Unsafe public debt trends

Salameh daraawi
Salameh Darawi (Photo: Jordan News)
Whenever the Ministry of Finance publishes its monthly bulletin, both the public and the media start raising the inevitable and ever-lasting question: Where is the public debt issue heading?اضافة اعلان

Everyone deems public debt reaching $47 billion, 107 percent of GDP, as an alarming indicator indeed. These indicators, be it total figures or rates, are not safe at all; not due to their large volume and percentage, but due to other economic reasons worth highlighting.

The danger of indebtedness is that it is increasing during a period of poor economic growth. It’s not growth, in fact, but decline, meaning that the economy is unable to generate income.

In Jordan, the annual interest on public debt amounts to more than JD1.45 billion. The Treasury also grapples to cover loan installments and both internal and external liabilities, nearing JD6 billion every year, and it is now heading towards borrowing to cover the payment of other loans, which answers the question of why Jordan’s public debt never goes down.

The government cannot possibly lower its public debt rate given this poor economic performance. Negative growth creates new burdens for the Treasury, which has already lost a significant portion of its income generated from strategic economic activities, such as tourism, investment inflows, and remittances.

Even the poor growth achieved before the pandemic, which reached 2 percent at best, would never be sufficient for the appropriations necessary to address internal and external debt.

The issue is not new, and the current government cannot be held accountable for it, as some previous governments, such as Abdullah Ensour’s, contributed to a mad increase in public debt during its four-year reign, amounting to JD8 billion. This debt increase came despite Jordan receiving the largest financial support package in the country’s history — totaling $3.67 billion — from the Gulf grant and other financial aid, enjoying a 70-percent drop in oil prices in the second half of 2014, and the cancellation of all fuel subsidies except for cooking gas cylinders.

However, the economic management of this particular government was literally catastrophic, leaving behind an economic disaster to be paid for by consecutive generations. That government even had JD1.3 billion in liabilities and outstanding dues carried over to the next government.

This proves that a large portion of debt growth, and the reason it has reached unsafe levels, is due to poor management and an absence of accountability rather than regional crises and their repercussions.

The absence of financial control over public expenditures over the past years led to a huge increase in those expenditures. It has now become the responsibility of the Treasury to provide allocations for the government to secure its operational expenses at all costs. The best examples of this are socioeconomic transformation projects, which used to be financed through independent programs separate from the Treasury, at a cost of no less than $750 million. These projects were then inserted into the general budget in bulk after 2005, and they became an integral part of public expenditures, thereby doubling the Treasury’s liabilities. The majority of those expenses did not add significant value to the national economy. This pushed the government at the time to borrow internally or externally to cover the Treasury’s rising financing needs.

The government is in desperate need for bold decisions to accelerate domestic economic momentum. This must come in parallel with enhancing the business investment climate, reforming the administrative system, setting up a road map for public-private partnership projects, and letting the private sector — which has more operational and growth capacity — take the lead on economic growth.

Only then will the Treasury generate new income, enabling it to comfortably fulfill its obligations. The Treasury can then move towards borrowing for operational and investment purposes, rather than covering its current expenditures, which, unfortunately, is the case today.

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