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No opportunity for government to combat inflation with traditional tools — economists

inflation
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AMMAN — Economists believe that the government is unable to combat inflation using its traditional tools in the backdrop of rising prices of commodities and in light of global events. Despite having used three traditional tools; fixing the prices of fuel derivatives, placing a ceiling on the prices of basic commodities and maintaining subsidy on some, the government will continue to face challenges, namely a growing budget deficit.اضافة اعلان

Economic writer Salameh Al-Darawi told Jordan News that the government does not possess any tools to confront the increase in commodity prices “as the factors behind the hike are external, and not local”.

“Fixed fuel prices, although one solution, will cost the budget in excess of JD25 million each month, so in total the cost would amount to JD100 million over three to four months,” said Darawi.

However, Darawi suggested a few other measures, although intricate, for the government’s use; to increase wages, which is a difficult option in light of budget deficiency, high debt, slow economic growth, and the decline in revenues, “also bearing in mind that the general budget was drafted without the provision of a salary increase.”

Darawi said that the only realistic solution the government could come up is to offer citizens a one-time financial aid package to assist people in addressing inflation rates. “This one is the best of the worst options that governments have; favorable for the people but risky for the government’s budget.”

Economic and investment specialist Wajdi Makhamreh doubts the government’s ability to confront inflation with its traditional tools because Jordan depends on “imported inflation”.

Makhamreh told Jordan News that some of the government’s tools would provide solutions in the short run, but in the end, there will be a huge rise in inflation rates, “which we started to witness now due to the Russia-Ukraine war.”

Makhamreh recommends a free-market competition based on supply and demand as a way to determine prices. He also advocates that consumers alter their shopping habits and culture, through opting for cheaper substitutes since it is “difficult to increase people’s salaries because the government is broke.”

Political economy specialist Zayyan Zawaneh told Jordan News that the government could take several actions to contain the hike in prices, suggesting prolonged fixed fuel prices; further elaboration to citizens on the new electric tariff to help them avoid heightened bills; strict control over the market to combat any unjustified price hikes and monitoring wholesalers’ stockpiles to prevent monopolies and greed. 

Zawaneh also suggested that the government reinforce the role of the Civil Service Consumer Corporation and the Military Consumer Establishment to make available a bigger variety of inexpensive and affordable commodities.

Additionally, Zawaneh proposed “work from home”, as well as imposing a traffic system of odd and even car license numbers on alternating days, and car-pooling as some of the solutions that would cut down on fuel consumption and save people money.

“I expect that the government will be facing a budget deficit of JD200–250 if it did not take any step to implement any of these contingency measures,” Zawaneh said.

According to Ammon, replacing cars with even or odd numbers on the road was first applied in 1991 due to the First Gulf War and in 2020 due to the COVID-19 pandem


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