Reading a confused budget

The 2015 draft budget gives little hope for next year and, for the few that bother to read it carefully, is a manuscript for a failed movie. It is in my view a hastily put together budget. 

The finance minister’s budget speech started with the assertion that Jordan, according to IMF data, did better than the oil importing countries in 2014, because Jordan, supposedly, grew at 3.3 per cent while the oil importing countries grew at 2.6 per cent. This is not a very good assertion because economists compare not only growth rates but also the growth rate of the population. 

The idea is to subtract the growth rate of the population from the economic growth rate to determine the per capita growth rate. If the economy grew faster than the population then people’s welfare has improved as their real incomes grew, the reverse is true. Consequently, if the statement wanted to be economically correct, there would have been a comparison with population growth rates. For example, Japan has a negative population growth rate of 0.2 per cent, hence its per capita income grew at 2.6 per cent plus 0.2 per cent, which is 2.8 per cent; Jordan, on the other hand, with a 2.2 per cent population growth rate saw a real per capita growth of 1.1 per cent. 

Furthermore, if we add the 10 per cent increase in population due to the Syrian refugees, the per capita income has been growing at negative rates since 2012. Hence, we are not doing too well as the draft budget speech claims. 

Also, the budget is based on an oil price of $100 per barrel; but oil prices have fallen by 40 per cent as of June 2014, the lowest in five years. Does the ministry know something that pundits and analysts worldwide don’t? It should tell us why the oil prices will bounce back to $100 within less than 30 days, or adjust the budget accordingly.

There is also the boast that government expenditures are kept at the same level next year as this year (JD8.1 million). However, the 2014 level of spending was based on oil prices that for the most part of 2014 were near $100; now that they have fallen to $65 and are expected to go down further, the government will save approximately $1 billion which should be reflected in its expenditures. In other words, the expenditure item should fall by JD700 million if there is a real intent to cut spending since the energy is costing less.

The expected level of spending from the GCC grant is still very low and no explanation is offered. Further, it is supposed to be in addition to government spending, not in lieu of it. Moreover, any government that is offered such a generous gift and opportunity to alleviate the misery of its people and put them to work would have jumped at it; not in Jordan.

This line of thinking and the budget that emerged as a result will not create growth or development in the economy. The draft budget hence claims that next year’s growth will be modest, and it fails to explain why. In fact, it is a failed budget and should be rejected by the Parliament.

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