Assessing economy trajectory

Jawad Anani is an economist, and has held several ministerial posts, including former deputy prime minister and former chief of the Royal Court. (Photo: Jordan News)
The constitutional amendments that were approved by the Senate last week and whose implementation is awaiting the endorsement of the King and publication in the Official Gazette pave the road for discussion and approval of the draft elections and parties laws.اضافة اعلان

The government last week announced its endorsement of new economic measures, which aim mainly at stirring the sterile economic waters. Such measures included the repackaging and lowering of the customs duties and tariffs on imported goods. Moreover, the government will resolve some of the sticky investments which served as striking examples of the government’s inertia.

The third measure of note was the continued application of defense laws regulating life activities during the pandemic.

As for the constitutional amendments, the National Security Council will probably be the first visible reality. The duties of the NSC should not be confined to the narrow function of dealing with emergencies. It should deal with all reactive, preventive and curative actions which may impinge on Jordan’s security.

In order to do a noticeably good job, the NSC must be backed by the necessary analytical tools, not only to make suggestions but also to assess their impact. Without doing so, the disruptive influence of such decisions could inflict harm.

The government’s economic package is also courageous and in the right direction. Yet, lowering the tariffs on imported clothes and shoes from 30 percent to 5 percent is quite a hefty decline that would impact the clothes and shoes industry. Was an impact study on such industries done before the decision was made? I do not think so.

The whole economic package seems to put the onus of its implementation on fiscal policy. This policy is already overused and any added burdens on it would widen the budgetary deficit and intensify the public debt hangover.

Even envisaged future reforms will further rely on sacrifices imposed on public revenues and expenditures.

People, including parliamentarians, are asking for government oil pricing and taxing audits. They are warning against privatizing water facilities and want the government to hike salaries, decrease sales tax and review the thick layer of fees excised on public services.

The government had also declared that it would hire 60,000 more people into its ranks.

What is the impact of all these decisions on the budget, debt size, price index and economic stability in general?

If the burden on the public sector continues to grow where the potential competition to benefit from its resources is evident in every economic sector, then the question is: What will we do in 2030, for instance?

Most of the problems of private and public corporations emanate from the dearth of cash. Money is being sucked up either by the public sector or by the lack of demand. We need to stimulate the cash flow into the economic system, move liquidity out of its traps and allow cash-hungry entities to abandon their cash preference in fear of the fact that cash you spent will be much harder to replace.

This situation requires a different form of monetary policy whose main pivot was pegging the currency, interest rates and even money supply to the Federal Reserve Bank decisions. The IMF said last week that this modus operandi helped create monetary stability in the past. Will it continue to do the same in 2022 and beyond?

We need to assess this fact and put it to the test. Prices in the US are climbing by 7-8 percent annually. According to the Federal Reserve chairman, there are three potential interest rate hikes in the US in 2022.

By contrast, Jordan’s inflationary rate is less than 2 percent and any further hikes in interest rate (5 point above the US interest) would lead to deflation. Thus would the government’s fiscal and monetary policies together deepen the deflationary trend in Jordan? Does that serve our growth aims in the near future?

All these questions need to be addressed by looking deeply into their impact and assessing whether the economy is on the right path.

Jawad Anani is an economist, and has held several ministerial posts, including former deputy prime minister and former chief of the Royal Court.

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