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Expenditure vs. austerity in light of the recession

May 17,2020 - Last updated at May 17,2020

Al Rai’s Issam Qadamani said that the injection of liquidity in an economy facing a recession is like drowning a sponge in water or like drying a wet sponge, where the result in the two cases is the same with a difference in the volume of the inflation.

The finance minister is biased to the expansion policy and already chose expenditure to face the recession, said the writer, adding that Jordan will witness an economic recession for two quarters, while solutions are merely limited to an expansionary financial policy.   

What the government has already done is preserving the incomes of individuals on the expense of companies and business owners, said the columnist, noting that in the recession, the government will have to support the continuity of companies.

The expansionary financial policy will serve as an alternative of the drop of stop role of the private sector, where the government has to seize the opportunity to implement structural reforms in the tax system and dependency on grants and loans to stimulate real investment, productivity and employment in a sustainable manner, said the writer. 

The government should not be happy with the temporary increase in food consumption, especially that the sector is the lowest in generating tax revenues, said the columnist, adding that the real problem that the government has to deal with is the drop in overall demand and decline in investment and their impacts on unemployment. 

The required austerity needs a political decision to sharply decrease the current expenditure, said the writer.

A country like the US can implement an expansionary financial policy so easily, especially that the process only needs orders to the printing press to print money, but when it comes to Jordan, it needs to refer to borrowing for expenditure, added the columnist.  

 

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