According to a recent publication by
the World Bank, global growth is projected to fall from 2.6 percent in 2023 to
2.4 percent in 2024. Developing economies are projected to grow by just 3.9
percent, and low-income countries should grow by 5.5 percent. Jordan’s economy
is expected to grow at 2.6 percent in real terms, and inflation will be 2.5
percent, thus making the nominal growth rate 5.1 percent. However, the attack
on Gaza may bring economic growth down to 2 percent, and the advice of the IMF,
which is basically to cut government spending, needs to be shunned if growth is
to increase beyond such a dismal rate.
اضافة اعلان
Governments in developing countries
often adopt procyclical fiscal policies that exaggerate peaks and troughs. In
general, in good times, procyclical fiscal policy (increased spending or
lowered taxation rates) tends to overheat the economy; that is, it causes
inflationary pressures, especially when the economy is at or near its capacity.
In bad times, it deepens the slump by decreasing demand, thus worsening
production and increasing unemployment. Understandably, procyclicality is 30
percent stronger and 40 percent more explosive in commodity-exporting
developing countries than in other developing economies.
However, Jordan continues to adopt a policy of fiscal procyclicality. One explanation is that Jordan is a rentier or semi-rentier economy because, over the years, it has been one of the highest aid recipients per capita in the world and has, over the years, subsequently become aid-dependent.
One possible explanation for
adopting such an erroneous policy is rentierism, whereby governments purchase
the loyalty of interest groups or individuals through economic rents. Countries
that sell commodities are, by definition, also rentier (the commodities were
simply there for them to generate revenue). In those countries, rent cascades
from the top to the bottom of the economic pyramid, which also derails the
cyclicality of the economy and the speed of the transformation of processes
from the incipiently simple to a more advanced, highly competitive, and
developed economy.
While procyclical fiscal policies
are associated with commodity-exporting countries, Jordan’s commodity exports
hardly qualify it as such. However, Jordan continues to adopt a policy of
fiscal procyclicality. One explanation is that Jordan is a rentier or
semi-rentier economy because, over the years, it has been one of the highest
aid recipients per capita in the world and has, over the years, subsequently
become aid-dependent. For the most part, aid is not reliant on global commodity
prices but on political relations. Hence, maintaining the status quo is built
into the economic landscape, which can best be tagged as one that aims to
preserve the status quo.
Yet preserving the status quo (a
procyclical fiscal policy) has a price. The government, any government in this
case, in such a state of affairs need not worry about economic growth because
aid can make up for shortfalls and deficits. All that is needed is a
perpetuation of aid or further aid. But that in itself is short-sided, as aid
may become a victim of a convoluted global economy where politics shift
allegiances and convert friend to foe, leaving the aid-dependent economy at the
mercy of other countries and economies.
Moreover, maintenance of the status
quo comes at the cost of not aiming for productivity (the rate at which a
country produces goods or services), which typically emerges from innovation
and creativity. Such states suffer from fiscal inflexibility as their
aid-buffered budgets become insufficient to please the rentier populace.
Yet the Jordanian government cannot
sit idly by as economic growth worsens; a 22 percent unemployment rate warrants
a countercyclical (not procyclical) fiscal policy. Without the active role of
the state, not only will the economy stagnate further, it will not develop.
Contrary to the views espoused by the World Bank and the IMF, a strong
proactive role of the state that is based on a selective industrial policy is
required, especially given the current boycott wave (which grants room for
domestic industry to compensate for foreign goods). Leaving the economy at the
whim and mercy of external factors weakens the economic potential of the nation
and dissipates any growth potential. And asking for a procyclical fiscal policy
is the wrong prescription, especially in 2024.
Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs.
Disclaimer:
Views expressed by writers in this section are their own and do not necessarily reflect Jordan News' point of view.
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