The state of economic affairs in view of the world economic and financial crisis was not known when the 2009 budget was formulated, in mid-2008. Therefore, the Ministry of Finance undertook to revise all budget figures, taking into account the present local and international circumstances.
The ministry found that almost all the categories of revenues and expenditure should be scaled down, to reflect the unpredicted impact of the world economic and financial crisis.
The fact that the inflation rate in 2009, expected to hover around 7 per cent, has dropped to zero should lower the revenue and expenditure estimates. However, the crisis is expected to lead to a bigger reduction of revenues than of expenditures. This will naturally lead to a higher budget deficit.
The reason for this variation of the impact of the crisis, on both sides of the budget, is due to the fact that revenues are flexible. They are influenced by the level of economic activity and the rate of inflation. Expenditures, on the other hand, are not equally flexible, especially when it comes to salaries, rents and other fixed commitments.
Based on the above, the Ministry of Finance now expects domestic revenues to drop by JD513 million, or 10.7 per cent, and foreign grants to drop by JD276 million, or 39 per cent.
As far as current expenditures are concerned, the drop is estimated to be no more than JD235 million, or 4.9 per cent, and capital expenditure to decline by JD136 million, or 10 per cent.
If these estimates prove to be correct, total revenues will go down by 14.3 per cent while total expenditures will drop by only 6 per cent.
In this worst-case scenario, the budget deficit will expand by JD409 million, to be added to the original deficit allowed by the official budget, amounting to JD689 million, to become JD1,098 million, or 7.3 per cent of the gross domestic product, an unacceptable high deficit which should not be tolerated.
This bleak picture is drawn by the Ministry of Finance to show how things will turn out under the impact of the current crisis if the government does not intervene. The minister of finance shall not allow the fiscal situation to go into that risky direction.
The question now is what will the government do to prevent this worst-case scenario from happening, and how will it go about it in a manner to at least maintain the deficit as decided by the original budget, i.e., below 5 per cent of the GDP.
The measures revealed so far by the Ministry of Finance to deal with the situation are confined to some amendments to the tax laws, which, ironically, may reduce the proceeds from taxes next year.
This state of affairs calls for searching for ways and means to reduce expenditure and find new sources of revenue. The minister hinted at measures, such as liberalising the price of cooking gas and animal feed, pricing water in a way to recover the cost, and perhaps imposing a 70 fils per liter tax on gasoline.
The government is also advised to write off some departments and commissions that outlived their useful life and to seek more foreign grants to make ends meet. It does not have the luxury of waiting. Time is running and measures, if any, should be taken without further delay.
By Fahed Fanek
© Jordan Times 2009
