by Fahed Fanek / The Jordan Times
One has the right to wonder why the annual rate of economic growth in Jordan dropped to the low level of 2.5 per cent in 2012, and why no one expects this rate to exceed 3.5 per cent in this year, despite the fact that the economy used to achieve much higher growth rates in the near past.
Several factors contributed to this unpleasant result. Some are local, others regional and international, but I shall delve today on only one factor, namely public debt service.
The tables of the general budget for this year indicate that Jordan will have to pay, in foreign exchange, during the year, principal installments and interest amounting to JD613 million to foreign lenders.
This forms 2.6 per cent of the estimated gross domestic product of this year. One can conclude that had it not been for the heavy burden of foreign debt service, economic growth rate in Jordan could have reached this year 6.1 per cent instead of the targeted 3.5 per cent.
The total debt service of both domestic and foreign debt the Treasury has to pay this year will reach JD1,321.3 million. This figure happens to be almost equal to the deficit of this year’s budget, estimated at JD1,310 million. In other words, had it not been for debt service, this year’s budget would have shown a surplus of JD11.3 million.
Public debt service is not forming a burden on the budget only; it contributes to excessive pressure on the balance of payments, causing a big deficit in the current account, which is reflected in a melt-down of the Kingdom’s reserves of foreign exchange.
Public debt and budget deficit feed on each other.
Budget deficit caused mainly by debt service has to be financed by new loans that are added to the debt, increasing the future debt service in the form of installments and interest, which in turn increases the budget deficit to be covered by more debt, and so on.
The country is confronting a vicious circle that causes deficits in all financial and economic scales.
It is therefore unfortunate to find supporters of more deficit, and consequently more debt, who call for subsidising fuel, electricity, water, fodder, bread, etc., knowing that such subsidies cause a deficit in the budget to be financed by more debt.
Accepting a state of heavy indebtedness means that we want to live at levels higher than our means by borrowing the extra resources, creating debt that must be repaid by future generations, whose standard of living will be lower than the resources of the country would have allowed.
Debt is a form of borrowing, not to say theft, from our children and grandchildren.