Interivew: Umayya Toukan
How is the government maintaining fiscal discipline in regards to repaying its IMF loans?
UMAYYA TOUKAN: We have an agreement in place with the IMF to restore fiscal balance. Planning a budget is not the easiest task when we are faced with exceedingly uncertain regional tensions. Our budgetary difficulties are largely due to the global economic crisis, the Arab Spring and, of course, disruptions in the flow of natural gas from Egyptian pipelines. These challenges that we have faced at home have resulted in our budget deficit increasing to unsustainable levels, well beyond what we intended or foresaw. At the end of 2012 we began an IMF structural adjustment programme that deals with the distortions hampering our economy and our fiscal balance. It is imperative that we reduce our expenditures and raise our revenues.
In 2014 we expect the budget deficit to be 4-4.5% of GDP. In 2015 we would like to see this decrease to 3%. Our debt levels have been on the rise, especially since 2011, and our overall debt is hovering at around 80-83% of GDP. According to the structural adjustment programme, we would like to see our debt reduced to 60% of GDP. Though this will be difficult to achieve, in order to do so, we must see GDP growth rise beyond the current level of 3% to closer to 6% or 7%.
If we are able to manage this sort of growth, we will see revenues increase from tax and non-tax channels. As economic activity increases, revenues will naturally follow, which should see the budget deficit decrease. Furthermore, higher GDP growth should serve as a catalyst for employment growth, thereby helping reduce unemployment, which currently stands at around 12%. I believe that growth must be achieved through the private sector. Sound fiscal and monetary policies must ensure that the private sector finds itself in an environment that can foster growth.
Good governance, security and political stability are important factors towards this end. If we commit to our reforms, the economy will pick up sooner rather than later, but we must remain patient and with resolve.
Given the need for budget cuts, how can you have a minimal impact on the vulnerable but also avoid too heavily affecting the key economic drivers?
TOUKAN: Some say that the social safety net of JD1.5bn ($2.1bn) is too generous. The government subsidises a number of goods and services for the neediest in society, including energy, food, health and education. We operate under criteria to make sure that the most vulnerable have basic economic rights.
In saying this, it would be impossible not to see a connection with our national budget deficit. We made a mistake in prior years, especially regarding energy, by subsidising the commodity as a whole and not based on means. We have since reversed that policy, and this has lifted some of the burden on the budget deficit. Taxing successful industries could be seen as penalising them, but that is relative. Given our current circumstances, this must apply.
In 2009 we lowered taxes on banks from 35% to 14%, but we were experiencing high growth levels. If the economy is rapidly growing, one can afford to lower taxes because fiscal revenues will be accrued to meet budget expenditures. In a slowdown, the opposite must occur, because fiscal revenues will fall short of budget expenditures.
What impact is regional instability having on the economy, and how difficult is it to plan a budget?
TOUKAN: I can unequivocally say that regional instability is never a long-term benefit but, in the short term, it could work to the advantage of a country. However, this is short-sighted thinking.
With all things being equal, stability would lead to growth in fiscal revenues across the board. In planning a budget during these times of instability, we must widen our margins of error. If we assume that GDP growth will be 3% and that, historically, fiscal revenues amount to roughly 20-25% of GDP growth, then we can predict the figures that need to be allocated per sector and plan the budget accordingly.
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