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French Version

IMF pushes for deficit reductions

Sales tax increase on staples sparks concern among economists Jordan's current annual per capita income is approximately $1500, far below required levels for a developing economy working diligently to meet requirements set forth by the IMF and World Bank.

JORDAN (Star) - IMF directives have resulted in the inclusion of a new sales tax on a growing number of what are considered basic commodities. The most recent additions put the number of products to have a sales tax levied at 87. Primarily foodstuffs and medicines, each now includes a 2 percent tax on each sale.
The government has explained the decision was taken to reduce the deficit and help support continued socio-economic reforms scheduled for 2002-2004. The government clarified its intent to maintain the subsidy on bread, wheat, and fuel products. The Sales Tax Dept announced the changes are expected to increase the treasury's revenues for 2002 to more than JD 600 million, a near 20 percent increase from 2001's JD 515 million.

The government's decision comes soon after His Majesty King Abdallah's endorsement of a legislative amendment to the Sales Tax Law that facilitates government selection of new commodities to fall under the tariff. The new amendment exempts the Armed Forces, churches, sport and cultural centers, and charity centers from paying sales tax on their purchases of select goods.

A number of economists have rejected the government's justifications for the increase in taxable goods. "The government should ask why the budget deficit is increasing?" says Dr Munir Hamarneh, professor of economics at the University of Jordan. "The primary reason behind this increase is a gradual increase in public expenditure. I do not accept that the government had no other alternative but the changes to sales tax. Such alternatives will, in the end, certainly affect governmental interests."

Hamarneh explained to The Star how the government pushed through this change at the urging of the World Bank and International Monetary Fund in an effort to reduce the current budget deficit by several points to six-considered a rational deficit percentage for international financial institutions. "The budget deficit fluctuates from one year to another, mirroring the bad performance of the government for the year," Hamarneh said.

Besides the deficit specifically, the government needs funding to finance the socio-economic transformation program launched earlier this year. The Minister of Planning, Bassem Awadallah, made it clear last week that the JD 250 million program is doing quite well so far. The government predicts 5.1 percent economic growth this year.

"It should be clear, the program is a method for the government to achieve its goals-notably economic growth and an increase in the annual per capita real income on a long-term basis," Awadallah explained.

Jordan's current annual per capita income is approximately $1500, far below required levels for a developing economy working diligently to meet requirements set forth by the IMF and World Bank. The government intends to double the Jordanian per capita income by 2015.

The primary concern in the implementation of a sales tax apart from other measures is how specifically it targets people's pocketbooks, affecting the real income of all. All Jordanians pay on the deficit and for reforms, regardless of ability. Economists have suggested a more moderate approach that targets those able to handle the increase and are currently benefiting from the economic reforms.

Hamarneh indicated the Kingdom is, in fact, witnessing gradual growth in what he termed its "axis of wealth." "The open-market policy the government is pursuing does not benefit the poor or the unemployed. Over the past few years, this axis of wealth has consumed the majority of the Kingdom's resources."

Economists like Hamarneh are concerned about the repercussions of the government's decision on the proverbial working man forced to live hand to mouth in the Kingdom. With some 26 percent of the population currently below the poverty line, he anticipates an increase in poverty from such legislation in the near future.

Many sectors have been affected by the recession brought on by almost two years of political instability in the region. Vital sectors like agriculture and tourism were the heart of the economy over the past decade. Now those sectors are facing significant difficulties. Cabinet sources do agree current policies will likely negatively affect the majority of Jordanians, but they assert more time and patience must be given for the government to achieve its goals.

The Minister of Trade and Industry suggests comprehensive developments in Jordan's social and economic sectors cannot be reached without a true partnership between the public and private sectors. "The private sector must play its role in the development process. With this in place, the government can change budget policies in the future," the minister added.

Hamarneh believes Jordan's relation with the IMF is a marriage of convenience that is proving harder to break. "The Kingdom's membership in the World Trade Organization means Jordan does not control its foreign trade relations. It is almost too late for the government to balance its interests with Jordanian needs if it fails to do so now," he concluded.

Ghassan Joha
The Star

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