Jordan budget dilemmas: Public sector expenditure
All governments who came to power in Jordan since 1990 were talking about limiting the role of the public sector in the economic life of the country, to enable the private sector to expand and fill the gap. The privatization program came within this well-established line of thinking.
However, all those governments allowed the public sector to raise its expenditure one year after another, suggesting that the public sector is set to expand rather than shrink. The size of the draft budget for 2001 is equal to 37 percent of the estimated gross domestic product (GDP), thought to reach 6.3 billion Jordanian dinars. This is one of the highest ratios in the world, especially after the demise of most socialist regimes around the world.
The statement of the budget delivered by the minister of finance to the Parliament predicted that economic growth rate in 2001 will be in the order of 4 percent in constant prices, and that inflation rate during the coming year will average 2 percent, a total of 6 percent. However, the estimates for tax revenue in the new budget have been raised by 9.7 percent, and the non-tax revenue estimates jumped by 26.2 percent. In other words, the government will increase its share of the economic cake at a rate much higher rate than the expected growth percentage of the economy in general.
Assuming that the minister's prediction of economic growth at 6 percent in current prices is realistic and will materialize, one may still wonder why the size of the budget should rise by 14.1 percent, and why it was decided by the monetary policy that the public sector should grow in 2001 faster than the private sector? The answer may lie in the tendency of governments to yield to pressure for more expenditure exerted by members of parliament and other groups of special interest.
To be fair and balanced, we shall try to look at the phenomenon from other angles. A partial answer to the big size of the budget could be the exaggeration of the amounts of funds generously allocated every year to capital expenditure because the ministry of finance depends heavily on the shortcomings of the institutions requesting funding for their intended or ongoing projects. They normally fail to perform on time, as planned, and consequently do not utilize all the funds allocated to them in the budget. As an example, the actual outlays on capital expenditure during fiscal year 2000 were 28 percent below the level allowed by the budget.
On the other hand, the government can claim that the large size of the budget was meant to invigorate the economy and motivate growth. It is agreed that budget austerity during periods of economic slowdown can make things worse. If the government can spend more while at the same time reducing the deficit and not imposing new taxes, why not? But it takes a wizard, not a minister, for this pleasant formula to come about.
In all fairness, one has to admit that a major part of the increase in expenditure is not voluntary. Interest on internal debt has to rise by 50 per cent due to restructuring of the debt, and acknowledging that some government-guaranteed debt will actually be repaid by the treasury and, accordingly, should be recognized as public debt. The cost of civil service also rose due to increased salaries, retirement and social security changes.
Even after fuel prices are hiked, as expected by January 2001, to secure some JD100 million of extra revenue, the deficit will not be reduced except by a mere JD10 million. The reduction of the deficit as percentage of GDP from 6.8 per cent in 2000 to 6 per cent in 2001 is expected to happen simply because the economy is supposed to grow at 6 per cent in current prices.
Finally, one cannot avoid taking note of the fact that the Ministry of Education's budget has jumped this year to around one quarter of a billion dinar, or more than 10 per cent of the whole budget, because the ministry wants to modernize its schools, starting with computer literacy and teaching English as of the first grade, on equal footing with the mother tongue.
The reader may have noticed that I am criticizing the budget and apologizing for its excesses at the same time. This may be the dilemma, which the minister of finance found himself in. On the one hand, he wants to curb current expenditures, on the other, he wants to satisfy the urgent needs and demands. — ( Jordan Times )
© 2000 Mena Report (www.menareport.com)
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