Chronic structural economic imbalances

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Salameh Darawi (Photo: JNews)
Governmental momentum towards remedying chronic economic imbalances in the national economy is characterized by extreme sluggishness, despite the dire need for stronger momentum on the issue of economic reform. Such reform is usually met with resistance from various social segments who suffer a loss of their cumulative gains. This fact cannot be ignored.اضافة اعلان

However, the structural reform agreement signed between Jordan and the International Monetary Fund (IMF) last October, covering the years 2020–2023, constitutes huge pressure on the government to move ahead with economic reform measures and resist all forces standing in the way of said reform. Periodic reviews of the agreement by the fund’s mission is one of these key tools pressuring official economic policies.

The government does not have many options to avoid full implementation to address the imbalances, particularly with the current Minister of Finance Mohammad Al-Ississ, who is pushing strongly towards fiscal reform and sound administrative levels of spending and revenue collection and intrinsic growth.

The key structural challenges and imbalances that require the government to make the right decisions in their regard are as follows:

First: the continuous general budget deficit, which is estimated to reach $2 billion after grants by the end of the year. This is a huge figure that constitutes 4.3 percent of GDP. The danger of this figure is that, in absolute numbers, foreign debt will rise by the same amount as the deficit, which means more debt, leading to new financial pressures on the Treasury.

Second: huge reliance on foreign aid, which was estimated this year at $800 million. This figure is less than that of 2020, but nonetheless contradicts the government’s positions in its official economic statement, in which it affirmed its movement towards self-reliance. However, reality points to more and more reliance by the Treasury on aid, which has played a major role in saving the national economy from going down a dark tunnel.

Third: public debt payments, estimated in this year’s General Budget Law at $1.960 billion, which serve as interest on some $40 billion of public debt, constituting 107 percent of GDP.

Fourth: the high pension and social support bills, amounting in this year’s budget to $2.2 billion, which on their own constitute more than 20 percent of the state’s public expenditures. These bills are dangerous because they are constantly rising, due to the failure to rectify measures and the delay in implementing remedies.

Fifth: the difficulty of growing foreign reserves due to the stagnation of the tourism sector, which was impacted drastically by the repercussions of the COVID-19 pandemic. This has caused the tourism sector to decline by more than 85 percent in 2020, a drop that is expected stretch on at varying rates. This is in addition to the drop in expatriate remittances, which dropped 8 percent during the past year, due to economic recessions in Arab Gulf countries, where 680,000 Jordanians are employed.

Sixth: the deficit in the payment balance’s current and trade accounts, which is expected to increase due to the drop in exports. This drop in exports is attributable to the closures implemented by many countries in the region in order to combat the coronavirus. Additionally, many countries in the region also implemented protectionist measures to achieve economic security.

This might contribute a continuing drop in national exports, which declined by 1.5 percent last year. The government expects a 5-percent increase in exports this year, which is an optimistic figure that might be strongly challenged should the pandemic remain out of control and the vaccines fail to arrive with the required speed.

Seventh: the rise in poverty and unemployment rates, which represent a true nightmare for the Kingdom due to their grave security, social, and economic ramifications. They may affect the stability of society if the necessary measures are not taken to combat them. It is important to note that the current rates are the highest in the Kingdom’s history since the 1989 economic crisis, during which poverty rates reached 23 percent and the number of poverty pockets reached 32 across the Kingdom’s governorates.

The official unemployment rate during the last quarter of 2020, according to the Department of Statistics, stood at 24.7 percent, which is an alarming rate for many reasons. It may rise, because the economic growth forecast for this year amounts to 2.5 percent, which is sluggish, and will not be able to accommodate the annual number of graduates entering the labor market every year. Currently, 156,000 graduates of various types enter the job market annually. What has to be taken into account as well is the difficulty of attaining employment abroad, due to the difficult conditions in Arab Gulf countries that have been impacted by the global drop oil prices.

The former imbalances constitute a real challenge for the government, and require strong political will, through a reform program agreed upon with the Lower House, which usually represents stumbling block for structural reforms.