2022 draft budget projects expenditures at JD10.0668b

AMMAN — The government on Monday announced the draft general budget for the fiscal year 2022, projecting public expenditures at JD10.0668 billion and pre-foreign aid budget deficit at JD2.604 billion, or 7.7 per cent of the estimated Gross Domestic Product (GDP).

In readout of the 2022 draft state budget and the 2022 draft budgets of independent public institutions before the Lower House, Minister of Finance Mohamad Al-Ississ said that the government expects the post-foreign aid budget deficit to stand at JD1.756 billion or 5.2 per cent of the estimated GDP, the Jordan News Agency, Petra, reported.

Detailing the figures, the minister said the 2022 draft budget estimates current expenditures at JD9.117 billion, up by JD327 million or 3.7 per cent from the JD8.79 billion set forth in the 2021 budget. 

The increase in current spending, according to the minister, is driven by higher payrolls and pensions of civic and military servants and retirees.

The minister revealed that public debt provisions — part of current expenditures — for 2022 are down by JD24 million to JD1.428 billion, which is a positive sign of higher domestic revenue as well as a revamped debt management strategy pursuing cheaper finance.

As for capital spending in 2022, Al-Ississ said the draft sets aside for this area of public expenditure an amount of JD1.551 billion, up by a major JD471 million or 43.6 per cent from JD1.080 billion in 2021, adding that JD274 million, or 18 per cent of total capital spending will go to high-priority projects.

The minister noted that the 2022 draft budget increased healthcare allocations by JD177 million to a total of JD1.113 billion against JD956 million in the 2021 budget, where the amount includes JD110 million set aside for the response and management of the pandemic.

The minister added that the education provisions for 2022 are increased by JD100 million to JD1.283 billion, comprising 12 per cent of overall spending in 2022.

As for domestic revenue, Al-Ississ said the 2022 budget estimates the revenue to stand at JD8.064 billion, up by a JD763 million or 10.4 per cent year on year. 

According to the minister, the upbeat projections of local revenue are driven by higher tax and non-tax collections at JD590 million, and JD173 million, respectively.

With regard to foreign aid, Al-Ississ said next year’s budget forecasts a total of JD848 million in foreign assistance against JD840 million in 2021, rising by JD8 million only.

On public debt, the minister said tax and customs reforms and a revamped public debt strategy will bring down the nation’s debt to 90.9 per cent of the estimated GDP in 2022, against 91.6 per cent in 2021 and will go further down to 84.4 per cent by 2024.

The main criterion for any government's ability to reduce its deficit is the primary deficit, that is, the difference between domestic revenues and public expenditures that the government can control, excluding public debt service. Therefore, the primary budget deficit is expected to decline in 2022 to about 3.1 per cent of GDP, compared with 3.5 per cent in 2021, Al-Ississ told the lawmakers.

As for the budgets of government units for the fiscal year 2022, the minister revealed that the gross revenue of these units is projected at JD860 million, including JD27 million in government support and JD95 million in foreign grants.

Moreover, spending of government units is expected to hit a total of JD1.513 billion, including JD1.009 billion in current expenditures and JD504 million in capital spending, the minister said.

Accordingly, Al-Ississ added, the 2022 budget marks a JD188 million increase in the total spending of independent government units, indicating that the 2022 pre-finance deficit in the budgets of independent government units is expected at JD653 million against JD364 million in 2021.

The minister indicated that the 2022 budget was formulated amid a "volatile and unstable" global economy, warning that predictions that the US Federal Reserve will raise the interest rate during 2022 may cast a shadow on the recovery in the whole world, including Jordan, which has not yet recovered, leading to an "adverse blow that must be dealt with prudently and thoughtfully".

Nevertheless, the minister stressed that the Jordanian economy has come closer than ever to being self-reliant, as local revenues constitute about 88.4 per cent of current expenditures, which calls for ramping up efforts to thrust growth and expand private sector contribution to the economy.

Al-Ississ said the government embarked in 2021 on a robust tax collection drive through combatting tax evasion and avoidance, culminating in domestic revenue surpassed year’s start projections without introducing new taxes or raising current ones, describing it as "an achievement the government is proud of".

Further highlighting 2021 figures, the finance minister said the economy grew by 1.8 per cent in the first half of the current year, and is expected to have grown by 2 per cent as the year winds down.

Additionally, Al-Ississ indicated that national exports picked up by 16 per cent in the first nine months of the current year, while foreign currency reserves hit $17 billion in the January-November period. Also, remittances by Jordanian expatriates in the first 10 months were north of JD2 billion.

According to the minister, the economy is now on a V-shaped growth trajectory, but high unemployment rates will prolong recovery, revealing that joblessness among Jordanians in the third quarter of 2021 slightly inched down to 23.2 per cent compared with 24.8 per cent in the preceding quarter.

Returning to the 2022 draft, Al-Ississ said next year’s budget targets three areas of priority, including improving the business-doing ecosystem, promoting competitiveness and employment and supporting priority and growth-propelling sectors, such as tourism, ICT, agriculture and industry.

To that end, the minister revealed, the government set aside JD71 million in 2022 budget to rejuvenate tourism, up by an unprecedented JD50 million, compared with previous years’ allocations. 

Similarly, an additional JD30 million is earmarked for a programme to support and upgrade local industries, in addition to JD27 million to cut power costs for small and medium industrial businesses.

The minister noted that the informal economy in the Kingdom is estimated to equal 25 to 30 per cent, or JD7.8 billion to JD9.5 billion of the Kingdom’s 2019 GDP, saying if this economy is added to the formal economy, it will greatly reflect on macroeconomic indicators and increase revenues, not to mention giving a real projection of the national economy.

On the other hand, inflation, as measured by the relative change in the cost of living index, is expected to reach a "healthy and beneficial" level for the economy of 2.5 per cent in 2022, compared to about 0.4 per cent and about 1.5 per cent in 2020 and 2021, respectively, the minister said.

The minister also indicated that the 2022 budget projections are based on forecasts that national exports will grow by about 5.4 per cent and imports by about 2.5 per cent, while the current account deficit of the balance of payments is expected to decline to about 4.5 per cent of GDP in 2022.

The minister said that the 2022 budget pursues goals that may seem, at first glance, conflicting, in that it seeks to control the public budget deficit and public debt, on the one hand, and stimulate the economy and increase capital spending on the other.

The minister explained, placing the Debt-to-GDP ratio on a safe and gradual downward trajectory requires raising economic growth at a higher rate than the increase in public debt, and this, according to the minister, will not be achieved without greater development investments on the one hand, and the government’s success in covering its financing needs at the lowest possible costs.

Al-Ississ said that the Ministry of Finance has studied several scenarios, all of which confirmed that the largest reduction in public debt will come from higher nominal growth rates, i.e. higher real growth and inflation remaining at healthy levels, and not through a reduction in capital spending.

He warned that austere and restrictive fiscal and monetary policies in such circumstances would lead to an economic downturn and a major imbalance in economic and social stability, as well as negative repercussions on local revenues.

The Jordanian economy is the closest ever to achieving self-reliance as local revenues account for 88.4 per cent of the current expenditures, he added.

The government's financial policy has had the biggest impact in facing "storms that hit the economy" and prevented the deepening of the economic contraction and avoided reaching the 2020 levels of -3 per cent, Al-Ississ said.

The minister added that the contraction rate of the current prices stands at 1.8 per cent and the rate of real prices stands at 1.6 per cent, which is below the registered rate compared with several countries despite the high-cost procedures made by those countries. 

Al-Ississ noted that it is imperative to stimulate the economic growth should be stimulated starting by the private sector to maintain competitiveness and prohibit monopoly and dominance, adding that stimulating the private sector can be done through lowering production costs of energy, real estate, labour and financing and encouraging the sector to provide jobs.

These procedures would enhance local resources, create sustainable resources of tax revenues according to a tax system that achieves economic and social justice and fights tax evasion, he added. 

Al-Ississ also said that the economy is expected to expand by 2.7 per cent and 5.3 per cent at fixed and current prices, respectively.