The sun seems to still shine over Amman. Last Sunday, Jordanian government said it expects its economy to grow by 2.2 percent in 2020 in spite of local and regional challenges. Iraq and Syria, two of the three Arab neighbours, are indeed in bad shape.
Jordan’s Minister of Finance Mohammad Ississ said the government presented the 2020 draft state budget law to the Lower House, with an estimated deficit of 1.247 billion dinars (about 1.8 billion U.S. dollars) after foreign grants.
“The current expenditure is expected to reach 8.383 billion dinars in 2020, an increase of 414 million dinars from 2019,” he said in a statement.
Foreign grants are expected to reach 807 million dinars in 2020, the same as 2019, he added.
The minister said that Jordan’s economy has proved resilient and acted as a model for containing crises despite the regional turbulence and global recession.
He noted that Jordan’s public debt has increased and currently accounts for 97 percent of the gross domestic product.
“Jordan started talks with the International Monetary Fund on a new program to stimulate growth and help create jobs, obtain soft loans and grants to reduce the overall public debt and increase the competitiveness of the national economy,” Ississ said.
In 2016, Jordan reached a 36-month financial support deal worth 700 million U.S. dollars with the IMF to embark on reforms to reduce public debt and conduct fiscal reforms.
Working with the IMF deal
Jordan has begun negotiations over a new three-year funding program with the International Monetary Fund (IMF) to stimulate growth that has been stagnant at about 2% for the last decade, the finance minister said last November.
Mohammad Ississ however said the country would not accept “dictates” from the international body, adding the kingdom’s authorities were more aware than anyone else of what was needed to spur the sluggish economy.
“Jordan won’t take any dictates in our economic file and will not allow anyone to interfere in our affairs,” Al Ississ said, adding the country was committed to pursuing “deep structural reforms”.
The IMF said on Monday it had begun discussions with Jordan on a new program to replace an earlier three-year agreement that focused on reducing a record $40 billion public debt, equivalent to 94% of gross domestic product.
The fund said it would come to Amman to continue talks in late January on a new program after agreement that the priority in coming years was maintaining economic stability, stronger growth and creating jobs.
It slammed Jordan for slow fiscal consolidation, saying public debt remained very high and efforts to broaden the tax base and raise revenue had fallen short.
It said the country had “limited fiscal space”. Ississ said Jordan’s 9.8 billion dinar ($14 billion) budget for 2020 that the cabinet approved on Wednesday forecast a 10% rise in revenue from higher income taxes and sales tax.
The budget, which was sent to parliament for approval, envisaged a deficit equal to 2.3% of Jordan’s gross domestic product.
Estimates in the projected budget include about 800 million dinars in foreign aid, hardly changed from the 2019 budget. Direct cash support by major donors traditionally covers chronic budget shortfalls.
The government had also reduced taxes on cars and real estate transactions as part of efforts to stimulate the economy, Al Ississ said.
“When there is economic slowdown you have to stimulate the economy to encourage growth,” Al Ississ said.
Last year’s steep tax hikes dampened domestic consumption and dealt a blow to investor sentiment, already hit by political uncertainty.
The IMF-backed austerity measures last year also triggered some of the largest protests in years that brought down the previous government.
Al Ississ said the government was committed to keeping a tight rein on spending. Public-sector pay hikes envisaged in the new budget would be compensated by expected growth in revenue from improved business activity, he added.
While the government has focused on fiscal reforms, it has refrained from public wage reforms that remain a red line, donors say.
Economists say maintaining a large bureaucracy which consumes the bulk of state expenditure is increasingly untenable.