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
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