Cash subsidy mulled as mechanism to limit support to deserving segments in Jordan
Direct cash subsidy on basic commodities could be a feasible option to reduce burdens on the budget and address the issue of subsidies not reaching deserving groups only, Finance Minister Mohammad Abu Hammour said Monday. He told The Jordan Times over the phone that the government is willing to implement any suggestion by the Economic Dialogue Committee as long as it achieves the goal of reducing pressure on the fragile budget and preserves the dignity of beneficiaries.
The panel of about 40 experts and private sector representatives, which was formed by Prime Minister Marouf Bakhit early May to draft short- and medium-term plans on ways to boost the economy, was scheduled and discussed yesterday, it came up with recommendations on alternatives for delivering government subsidies to citizens who deserve it only. According to the minister, subsidies of basic goods and services are set to exceed JD1.5 billion this year, a figure he described as alarming.
Cash dividends could be a good alternative, he remarked, stating that authorities can ensure delivering subsidies to those who deserve them among employees of public agencies and pensioners in addition to beneficiaries of the National Aid Fund. Last month, Abu Hammour urged members of the dialogue panel to suggest a mechanism to deliver government subsidies to the right beneficiaries.
Eliminating government subsidies on certain commodities and directing support to low- and medium-income people can save the treasury hundreds of millions, which officials said, could be used in financing development schemes across the country. Jumana Ghneimat, an economic analyst at Al Ghad daily newspaper, indicated that governments have always failed to implement a proper mechanism to direct subsidies to vulnerable groups in society, noting that in 2008 the government could not continue with a cash support mechanism because it overlooked a very important issue: Preserving the dignity of Jordanians.
In 2008, the government did not include an oil derivatives subsidy in the state budget after liberalising the prices of oil derivatives and instead it disbursed compensation cheques for the rise in fuel prices at post offices to impoverished and low-income segments. The plan did not survive. At that time the problem was with the implementation mechanism because it did take into consideration the dignity of beneficiaries, she said. However, the analyst stressed that cash subsidy on basic commodities and services, such as bread, electricity, fuel and cooking gas, is currently the best solution if the government can implement it in a just and transparent manner by including both public and private sector employees.
Ghneimat, a former member of the dialogue panel who resigned after the government was reportedly planning to increase oil derivatives prices, suggested that authorities can use post offices across the Kingdom to deliver cash support for workers in the private sector and self-employed Jordanians. Asked about the average value of the cash dividends and the average income of households which should be eligible to benefit from such support, Ghneimat noted that the support should be no less than JD100 per month for a household, adding that the income of households eligible to benefit from direct government support should be around JD800 per month and less.
Economist Khalid Wazani agreed that cash subsidy is important in addressing the issue of delivering support only to Jordanians who deserve it. He explained that directing the subsidy to government employees can be easy to implement but challenges remain in distributing cash support to private sector workers and those who are not included in the social safety network such as the self-employed.
It will be hard to convince the private sector to raise the salaries of their employees in light of the current economic slowdown, Wazani, a former director general of the Social Security Corporation, said, suggesting authorities set up a database of the banking accounts of these segments of society to distribute cash support. He noted that the income of households to be eligible for benefiting from the direct subsidy should be around JD2,000 per year, which is JD166 a month. There are flaws in the current subsidy system as the rich and non-Jordanian residents benefit from the subsidies more than those who really need it, Wazani said. In India, the government will start implementing, as of October this year, a mechanism to enable beneficiaries of kerosene, liquefied gas and fertiliser subsidies to receive direct cash transfers through banks, ATMs or even mobile banking in a bid to plug leakages in the subsidy system curently implemented, according to agency reports.