JSF paper sheds light on public debt

AMMAN — The Jordan Strategy Forum (JSF) issued a policy paper titled “Public Debt in Jordan” with the aim to shed light on the status of public debt in the Kingdom and offer recommendations to alleviate its negative impacts on the national economy.

The paper highlighted the importance of considering the volume of accumulated public debt and available means to realise a balance between benefits and incurred costs. This is in terms of competition with the private sector in the local credit market and the narrow financial space imposed by the public debt service on the financial policy, according to a JSF statement.

The forum showed that the World Bank stresses that the public debt margin should not exceed 77 per cent of GDP, and when the debt exceeds this percentage it can become a hurdle towards achieving economic growth.

According to the JSF, the public debt-GDP ratio in Jordan is relatively high compared with other countries where the Kingdom witnessed a gradual increase in this ratio since 2008. The COVID-19 pandemic repercussions also contributed to increasing this percentage from 95.2 per cent in 2019 to 106.5 per cent in 2020.

Consequently, the forum said that this increase resulted in higher levels of public debt services to the central government when compared to the capital expenditure from 79.4 per cent in 2016 to 151.1 per cent in 2020 with a value of roughly JD3 billion.

To avoid negative impacts on public debt in the future, the JSF highlighted the importance of attaching more attention to the scope of influence of higher interest rates internationally on the current levels of local debt. 

In this regard, the forum said that expectations show an intention by the US Federal Reserve Board to increase interest rates between three to four times in the 2022 fiscal year and in 2023, which can reflect as an increase in the value of public debt of Jordan. 

The JSF stressed the need to remove shortcoming in tax expenditure, which highlights the importance of granting “tax advantages” to consumers, producers and investors.

In 2020, the paper said that the biggest sources of tax expenditure in Jordan (lost revenues) were made by the sales tax on local goods and services by 3.42 per cent of GDP, sales tax on imported goods by 1.6 per cent of GDP, and customs fees with 1.72 per cent of GDP.

Meanwhile, the forum called for the redesigning of these tax expenditures in a fair and effective way through the exemption of main items from sales tax and reassessing all sources of tax expenditure in Jordan. If applied correctly, this will lead to additional tax revenues without affecting the total consumption in the short, medium, and long terms.  

The JSF also highlighted the importance of seeking support from the international community through dealing with G20 and Paris Club regarding the possibility of freezing debts temporarily and considering the exchange of debts from international lenders.