cent until the end of 2019, and exempted the first 150m2 from apartment registration fees. 

However, those measures will have a short-term impact on the real estate market as long as the exemption is valid only until the end of the year. Furthermore, they will not help in attracting foreign investment to the sector.

Finally, the government revealed that it will pay businesses that employ Jordanians in place of expatriate workers 240 JD for each new worker. This decision needs to be studied further, as it does not treat the root causes of unemployment, and may induce harmful costs on the government’s general budget. 

Most of the announced measures will be effective in producing economic growth ‘‘quick wins’’ in the short run, however, to sustain growth, these measures must be combined with structural reforms. The Jordanian economy still needs many more large-scale reforms in terms of the business climate, fiscal policy and the labour market. If the government adopts concrete measures to address these three issues, Jordan will be on the right path toward growth. We have reason to be hopeful, given that Jordan witnessed significant progress in the World Bank’s “Doing Business Report 2020”, progress that was achieved due to structural reforms that the government has implemented through business regulations. One more crucial reason for hope is His Majesty King Abdullah’s enthusiasm to put the Jordanian economy on the right path and his vigorous follow-up on the plan’s details and implementation.