Diary
AMMAN (Petra) - The Amman Chamber of Commerce (ACC) has recently signed an agreement with the Euro-Mediterranean Association for Cooperation and Development (EMA) to strengthen cooperation in the fields of trade and investment between Jordan and Germany. Signed by ACC Chairman Riad Saifi and EMA’s President Horst Siedentopf on the sidelines of the Hamburg Logistics Forum, the agreement seeks to enhance business cooperation through exchanging ex....
The General Assembly held the Annual General meeting for the Arab Orphan Committee by the president of the Executive Committee Tayseer Kna'an. The partcipants discussed the activities of the Assembly in Jordan and Palestine and the most important development projects
The Committee of Training Courses and Continuing Education at Bar Association held a seminar about the environmental legislation between the legal concepts and practical application, it was attended by a large number of lawyers and those who are interested in the environmental field.
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How not to stimulate the economy
Written by Fahed Fanek
At a time when the central government carries foreign and domestic debt in excess of JD10 billion, equal to around 60 per cent of the gross domestic product (GDP), and with a budget deficit that reached JD1.5 billion in 2009, and is expected to be around JD1.1 billion in 2010 - and that should be brought down to safe limits - calling for stimulating the economy by increasing public expenditure is an unacceptable venture, equivalent to playing with fire.
It is good to stimulate the economy in order to increase the growth rate, but why should the stimuli be required from the overdrawn budget when other less costly alternatives are available? What is the real value of growth if it is financed by debt? Why shouldn’t we think of the stimuli in reverse when the government has to impose more taxes to be able to repay the debt, and what is the difference between a stimulation caused by additional public expenditure and a reduction of tax rates on income, which is?applied as of this year?
Growth that can be induced by extra public expenditure is artificial, temporary and subject to setbacks. Just consider the hundreds of billions of dollars spent by the American federal government in the form of huge stimulation package to save banks, insurance and other companies during 2008/2009, without achieving the positive economic growth it sought. The American economy started to slow down as soon as the government ceased to pump cash, inflating public debt.
Real economic growth should originate in agriculture, industry, tourism, mining, health care and higher education. These are not awaiting or demanding more public expenditure, for they will not benefit from such a happening. Real growth is the result of private sector’s activities and investments.
Those pressuring the government to stimulate the economy by spending more should take into account that the government is spending over JD5 billion, almost equal to one third of the GDP this year. Such huge expenditure should be more than enough to stimulate the economy and remove the need to spend even more in order to achieve a fictitious growth.
It is wrong, even dangerous, in Jordan’s specific situation, to try to make economic growth a product of public expenditure.
Wider budget deficit and higher public debt, above 60 per cent of the GDP, are not an acceptable price for raising economic growth this year from 3.4 per cent to 4 per cent. On the contrary, the reduction of budget deficit and bringing debt under control would create the confidence and the right atmosphere for safe investment, and consequently for real sustainable economic growth.
It is surprising that some analysts who are said to be economists and bankers still talk about a growth rate of only 2 per cent in the first quarter of this year, even though the data issued by the Department of Statistics indicated that the economy sectors did grow at a rate of 3.5 per cent in basic prices i.e., before adding net taxes on products, a fact that makes the government’s revision of growth rate for 2010 down from 4 per cent to 3.4 per cent absolutely baseless