OBG talks to Umayya Toukan, Minister of Finance

Interview: Umayya Toukan

How will the new government balance the need to increase revenues while simultaneously decreasing expenditures?

UMAYYA TOUKAN: Our main concern is the budget deficit, which is currently around 9.7%. The government must find an effective way to increase revenues through tax-es on particular commodities and services. What is important is improving tax collection. There are mil-lions in uncollected taxes annually. We have reduced government expenditure and have had to cut servic-es, but there are really at present no viable alterna-tives to re-establishing fiscal stability. Following the global crisis, many governments are looking to stimulate their economies by allowing their budget deficits to inflate. There is a growing global debate on the effectiveness of austerity versus stimu-latory growth. In my opinion, there should be a delicate balance between stimulating the economy while main-taining a manageable budget deficit range. For this to occur, growth has to sprout from within the private sector and its savings rather than from public sector expenditure. In order for the private sector to achieve higher growth, there needs to be a proper investment climate and this means a tamed budget deficit.

How would you characterise the outlook for Jordan’s economy in 2013, given 2012’s sluggish 2012?

TOUKAN: Jordan has secured a standby three-year loan arrangement with the IMF, and we are committed to adhering to the strict protocols of this arrangement. Many of the stipulations include the removal of fuel subsidies and other price distortions in the market, which have not been popular, but are necessary. We are now moving gradually away from subsidies and letting the market determine the prices of services and commodities. These measures should help in put-ting the Jordanian economy back on track for growth. With the lifting of the subsidies, Jordan must tackle the issue of creating a social safety net to compensate low-income communities that no doubt will feel the crunch of higher commodity prices. The government has redirected subsidies with a comprehensive pay-back system of cash transfers. In 2013 we expect to pay around JD300m ($421.9m) in redirected subsidies on oil derivatives.

Thus far in 2013 what levels of activity have been seen in the sale of dinars?

TOUKAN: Towards the end of 2012 there was a high amount of dollarisation, but thus far in 2013 we have seen this trend reversing. Dollars are now being con-verted back into dinars. With a 7-8% interest rate, com-pared to just 2% on the dollar, there is an advantage in investing in dinars. This trend is certainly a positive sign, but there are other variables that we must be cog-nizant of. Rate of return is important for investors, but political and security issues are also binding factors in the investment equation. Jordan has been fortunate in this regard. The authorities are indeed implementing a reform programme, so at this juncture not all of the investment variables are in place.

How will the relationship between the public and private sector evolve so that it is more conducive to growth as compared to competition?

TOUKAN: Since the Jordanian constitution was set down, we have been a market economy. In the last two decades, a number of government entities have been privatised. Our vision is for the private sector to be the lead actor in the economy and the government to play a supporting role as a regulator. In terms of economic policy, I believe we must take all the necessary meas-ures to stimulate private sector investment, but have the fortitude to defend the consumer as well as address certain exaggerations or imbalances to protect the soundness of the economy. As a regulator, one should intervene only when there is an imbalance or monop-olistic practices in the economy. We have proposed several legal changes that would help drive Jordan towards a truly private sector dominated economy.