Jordan proposes expansionary budget in bid to boost growth

Parliament set to vote on 2020 fiscal plan that will run a deficit equivalent to 2.3 per cent of GDP

T4WREP Amman, Jordan - March 28, 2019: street view of amman, the capital city of jordan. Alamy

Jordan's government forwarded a record budget of 9.8 billion Jordanian dinars (Dh50.76bn) budget to parliament for ratification as the country struggles to balance its IMF commitments to cut public debt and spur growth.

In what Prime Minister Omar Razzaz is billing as a ‘growth-focused’ spending bill, with a deficit forecast of 1.2bn dinars, equal to 2.3 per cent of the kingdom’s GDP.

The bill is currently under review, with a vote expected within the next two weeks.

Jordan is currently in the last year of a $723 million (Dh2.65bn) IMF credit line which requires it to cut its debt levels from 95 per cent of GDP to 88 per cent. Despite the introduction of a series of tax increases and austerity measures, debt levels have only inched down to 94 per cent.

The proposed budget includes a 30 per cent increase in capital expenditure to 1.42bn dinars on a series of infrastructure and healthcare projects, as well as 108 million dinars for public-private partnerships.

Spending on a government social safety net for Jordanian families will also increase by 30m dinars to 146m dinars to cover an additional 20,000 Jordanian families next year.

Jordan is forecasting a boost in revenues to 7.7bn dinars in 2020 thanks to a 10 per cent increase in sales tax revenue, which accounts for over half of all government receipts, at 3.9bn dinars. About 1.27bn dinars is expected to be raised from income tax, with a 1 per cent increase set to be levied across the board, according to a 2018 income tax law.

With Razzaz and government ministers pledging “no new taxes” in the spending bill, the government says it will also increase revenue by “cracking down on tax evasion”, but has not given details on how this will be achieved.

The increased capital expenditure is part of a shift in focus towards growing the kingdom's economy to generate more income to repay debts as opposed to concentrating on taxes.

Last month, Jordan launched a stimulus package which actually reduced taxes on real estate, cars and industry; future phases that will come into effect next year include reduced electricity tariffs for industry and financial incentives for companies to hire Jordanians.

Also adding to budget costs is a 50 per cent raise given to public school teachers after a teachers strike in September grounded the country to a halt and a recent increase in retirement pay for retired military personnel.

Razzaz said that 65 per cent of current expenditure in the 2020 budget is for salaries, while 15 per cent is for interest payments.

With the current average starting public sector salary between 200-300 dinars per month in a country where poverty line is 400 dinars a month for a family of five, the government has set in the budget an unspecified amount for public sector wage increases -  set to be announced this week.

Jordan is trying to balance its debt obligations with growing an economy to provide jobs for a fast-growing population where 40 per cent of 15-35 year-olds are unemployed.

According to an October forecast by the IMF, Jordan's GDP will increase to 2.2 per cent this year, from 1.9 per cent in 2018. Growth for 2020 is forecast at 2.4 per cent.

The Washington-based lender remains in talks with Jordan's government about extending the credit line agreed in 2016 for another three years and is set to return to Amman for talks in January.

In a statement following last month’s discussions, while underlining the need for Jordan to “boost growth, create jobs, and strengthen social protection”, the IMF warned that “fiscal consolidation has been slower than envisaged” and that income from efforts to broaden its tax base had fallen short of expectations.