Jordan Times
Friday, March 14, 2008
Kingdom faces higher fiscal
vulnerability - IMF
AMMAN (Reuters) - The International Monetary Fund (IMF) has warned the Kingdom
it would face worsening fiscal vulnerability if it fails to rein in growing
public spending that critics say is driven by political rather than economic
concerns, officials and politicians said on Thursday.
They said the IMF, which concluded a two-week mission on Tuesday had warned the
debt-laden country it needed to adopt "tighter macroeconomic policies" to curb
inflation and restrain public spending threatening to derail robust economic
growth.
The IMF team told officials they must meet this year's budget deficit target of
5.5 per cent of gross domestic product - the highest in almost a decade - by
"resisting new spending cuts" and tighter government spending.
"The IMF said this would achieve a significant reduction in fiscal vulnerability
and avoid a deterioration in the fiscal position and higher inflation that would
dampen overall growth," one official who requested anonymity told Reuters.
This was despite a bold move to reduce fiscal pressures when Jordan fully
liberalised energy prices and cut food subsidies last February after years of
subsidies which critics and politicians said eroded the living conditions of
poor Jordanians among the country's 5.7 million population.
Jordan said there was no alternative to the move to shield its economy from the
spiralling cost of imported oil.
The government forecasts inflation to almost double this year to around 9 per
cent from an estimated 5 per cent last year due to rise in energy prices,
imported food and other imports.
Another official said the IMF mission accepted grudgingly the government's
latest costly measures to get "public acceptance of the lifting of subsidies"
through hefty public sector salary hikes and expanding a social safety net.
The IMF team recommended a cap on growth in civil service salaries and pensions
to 3 per cent in real terms if the budget deficit was to return to comfortable 2
per cent of GDP by 2013.
The team expressed worry at the high level of government spending relative to
the size of the economy, saying it accounted for over 40 per cent of the
country's GDP.
Independent politicians and economists say the government has cut subsidies that
hurt the poor but public spending is spiralling to appease the civil service
body.
They believe formidable obstacles face decision-makers seeking to rein in
government spending in the country where political concerns traditionally
dictate budgetary priorities.
The IMF mission also forecast real GDP could ease slightly to 5.5 per cent in
2008 against close to 6 per cent last year.
But a healthy performance this year would be fuelled by robust activity in
construction and tourism, the IMF said.
Growth rate jumped to 7 per cent in 2005, and the economy remains underpinned by
local and Arab Gulf investments and a liberal business climate.