While certainly useful, economic forecasts shouldn’t distract decision makers from pursuing sound economic strategies.
In a recent report, the World Bank Monitor said Jordan’s maximum real growth this year was unlikely to exceed 2.4 percent. While the average outlook over the 2017 to 2019 period expects a growth rate of no more than 2.6 percent.
This gloomy forecast contradicts the Jordanian government’s prediction for 2018 of a real growth rate of over 3 percent, and the promised take off by the first half of 2019. So who should we believe?
I’m personally inclined to come down on the side of the government, though I don’t think we have a chance of leaving the bottleneck by the first half of next year. Taking off and leaving the bottleneck requires a real growth rate of no less than 6 percent. This is the only acceptable growth that would lead us to job creation. Only with a growth rate of 6 percent or more can the economy absorb all the new comers to the labor market and some of the unemployment stock.
In other words, I believe that keeping the momentum of supply side policies, and marching towards more open policies with the private sector are the key issues that will help this government to achieve its macroeconomic objectives.
To achieve these targets, the government needs to abstain from sending any new tax laws to parliament. It’s unwise to tinker with tax structures within recessionary periods as this, which would only add to the uncertainty about where the economy is heading.
Although the new tax law is meant to deal with some genuine distortions in the Jordanian tax structure, especially when it comes to the tax base and tax evasion, but one can sstill assume that this can be postponed for now in order to avoid sending such a negative signal to the market.
The only acceptable signal today is the one that the new economic team sent earlier this year, in an effort to encourage future and potential investments or the expansion of current businesses. Despite the current levels of economic uncertainty and recession, achieving the 3 percent real growth rate or even above is doable. But it can’t be guaranteed through new tax policies, even if they are overdues. It can only be achieved through new investment funds or attracting new investment. To this end, the government should identify and promote investment opportunities across a range of sectors. One such investment opportunity could be the planned light railway project between Amman and Zarqa, for instance.
There is a huge difference today between going to a potentially cash-loaded institution with a rewarding investment opportunity, and pleading for more cash to support a distorted budget.
Finally, there is a well-known fact that says you approach investors with potential investment opportunities, not with an amended tax law. They care about the first, while the latter scares them away. If the government does not continue what it recently started in supporting the supply side of the economy, then we have to believe the World Bank’s forecasts, which expect more modest growth rates and no exit from the bottleneck in the foreseeable future.