| Kippreport.com

Revealed: Arab Spring Exposes Jordan’s Economic Policy Rifts

October 13, 2011 11:26 by Reuters

Jordan’s former central bank chief, ousted by the government last month after security personnel surrounded the bank to stop him entering, says he fears for the country’s economic stability as rising government spending pushes state finances deeper into the red.

“Am I conceited because I speak my view and don’t agree with government policies that will create problems in the future?” Faris Abdul Hamid Sharaf told reporters, responding to public criticism of him by Prime Minister Marouf al-Bakhit.

Just several years ago, Jordan was viewed by many businessmen as an economic success story; under reforms guided by the International Monetary Fund, it became one of the Middle East’s most open economies.

Now, political unrest across the Arab world has pushed Jordan into a big increase in government spending on salaries, food and energy subsidies and its social safety network, in an effort to head off domestic protests by placating the country’s poor. Millions of dollars of state money have been channelled to tribal areas that provide the backbone of support for the Hashemite royal family regime.

This has prompted the government to increase state spending this year by over 700 million dinars from its original plan to 6.95 billion dinars ($9.8 billion) through two supplementary annexes to the 2011 budget.

That makes the government’s budget deficit target this year, 5.5 percent of gross domestic product, look much too optimistic; economists and bankers think the deficit will be nearly 7 percent. Public debt was already rising before the additional spending — at the end of August it stood at 12 billion dinars or 57 percent of GDP. Including debt incurred by the national electric power company and guaranteed by the government, it is already above a legal limit set by Jordan of 60 percent, according to the finance ministry.

“The government is saying the deficit is a small price to pay in return for maintaining social peace and security. They are pursuing a policy of political convenience and appeasement. But they are just postponing problems at a higher cost,” said Jawad Anani, a leading economist and former deputy prime minister.

Earlier this year, Jordan’s economy was officially expected to grow around 3 percent in 2011, much slower than the average 7 percent seen over the last decade during a boom fed by high aid levels and capital inflows and investments.

But even 3 percent may not be attainable, officials now concede privately, as the kingdom is still struggling to recover from the global downturn of 2008-2009, which cut remittances from Jordanian expatriates in the Gulf.

Another blow to state finances is a record energy bill that is expected to top $4.5 billion after the disruption of Egyptian gas supplies to Jordan due to sabotage of the pipeline in the Sinai region. This prompted the kingdom to switch to more expensive diesel fuel to generate electricity.

“The government cannot touch or change 90 percent of the expenditure allocations in the budget. Economic conditions are not comforting,” an exasperated Finance Minister Mohammad Abu Hammour told Reuters.

TENSIONS

These tensions spilled over last month in the government’s sacking from the central bank of the 41-year-old Sharaf, a U.S.-educated banker who is the son ofAbdul Hamid Sharaf, a former liberal prime minister who tried to modernise the country’s tribe-based political structure before his death in 1980.

Sharaf said he did not know why he was ousted, suggesting it might be because he had “fought corruption within the banking sector and stood up against the entry of criminal elements”.

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