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Revealed: Arab Spring Exposes Jordan’s Economic Policy Rifts
Increased state spending has spectators predict that the Jordanian government's budget deficit will be nearly 7 percent. But how can Jordan proceed from here on?
October 13, 2011 11:26 by Reuters
But disagreements over economic policy appeared at least partly responsible. Sharaf, known as a fierce advocate of fiscal discipline, had repeatedly warned that wasteful subsidies were distorting the economy and hindering IMF-guided reforms.
Sharaf also had forthright views on the need to rationalise Jordan’s secret army expenditure. This made him enemies in a bloated military patronage system.
Prime Minister Bakhit, a conservative former general, said publicly that Sharaf’s free-market views ran contrary to the populist agenda of a government which claims to defend ordinary Jordanians from the abuses of the business elite. The current government came to power in February, during the Arab Spring unrest in the region, after King Abdullah sacked an unpopular pro-business prime minister.
Regardless of the specific issues at stake, the government’s action against the central bank governor, who was only ten months into a five-year tenure, raised questions about the predictability of economic policy-making.
“It sends a very, very bad signal. This was a political mistake of huge dimensions. This is a very worrying development,” said one senior Western diplomat, who requested anonymity.
Sharaf, who described his dismissal as illegal, was replaced by a long-time veteran of the bank, Mohammad Said Shaheen, a deputy governor. He is expected to focus on the central bank’s traditional role of defending the dinar currency, which is pegged to the U.S. dollar.
In March this year, Sharaf stood up to the government when it sought to overdraw its account at the central bank to pay civil servants’ salaries. He wrote to Bakhit and the finance ministry saying they had three days to come up with the funds, a rare move in a country where influential politicians are rarely challenged over spending.
“If you overdraw it’s a form of printing money. I am not going to let the government find an illegal window of financing,” he said.
Now some economists and businessmen fear that with Sharaf out of the way, the government could seek to finance its budget deficit by raiding funds at the central bank.
“If the central bank succumbs to pressure to give advances to the government to alleviate pressure on the budget by taking on more public debt, the bank could become a government puppet,” said Anani.
Prominent commercial banker Mufleh Aqel said, “The independence of the central bank must be maintained under all circumstances so that it does not fall under the government’s influence — especially at a time of expanding social programmes that appease rather than solve fundamental problems facing the economy.”
Jordan’s key role in protecting geopolitical stability in the Middle East makes it one of the highest per capita recipients of foreign aid in the world, according to figures from USAID, the U.S. aid agency. In the past, foreign aid has sometimes financed almost half the country’s budget deficit; Anani and others credit a $1.4 billion cash injection by Saudi Arabia this year for keeping the economy afloat.