Self-reliance is the key to pulling Jordan out of its economic rut.
These are tough times for Jordanians and it’s no secret that what lies ahead will be even more difficult. HM King Abdullah’s sobering words last month underlined the seriousness of the situation. “The reality everyone has to understand is that no one is going to help us if we do not help ourselves first. We have to rely on ourselves, first and foremost,” he said.
His message came in the wake of heated discussions over the government’s intention to revise the current Income Tax Law in accordance with an agreement with the IMF. The government is expected to present amendments to the Lower House sometime in November and before unveiling next year’s proposed budget law. The fact that the government needs to raise JD520 million next year and JD570 million in 2019 to support its budget is clear to all. How it will do this remains to be seen.
There is talk about lifting subsidies on items such as bread and compensating citizens directly in order to save the Treasury millions of dinars that goes in support of non-Jordanians living in the Kingdom. With regard to the Income Tax Law, the government is heeding the King’s warning not to harm low and middle-income citizens and is now seeking ways to crack down on tax evasion, which is estimated to cost the country billions of dinars every year.
But all of these measures, and the ones taken in the past few years in accordance with IMF advice, have been categorized as fixing structural fiscal aberrations. Jordanians are right to complain that none of the IMF’s implemented measures have succeeded in stimulating the economy and boosting GDP growth or reducing the rates of unemployment and poverty.
Those who support the IMF’s stance say regional turmoil has derailed the government’s efforts to rein in the budget deficit and stimulate economic growth. And they are right. The closure of borders with Syria and Iraq has damaged the export sector with two major trading partners. The fact that almost one-third of our budget goes to support the hosting of over 600,000 Syrian refugees is undeniable. Donor fatigue means that less money is coming from foreign countries to support our state budget. Meanwhile, Jordan has been faithful to its responsibility of providing health and education services to these refugees.
Regional insecurity has compounded domestic challenges to deep poverty and unemployment. Instead of going down, the rate of unemployment has gone up to 18 percent this year. And with the budget deficit almost doubling from last year, the government has no funds to spend on capital projects that could stimulate the local economy.
Furthermore, rise in energy costs, new taxes and tariffs have hurt many sectors including manufacturing, retail, and agriculture. Economic growth, at less than 3 percent annually, has been below expectations and forecasts. So where do we go from here?
Relying on ourselves underlines the harsh reality that foreign aid will not increase in coming years, and in the case of Gulf aid has come to a halt. While those calling for a total disengagement from the IMF are taking an extreme view, it is worth trying to understand their logic. In a nutshell, most argue that no IMF prescription has ever worked and that instead of focusing on fixing our fiscal system, we should instead dedicate resources to stimulating growth. They point to the fact that local banks have tens of billions of dinars in private sector money that are sitting idly because investors are not happy with regulations and incentives.
While this is true the need to restructure institutions and reform economic policies cannot be avoided. For decades, successive governments have adopted a system of patronage and favoritism that has fostered inefficiency and a costly bureaucracy. We now face a situation where between 70 and 80 percent of the state budget goes to pay public sector salaries. Little is left for investment in projects across the Kingdom.
On the other hand, focusing on restructuring alone while failing to provide better legislation and incentives will not kick-start the economy. To rely on ourselves we need to create a vigorous investment environment. This means doing away with laws and regulations that restrict and cripple economic activity. We need to shrink the size of the public sector and push for a freer economic outlook overall.
It’s a political decision first and foremost that’s taken at the very top; one that can provide the necessary prerequisites for a setting that does away with phobias and inhibitions and unleashes the true potential of this country. That is the only way we can help ourselves and become self-reliant in a fast changing world.