Umayya Toukan, Minister of Finance, on the continued effort to implement economic reform programmes

As most countries seek to stimulate economic growth in response to widespread stagnation, the topic of economic reform once again has taken centre stage. Jordan has been introducing various economic reform programmes since the early 1960s; however, most of these efforts were interrupted due in large part to region political instability and military conflicts.

Jordan’s most successful economic reform programme was implemented between 1989 and 2002, with the support of the International Monetary Fund (IMF). This reform programme ultimately resulted in a sustained period of high economic growth for the kingdom, particularly between the years 2001 and 2009, when the economy was expanding at an average annual rate of 6%.

During the same period, the rate of inflation in Jordan averaged just 3% per year, and foreign exchange reserves accumulated at the central bank equalled seven months’ worth of expected imports. In addition, unemployment during that time dropped from 16% to 12%, budget deficits remained on average around 3% of GDP, and the nation’s stock of debt totalled less than 60% of GDP.

The global financial crisis, the rise in oil and commodity prices around the world, and the impact of what later came to be known as the “Arab Spring”, have all had a dramatic impact on the performance of the Jordanian economy over the last few years, as reflected by a number of key statistical indicators. GDP growth dropped sharply from a peak of 7.2% in 2008 to 2.3% in 2010, before reaching a level of 2.4% in 2011. Additionally, the budget deficit increased to reach 6.2% of GDP and the nation’s stock of debt grew to around 65% of GDP in 2011.

Government revenues also dropped considerably over this period, due in large part to the economic slowdown, while total expenditures financed by the government experienced sharp increases. A large proportion of the increase in expenditures can be attributed to a more substantial energy and food imports bill, in addition to the dramatic rise in spending on the social safety net.

The 2012-14 proposals for the nation’s budget, which was recently approved by Parliament, point toward a return to a policy of fiscal discipline and fiscal consolidation. To this end, the following five interlocking measures will be undertaken by the government with an intended goal of reducing the budget deficit to 4.6% in 2012, and then further to 3.5% by the year 2014.

Total government expenditures will be reduced to the effect that there will be no increase in current expenditures in 2012. We also intend to impose higher taxes and fees on certain luxury items and various government services in an effort to raise revenues. Adding to this, revenues will be raised through a more efficient approach to tax collection, and through a more rigorous approach to combating the challenge of tax evasion.

In addition, we have plans to abolish sales tax exemptions on a wide range of items; however, it is important to note that this will be done in a manner that will not affect any of the country’s low- and middle-income groups. Finally, we will implement a gradual withdrawal of subsidies, coupled with a plan to provide refunds to low- and middle-income groups. Through the implementation of the five aforementioned policies, we hope to reverse recent negative trends in the Jordanian economy and to provide a framework for strong fiscal discipline.

Despite our concerted efforts to reduce government expenditures, the oil and food imports bill will continue to be a major challenge to the country’s overall budget. Moreover, the planned withdrawal of subsidies mentioned above will be a gradual process and therefore may take a number of years. Throughout this process of reform, all measures aimed at fiscal discipline and consolidation will be balanced with a strong effort to maintain social cohesion, as well as social and political stability.