2022: Not a business-as-usual year! 17 1 2022

As the world welcomes the 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.

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.

https://www.jordannews.jo/Section-36/Opinion/2022-Not-a-business-as-usual-year-12011

About Jordan’s most precious asset 25 1 2022

According to Oxford Languages, human capital means “the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country”.

The World Bank launched the Human Capital Index (HCI) in 2018 to measure the development of human capital around the globe. Here is what one can glean from what the HCI says about Jordan’s human capital.

The first observation is that our HCI has fallen from 0.56 to 0.55 over the last decade. A child born in Jordan today will be 55 percent as productive when she grows up as she could be had she enjoyed complete education and full health. Notably, the rank of Jordan is lower than the average for the MENA region and the group of upper-middle-income countries, the income category in which Jordan is classified in terms of income.

The government in Jordan, according to 2017 data, spends 4.1 percent of its GDP on health, which is higher than the regional average and Jordan’s income group. However, this figure has fallen to 2.8 percent of the GDP in 2020. Also, 2 percent of the population in 2008 spent 10 percent of household consumption on health-related products, which is extremely high and shows the preference of the upper-income group for private health care facilities and services, rather than public.

Additionally, in 2018, the government spent 3.6 percent of the GDP on education, which is lower than both the MENA average (4.4 percent) and the average of its income group (4.7 percent). While the percentage has improved slightly to 3.67 percent in 2020, almost one-third of students in Jordan go to private schools, which is a primary indicator of the low quality of public education.

Moreover, according to the HCI, in 2015, 52 percent of 10-year-olds could not read and understand a simple text by the end of primary school, which was higher than the MENA average of 48 percent and Jordan’s income group average (38 percent). In harmonized test scores, Jordanian students scored 430 points, which was well below what is considered advanced attainment (630 points). Note that girls scored 444 in the harmonized test scores, while boys scored 415.

Social assistance spending was 0.4 percent of the GDP in 2015, which was much lower than both the MENA average (1.4 percent) and the average for Jordan’s income group (1.5 percent). In 2021, the level of social assistance in the age of COVID-19 increased to 0.6 percent, still way below the comparators. Therefore, we need not boast about the social assistance provided in Jordan as it is well below comparator economies.

In terms of employment, the HCI, citing 2016 data, states that 29 percent of the working-age population in Jordan is employed. The rate was lower than both the average in MENA (51 percent) and the average for Jordan’s income group (57 percent).

Recent data (2021) shows that 26.4 percent of the working-age population in Jordan is employed. In other words, the employment rate has fallen dramatically over the past five years. Also, the female participation rate in the labor force was 14 percent in 2019 (currently 14.5 percent), which is lower than the MENA average (31 percent) and income group average (47 percent) — Jordan is the third lowest country worldwide in terms of women employment.

The youth (ages 15-24) unemployment rate in Jordan was 35 percent in 2019 (currently 48.5 percent for the total workforce, 44.9 percent for males, and 63.5 percent for females). This was (and remains) higher than both the average for MENA (22 percent) and the average for Jordan’s income group (22 percent).

The HCI in Jordan is higher for girls than boys, which makes the unemployment rate for females even more drastic.

So, we are not doing very well in terms of nourishing or utilizing our human capital. Is this because the government does not collect enough in terms of domestic taxes and fees?

The government domestic revenues in Jordan have averaged 32 percent of the GDP over the period 2016-2020. In other words, of every JD1 generated in Jordan, 0.32 goes to the government. This is considerable and slightly above comparator countries.

One should then ask how this revenue (plus aid and loans) is spent. Is it focused on human capital?

Let us look at the data for 2021 as published by the Budget Department of the Ministry of Finance. Jordan spends 30 percent of the government budget, or 9.2 percent, of the GDP on the military and security apparatus; 11.5 percent of the budget (3.6 percent of the GDP) on education; 6.4 percent of the budget on education (2 percent of the GDP); and 2 percent of the budget on infrastructure (0.6 percent of the GDP). Consequently, spending on the military and security (30 percent) is much higher than the total spending (20 percent) on education, health, and infrastructure, which are essential for human capital development.

The upshot of all this is that in order to improve human capital in Jordan, the government needs to make sure that there are adequate and efficient public investment levels to improve health and education outcomes.

https://www.jordannews.jo/Section-36/Opinion/About-Jordan-s-most-precious-asset-12272