Omar Malhas, Minister of Finance: Interview

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Omar Malhas, Minister of Finance

Interview: Omar Malhas

What strategy is being developed to grow self-sufficiency and reduce reliance on foreign aid?

OMAR MALHAS: This is an important issue. In 2015 our revenue was only 94% of total expenditure. In our plan, by 2018 we expect to be self-sufficient. This is assuming nothing goes wrong. Let us not forget that Jordan has been subjected to an exogenous shock because of what is happening in the area. Because we are a small country with a small economy, when something moves around us, we are affected. We have seen that tourism is down, foreign direct investment is down, remittances are down, etc. Moving forward, we are hoping that the economy will grow at a higher percentage rate than in 2015. The IMF’s Extended Fund Facility (EFF) programme should help the economy start growing at a faster pace. The reopening of the borders with Iraq will also be favourable to growth. However, with all this said, as long as we have Syrian refugees to sustain in the country, the international community will need to help.

How do you assess the progress to date in response to the IMF-mandated reforms?

MALHAS: We are confident about our progress. The main goal is to reduce the debt-to-GDP ratio to 77% by 2021. So we are discussing how to achieve this and what fiscal measures need to be taken to reach a resolution. We have decided on the EFF programme, which is a blend of fiscal measures and structural reforms that aim to last for at least three years.

It involves a new budget law that takes into consideration tax expenditure and the cost of exemptions. It requires submitting a new tax exemption framework and a new income tax law to Parliament. Then we need to wait for Parliament to approve it. It also requires us to reorganise the public debt department and publish our public debt management strategy. We should have this up and running by March 2017. In the energy sector, the IMF is requiring that we publish the cross-subsidies on electricity prices and have an automatic mechanism that adjusts electricity prices when oil prices are above the break-even point. They would also like the central bank to implement a risk-based framework for on-site supervision of banks and money exchange firms. They want us to amend the insolvency law and the secure lending law and prepare a financial inclusion strategy. They want us to announce a strategy to revamp factoring for small and medium-sized enterprises. These are only a few of the actions requested.

What measures are being considered to increase tax income and boost government revenues?

MALHAS: The new income tax law should tackle the problem that only 3% of Jordanian individuals pay tax, a figure that needs to be increased. The issue of exemptions is one of the main topics to be considered. It seems we are too kind with exemptions: we end up with higher sales tax rates and higher Customs duties, but a very limited number of people actually paying them.

We will be analysing the impact of abolishing exemptions on the revenue stream. What we are aiming for with this study is to make the Jordanian economy more competitive by trying to find a balance where we remove whatever exemptions can be removed. We already have commercial and free trade agreements with several markets. Overall, we need to raise revenue and we are doing that by reforming our sales tax structure and Customs duty structure, as well as by amending the income tax law.

In what ways is the ministry taking action to reduce government expenditure?

MALHAS: The majority of government expenditure, almost 76%, is on salaries. But we cannot reduce that, and have put a freeze on hiring new people. The issue is that when you don’t hire new people in the government, the result is a higher unemployment rate. From the remaining 24%, we have already reduced expenditure by 10%. We have been doing what needs to be done.

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The Report: Jordan 2016

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