'Drastic measures' needed to address budget woes

Unprecedented financial pressures and unsettling energy shortages should push the government to consider directing subsidies to the most vulnerable Jordanians only, experts agree. Economist Fahed Fanek said the government is currently “paralysed” as, due to political and social pressures, it cannot increase fuel prices, which have remained unchanged for almost six months despite the sharp rise in international oil prices. Government subsidisation of basic goods and services costs the budget over JD400 million a year. In May, Minister of Finance Mohammad Abu Hammour said that the government was considering a mechanism to direct the support to low- and middle-income segments. “In Jordan, we subsidise nergy prices with loans the government borrows from international lenders,” Fanek remarked, adding: “I consider this a type of corruption.” Government support for goods and services should go only to deserving Jordanians, Fanek told The Jordan Times, adding there are hundreds of thousands of foreigners in Jordan who benefit from these populist policies. The economist criticised columnists in daily newspapers for cautioning decision makers against attempts to raise fuel prices instead of educating the public on the financial difficulties the country is facing, accusing them of trying to gain more publicity at the expense of the country’s financial stability. Economist Khalid Wazani remarked that the government should fix flaws in the current subsidy system, which he said allows non-Jordanian residents estimated at around 20 per cent of the population and Jordanians with high or relatively high incomes to benefit from the subsidies. “The higher your income is the more you benefit from the government subsidies,” he said. There are various mechanisms the government can use to ensure that subsidies are directed to those who deserve support, Wazani, a former director general of the Social Security Corporation, said, explaining how policy makers often resort to a price distinction criterion under which certain products and services can be sold at different prices according to the city or region. For instance, water and electricity tariffs might be lower in Irbid or Tafileh than Amman, and residents of east Amman may pay lower tariffs than those in west Amman, a typically high-income neighbourhood, he explained. Another mechanism, Wazani said, could be smart cards that would be given to people who are in need of government subsidies. Jumana Ghuneimat, an economic analyst at Al Ghad daily newspaper, stressed the need for an adequate mechanism to direct subsidies to vulnerable brackets, emphasising that any solution should guarantee the dignity of people. However, she noted that finding an alternative to across-the-board government subsidies might take a long time, as previous government programmes, such as the one implemented in 2008 that provided Jordanians with coupons for gas cylinders, failed to yield results. “I support directing assistance only to people who need it, but the problem is in the mechanism,” Ghuneimat told The Jordan Times. She indicated that the government’s economic team is currently attempting to convince the premier to take a decision to reflect international oil costs on the prices of local fuel derivatives, warning that decision makers should take into considertion the political costs of such a move and hinting that more protests might erupt in response to such a decision. “Jordanians are aware of these difficulties but they say that this time the government should not solve its problems at their expense,” Ghuneimat said. She suggested that the government take immediate measures to generate more revenues and alleviate financial burdens on the treasury, such as imposing more taxes on the telecommunications sector, removing tax exemptions granted to private companies and to announcing an official state of emergency through the office of the finance ministry. An emergency state should include more public finance controls to halt capital spending and severe austerity measures regarding operational expenses, she noted. Wazani also suggested some solutions for the current financial situation in Jordan. Instead of relying on foreign aid, the government should control its spending and review public expenditure articles, he elaborated. Agreening with Ghuneimat that more taxes can be imposed on the telecommuniactions sector, Wazani also suggested more taxes on banks and a review of the income tax regulations which link the tax rate to the level of individuals’ income. He also pointed out that the increasing sales tax on luxury goods should be an option for the government, adding, in terms of capital spending, the government should prioritise its projects, and only implement those that boost economic productivity, such as infrastructure for investment schemes.