Is economy on the right track?

For a long time we used to measure self-sufficiency in the fiscal area by calculating the percentage of government current expenditure that is covered by domestic revenue.

The assumption was, and still is, that domestic revenue should be enough to finance all government’s day-to-day business and meet all current expenditures, including salaries and wages, rents, retirement compensations and all equipment needed to conduct the normal activity of the government.

To achieve self-sufficiency, all current expenditure must be covered by domestic revenues, not from foreign grants or loans, which should be used only to finance capital expenditure, especially infrastructure.

What we actually see is that the government is partially dependent on borrowing to fill the gap and finance part of its current expenditure.

This is not, of course, a healthy or sustainable state of affairs.

Facts and figures show that self-sufficiency in 2013 stood at 84.5 per cent, meaning that the government is covering 15.5 per cent of its day-to-day cost of running its current affairs from loans and foreign grants.

This is not the best way to run a government in an independent country. It is not sustainable.

The good news is that a substantial improvement of the scope of self-sufficiency took place in 2014, which is an achievement; it gained 5.3 percentage points to reach 89.8 per cent.

Jordan is still unable to reach a stage of bare minimum fiscal self sufficiency, but it is approaching this objective.

This is one of the major instruments used to indicate whether the country’s economy is properly managed and heading in the right direction.

It is time to tackle yet another indicator that is equally important in watching the direction of public debt. 

It is the comparison between the growth rate of debt and the growth rate of the economy expressed in terms of the gross domestic product in current prices.

The objective should be to not allow debt to grow at a rate higher than the GDP’s growth rate.

Such a situation means a rise in the debt-GDP ratio, as has been happening every year since 2004.

Despite the improvement that took place in 2014, Jordan’s fiscal performance is still below ambitions.

The outstanding net debt rose during 2014 by 7.6 per cent, while the GDP in current prices grew by only 6.6 per cent, of which 3.1 percentage points represent growth in real terms and 3.4 percentage points represent inflation expressed by the GDP deflector, which led to a rise in the debt-GDP ratio by 1.1 percentage point, to reach 81.2 per cent.

What is required from now on is to prevent debt from growing faster than the GDP measured in current prices.

Only if that is achieved will the debt ratio start to decline and we can claim that the Jordanian economy is finally going in the right direction.