As the world welcomes
a third year of an undesired partnership with COVID-19 and its variants, Jordan
heralds 2022 with a business-as-usual attitude. The government cannot treat this
year, as it did over the past decade, as a year of low economic growth.
اضافة اعلان
Economists
worldwide were almost completely in agreement that availing liquidity to
businesses and individuals would be the first line of defense against COVID-19.
Increased liquidity in certain countries enabled businesses to meet their
obligations and survive.
Countries were
not looking at the efficiency of lending, but at sustainability. In Jordan, the Central Bank created a JD500
million small- and medium-enterprise (SME) lending program in 2020, increased
it to JD700 million in 2021, extended the terms of loans by one year, and
raised the borrowing limits. However, as noted by a recent World Bank report, the
increase in liquidity brought mixed results as government assistance went to
medium and large firms in the industrial sector. Still, overall, 15 percent of
firms closed permanently, one third had a drop in sales, and 50 percent delayed
payments.
Moreover, it is
widely felt that small firms did not benefit from this. Small firms,
particularly those in the services sector, were left out, and, consequently,
they suffered.
Data from a World
Bank survey conducted in mid-2021 shows that 42 percent of small firms
underwent a form of closure, and experienced a 40 percent decrease in sales,
and a 26 percent drop in employment. Small firms in the services sector had a
67 percent drop in sales in mid-2021 and were 20-30 percent more likely to exit
the market.
The economy
grew by 2.7 percent in the third quarter of 2021 relative to the third quarter
in 2020, which decreased by -2.2 percent.
One has to be
careful when computing and comparing growth rates to a reference year where
growth was negative. Such a negative rate means that the economy would barely
return to its level in the third quarter in 2019, which was not a great year
either, but it was a pre-pandemic year.
The fact that
the unemployment rate reached 23.2 percent during the third quarter of 2021
should have sent everyone scurrying for solutions. But it did not. One in two
of the youths aged 15-24 years is unemployed. Those are all alarming rates that
confirm the need for a set of solutions that depart from the regular track.
Due to the dire
circumstances, the income declined, as did wealth. The pandemic hit Jordan
after a decade of low growth and negative per capita income growth rates, such
that people resorted to spending from their savings, thus depleting their
wealth, which was already falling.
During
1995-2018, the wealth per capita in Jordan had already declined by 5 percent.
This is significant since Jordanians were already poor. The average citizen in
the group of other upper middle income countries, among which Jordan is
classified, has 4.3 times as much wealth as an average Jordanian.
The public debt
has already increased to about 113 percent of the GDP as a result of the
closures during most of 2020. Such high debt levels, especially given that the
government borrows to cover its current expenditures (salaries, pensions, rents
and debt service), undermines the effectiveness of the fiscal policy and the
government’s ability to implement the necessary countercyclical economic policy
and increase investment in human and physical capital (which have been falling
in recent years), as well as its capacity to boost private sector confidence.
This year is
not a normal year, and it should not be treated simply as another low-growth
year. Global institutions predict a 2.3 percent real growth rate; the
government budget predicts a 2.7 percent growth rate. While the latter is more
optimistic, the stipulated increase in tax collections and fees, as well as the
removal of subsidies (as stipulated already in speeches and published
government reports), will not lead to an expansion in the economy.
Let us hope
this year is treated with the sense of urgency it deserves.
The writer is CEO of the Envision Consulting Group and former
minister of state for economic affairs.
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