Clash of the monopolies - 28 August 2023

The recent dispute between two associations, the Jordan Insurance Federation (JIF) and the Jordan Medical Association (JMA), has garnered substantial attention from the media and the public. Physicians threatened to decline patient care until the matter was resolved in their favour. Under mounting public pressure, the government, represented by the Central Bank of Jordan (CBJ) as the regulator of the insurance sector, and the Ministry of Industry, Trade and Supplies (MOITS), home to the Competition Directorate responsible for safeguarding competition (not necessarily competitors) in the Kingdom, has stepped in to mediate.

Inflation and rising living costs

The Insurance Federation asserts that the JMA is proposing a 400% increase in physicians' fees. In contrast, the JMA counters with a 30 to 40% increase, attributing the decision to inflation and rising living costs. In response, the government has established a committee after engaging with both parties, aiming to find a middle ground.

The problem and its solution is unclear

However, the problem and its solution seem unequivocally clear. An examination of the Law Amending the Competition Law No. 12 for the Year 2023 highlights Article 6, which prohibits institutions with a dominant market position or significant market influence from abusing this power to impede, limit, or obstruct competition. The term "dominant organization" is defined as one capable of controlling or affecting market activities. This raises the possibility that fee setting could defy the law.

They risk becoming cartels
Another pertinent article is Article 20 (Paragraph 3-C), which directly pertains to the case at hand. It prohibits any association or private sector entity responsible for regulating or advocating for economic or commercial establishments from making decisions that breach competition regulations, restrict competition, or violate the provisions of this law and other legislations. Such actions incur penalties. This makes it illegal for associations, regardless of their nature, to establish prices for their members' services or outputs. The same rule applies to all associations; otherwise, they risk becoming cartels (effectively monopolies), as prohibited by Article 5 of the Law. Additionally, Article 8 A, 1, prohibits entities like producers, importers, wholesalers, or service providers from imposing a lower limit on resale prices.

It can be argued that no association or society possesses the right to dictate prices for its members. From an economic perspective, uniform pricing across the board leads to inefficiency, making discriminatory pricing a better alternative. The market, guided by skills and reputation, should determine who earns more or less among physicians, rather than the decision of an association.

Out of touch
Regarding inflation, the total price increase since 2008 stands at 6.67%, far from the claimed 30 to 40%, making significant fee hikes unwarranted. Moreover, the growth rate, whether nominal (Factoring in inflation) or real values, remains low, rendering any discussion of substantially raising prices for essential services out of touch with current circumstances.

Published in Jordan News: 

https://www.jordannews.jo/Section-36/Opinion/Clash-of-the-monopolies-30562

 

Checks and economic growth and decline 19 August 2023

Reports show that the number of checks circulated in Jordan has declined steadily over the period of 2018 – 2020, and started to rise again, but at a very slow rate, in 2021 and 2022. Given that checks are the preferred debt payment method in the country, it is worth investigating the reason(s) behind this rise and decline, whether there is an emerging trend, and if so, can this information be of use to analysts and policymakers.

 According to the Central Bank of Jordan (CBJ), the number of checks has declined from 16.18 million (numbers are rounded) in 2018 to 14.27 million in 2019, and 10.1 million in 2020.  The number of checks rose thereafter slightly to 10.17 million in 2021, and 10.27 million in 2022.  Hence the use of checks has declined significantly over the past five years by about 58 percent.

Looking at 2023, one notes that the number of checks has risen in the second quarter (1.59 million) relative to the first quarter (1.55 million checks). The total value of checks in circulation is JD9.77 billion in the Q2 of 2023, up by JD499 million from Q1 of 2023. The value per check has also increased from JD592 to JD614.

As to bounced checks, the number has decreased in absolute numbers from 51800 checks in Q1 to 50600 checks in Q2; however, as a percentage of total checks, there was a slight increase from 0.334 percent bounced checks to 0.375 percent. The good news is that the value per bounced check has declined from JD6158 to JD4916.

One possible explanation for the decline in the use of checks provided by the CBJ is that alternative and more efficient payment methods to checks have grown in popularity in recent years. Hence, according to this explanation, the dominance of checks as a means of payment is finally being challenged in Jordan. But the negative trend stopped after 2020 as the number of checks began to increase, albeit at a slow pace. How can one explain such an anomalous trend using the simple explanation provided by the CBJ?

There may be another less conspicuous reason for such a pattern. In the years 2018 – 2020, the per capita income in Jordan declined by 0.5 percent in 2018, 0.5 percent in 2019, and 3.7 percent in 2020. It’s also important to note that 2020, where the greatest decline in check usage occurred, also saw the most significant decrease in per capita income. On the other hand, 2021 and 2022 were years of positive growth in per capita income, 0.2 percent and 1.3 percent respectively, and also witnessed a slight rise in the number of checks in circulation. Consequently, one could deduce that the number of checks in circulation per year correlates with the per capita income in Jordan, a correlation worth pursuing.

Given that data on the number and value of checks in Jordan is readily available, while the per capita income takes longer to estimate, it is worth using the number and value of checks as coincident indicators to predict the direction of the economy. The ease of determination makes such a tool almost a costless planning instrument that provides readily available indications of the direction of the economy.

Published on Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Checks-and-economic-growth-and-decline-30408

Jordan’s decreasing inflation rate: celebration or more work ahead? 14 August 2023

Let us dig deep into all of its impacts and implications 

Recently, there have been calls in the media by officials and some columnists to celebrate the decline in the inflation rate in Jordan. Yet, the complexity of the issue is not being addressed in most of what is being published.

Jordan: A mixed economy

Jordan possesses a mixed economy, amalgamating various private freedoms, centralized economic planning, and government regulation. It has recently been reclassified as a low-middle-income country. Additionally, the economy is small and reliant on foreign loans, international aid, and remittances from expatriate workers.

From one school of economic thought to another
One can also assert that, over the years and depending on the prime minister in office, the type of economic interventions and instruments offered by the government swing from one school of economic thought to another.

Furthermore, the economy is viewed as an open economy with a small production base. Consecutive governments, without providing substantial support to businesses and the manufacturing sector in particular, have hastily entered into numerous trade-liberalizing agreements. This has been done at a pace surpassing that of many other countries.

Measured by consumer prices

In economics, inflation is defined as a rise in the general price level of goods and services in an economy, which constitutes a crucial aspect of macroeconomic governance in any economy. The inflation rate in Jordan, as measured by consumer prices from 1970 to 2022, has ranged between -0.9 percent and 25.7 percent, with an average annual inflation rate of 5.8 percent. In 2022, the inflation rate was 4.2 percent.

Interestingly, when inflation is high, the Jordanian Dinar purchases fewer goods and services, thereby diminishing the purchasing power of money. Conversely, when prices fall (referred to as deflation), consumers may choose to wait and spend less in anticipation of further price reductions. This phenomenon can be observed in Jordan regarding real estate purchases. Even as real estate prices have declined, people seem to delay purchasing real estate in anticipation of future deflationary pressures.

Inflation is brought about by three types of variables, which are not mutually exclusive and may occur simultaneously. The first is demand-pull inflation, which arises when buyers' aggregate demand exceeds the productive capacity (aggregate supply) of a nation. This type of inflation can be caused by easy money and low-cost liquidity, often due to low-interest rates. The second type is cost-push inflation, which pertains to increases in the prices of inputs such as wages or commodities necessary for production, like energy and equipment.

A third type of inflation: Expectations
The third type is inflation expectations, wherein people's anticipation of higher or lower future prices results in present price increases.

In Jordan, one can readily argue that the economy's openness and the limited scope of its industrial base have significantly impacted inflation. Jordan imports 87 percent of its caloric intake and 93 percent of its fuel demand. Historical data spanning 1970 to 2022 demonstrates a strong positive correlation (91 percent) between inflation in Jordan and global inflation; that is, prices in Jordan move in conjunction with world prices 91 percent of the time. Similarly, prices align with those in the EU and the US at rates of 65 percent and 64 percent, respectively.

It is important to note that economists prefer a low (though not zero or negative) and steady inflation rate, particularly since it affects salaried employees by eroding the purchasing power of their fixed incomes. This, in turn, could expedite the onset of a recession as aggregate demand dwindles. However, Jordan presents an interesting case once again.

Allowing wages to easily adjust to inflation
A substantial portion of wages in Jordan are non-contractual (informal), allowing wages to easily adjust to inflation. According to the International Monetary Fund (IMF), the informal economy in Jordan accounts for 26 percent of the economy's size. In terms of employment, 46.1 percent of workers hold informal jobs.

Consequently, only 54 percent of workers (those formally employed) are directly and adversely impacted by inflation, experiencing wage stickiness.

The remainder may require immediate adjustments based on their employment type. Unfortunately, the Employment Cost Index (ECI), a quarterly economic series delineating labor cost changes for businesses, is not measured in Jordan. Otherwise, it would provide an estimate of the impact of inflation on labor costs.

A surge in capital costs
Despite all of the aforementioned points, one certainty remains: with over 90 percent of formal credit acquired from banks, elevating borrowing costs raises production expenses due to the surge in capital costs. This, in turn, affects consumption, especially for significant purchases. In other words, both Jordan's aggregate demand and supply will decrease at a time when the country is grappling with a prolonged recession and one of the world's highest unemployment rates.

So, before one begins to celebrate the declining inflation rate, conducting thorough research by trained economists is advisable. After all, Jordan exports talent, and its economists make positive contributions to institutions worldwide.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Jordan-s-decreasing-inflation-rate-celebration-or-more-work-ahead-30296

Jordan needs an industrial policy - 05 August 2023

The economic debate regarding the effectiveness of industrial policy is at an all-time high. An industrial policy is usually a set of actions that combine and coordinate government efforts to bolster economic activities in one or more sectors of the economy. They could include strategic protection of certain industries, government subsidies, direct public sector investments, tax holidays and breaks, supply-chain resilience, job creation, better-paying jobs, greening the economy, etc.

After having been shunned for decades due to the pervasiveness of neoliberal demagoguery, and the focus of analysis on import duties, there is currently a growing prevalence of industrial policies. Furthermore, as in the past, the pursuance of such policies is led by the countries of the global North.  It is time that Jordan devises and implements an industrial policy.

International examples
The Biden Administration issued legislation last year that would pump over a trillion dollars into the economy with a focus on innovation, technology, IT, green economy, and infrastructure. The legislation, which intends to syphon investment out of other countries, create new jobs in the US, and maintain its innovative and experiential global leadership is camouflaged in a legitimate sounding cloak of creating a greener economy.  

But the US is not alone, the European Union is introducing similarly protective legislation on semiconductors to increase the EU’s share in global chips production capacitors. China also aims to boost its high-tech manufacturing. Furthermore, the World Economic Forum believes that industrial policies will have a significant impact on the global economy in the coming years. 

Economic wars
Although industrial policies may trigger economic wars reminiscent of the 1930  Smoot-Hawley Tariff Act, a United States law that raised import duties to protect American businesses and farmers. The result was severe retaliation by many foreign governments. China is already imposing its protective measures on semiconductor sales in response to the recent US deglobalizing actions.  

There is almost a consensus among economists that industrial policies will deepen geo-economic rivalries and tension, and, if they become widespread, reduce competition in some areas as countries attempt to monopolize certain industries or products, relocate economic activity and increase sovereign debt.

However, some believe that industrial policy will also increase innovation. Moreover, the success of so many countries that adopted industrial policies underscores their effectiveness in pushing the development of economies that adopt such policies.

Jordan’s case for innovation
Jordan needs to have an industrial policy with an emphasis on innovation. Why innovation? Because innovation is the vehicle for enhancing productivity, productivity increases the incomes of workers, business owners, and government—and they all need a boost right now. Furthermore, innovation attracts foreign investment and investors as well as domestic investment; thus investment promotion is more likely to succeed in economies where productivity is growing at a fast pace.

Alas, currently Jordan’s score on the Global Innovation Index (GII) in 2022, ranked 78 out of 132 countries, is no cause for celebration. Jordan is weakest in infrastructure, ranked 100, and not doing so well in human capital and research, at 76th place, in business sophistication it ranked 75th, knowledge and technology outputs, 76th again, and creative outputs, 78th. Hence, the industrial policy that should be adopted must be mission-oriented with innovation enhancement being at its core. Otherwise, the necessary innovation solutions will not happen, and productivity will remain stymied.

Resources should be reallocated to funding innovation whereby the government finances research that is done by the private sector.  The success of the research can be availed to the private sector for developing and commercializing its results under special conditions that ensure its spread throughout the economy.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Jordan-s-decreasing-inflation-rate-celebration-or-more-work-ahead-30296

بين الحرية والابتكار 30 7 2023

 من الواضح أن الرفض الشعبي واسع النطاق للتعديلات الأخيرة على قانون الجرائم الالكترونية مبرر ومشروع، والأفضل التراجع عن هذه التعديلات كليا لأن من الواضح أنها تهدف لتقليص مساحات الحرية لدى الأفراد والمؤسسات.

تحذّر كتابات ونصائح الحكماء من عواقب تقليص الحريات. فالتاريخ وأسفاره التي ينهل ويتعلم منه ومنها كل ذو بصيرة يروي العديد من القصص التي ينبغي أن توجّه فكر وإجراءات كل مسؤول عن مستقبل الاقتصاد الأردني.

لقد وصف أمارتيا سين، الحائز على جائزة نوبل واقتصادي التنمية المشهور عالميًا، "التنمية" بأنها "حرية" ، ومن هنا جاء كتابه الرائع، "التنمية كحرية"، حيث جادل فيه بأن الحرية ليست فقط الهدف الرئيسي للتنمية بل الوسيلة الرئيسية اليها. ومن بين تأكيدات سين الأساسية أن الحرية السياسية والشفافية مترابطتان بشكل كبير. ولضمان الشفافية، التي هي أفضل علاج للفساد والريعية، يجب أن تكون هناك حرية للصحافة بكافة أشكالها.

ولكي لا يقال أن هذا كلام تنظير وفلسفة، دعونا نزور قصة تاريخية حقيقية من الكتاب الهام "لماذا تفشل الأمم"، بقلم دارون أشيموغلو وجيمس روبنسون حول طباعة الكتب. قدم يوهانس جوتنبرج للعالم في عام 1445، مطبعة للكتب في مدينة مينز بألمانيا لتصبح طباعة الكتب من خلال الآلات (بدلا من الممارسة السابقة وهي الكتابة باليد) وبالتالي انخفضت تكلفة الطباعة بنسبة 90٪، وأصبح التعلم أكثر سهولة وتحسنت إمكانية الوصول الى العلم والآداب تحسنا كبيرا. وفي غضون 15 سنة (عام 1460) تم إنشاء مطبعة أخرى في مدينة ستراسبورغ بفرنسا، وتأسست بعدها مباشرة مطابع في روما والبندقية. وفي عام 1476، تم إنشاء مطبعة في لندن تلتها مطبعة أخرى في أكسفورد عام 1478. وبالنتيجة انتشرت المطابع في جميع أنحاء أوروبا في غضون ثلاثة عقود، وبدأت أوروبا في القراءة والتطور والتعلم لتصبح دولها بعد ذلك دولا متقدمة يسودها الرخاء.

وماذا عن الشرق؟ في عام 1485، منع السلطان العثماني بايزيد الثاني  المسلمين الذين كانوا تحت حكمه من الطباعة باللغة العربية، وأكد السلطان سليم الأول الحظر في عام 1515. وفي عام 1727، أي بعد ما يقارب ثلاثة قرون من اختراع المطبعة وانتشارها في الغرب، منح السلطان أحمد الثالث إذنًا بممارسة الطباعة لشخص واحد (إبراهيم موترفريكا) شريطة أن يقرأ الكتب المطبوعة ثلاثة من كبار قضاة الدولة يشرف عليهم وعلى العملية برمتها قاض رابع بحجة التأكد من عدم وجود أخطاء في المطبوعات. وكما هو متوقع، طُبع عدد قليل من الكتب في ظل هذه الرقابة الخانقة، حيث تم طباعة 17 كتابًا فقط في ظل الحكم العثماني خلال 1729- 1743.

أما بالنسبة للدول التي كانت تحت الحكم العثماني ومنها العالم العربي. للأسف، أصبحت المنطقة بأكملها متأخرة بثلاثة قرون ونصف عن بقية العالم، حيث لم يتم إدخال الطباعة إلا في مصر عام 1798 عندما ترك جيش نابليون بونابرت المنسحب خلفه مطبعة لتصبح من خلالها مصر رائدة المنطقة من حيث المنتجات الثقافية والعلمية.

وهنالك قصص أكثر حداثة كقصة الدولة العربية التي حظرت اقتناء او استخدام جهاز الفاكس حتى عام 1999. وقصة دولة أخرى في المنطقة منعت مواطنيها من الحصول على جوازات سفر حتى الستينيات لكي لا يتعرفوا على كيف يعيش ويُحكم الناس في العالم الخارجي.

المغزى من سرد هذه القصص، إن لم يكن واضحًا للآن، هو أن من أكثر التدبيرات أو الإجراءات الحكومية كسلاً (تخفف الجهد على البيروقراطي وتريحه بينما تضر بالأمة وتطورها) هو حظر النشاط بدلاً من تنظيمه بشكل صحيح ومفيد للأمة. فأي دولة تدعي أنها تسعى إلى الحداثة والتنمية لا تقبل أن تكون تشريعاتها حافلة بالتهديدات والعقوبات المشددة والغرامات المبالغ فيها وأوصاف غامضة للجرائم المحتملة والنية الواضحة للداني والقاصي بتقليص الحريات.

أليس من الأجدى للأردن أن يرفض هذه المسوّدة البائسة لتعديلات قانون الجرائم الالكترونية وأن نركّز بدلا من ذلك على تنفيذ بنود رؤية التحديث الاقتصادي وتحقيق معاييرها (ومن بينها إيجاد 100,000 وظيفة هذا العام أو منذ عام من إطلاق الرؤية)؟؟؟؟

Preserving freedom and progress – Why rejection of the Cyber Security Law amendments is justified - 30 July 2023

The widespread rejection and disdain of the recent amendments to the Cyber Security Law are justified. The writings and advice of the stoics warn of the consequences of curtailing freedoms, and history, and that scholar that teaches the wise, tells many a story that should guide those in charge of Jordan's destiny now.

Amartya Sen, a Nobel laureate and world-renowned development economist, described the development as freedom. Hence, his magnum opus, "Development as Freedom," where he argued that freedom is both the principal objective of development and the primary means of development.

There must be freedom of the press in all its forms
Among Sen's primary assertions is that political freedom and transparency are highly interlinked. To ensure transparency, which is the best cure for corruption and rent-seeking, there must be freedom of the press in all its forms.

But enough of theory, let us take a look at history
But enough talk of theory and philosophy; let us visit a true historical story from the great book, "Why Nations Fail," by Daron Acemoglu and James Robinson.

In 1445, in Mainz, Germany, Johannes Gutenberg presented to the world his book press. Before him, books were written by hand, which made the books costly and only accessible to the clergy and the rich.

The cost of printing thus fell by 90 percent and learning became more accessible and possible. Within 15 years, in 1460, a press was established in Strasbourg, France, followed immediately thereafter by presses in Rome and Venice. In 1476, a press was set up in London, and another was set up in Oxford in 1478. Within three decades, presses were spread all over Europe, and Europe began to read and develop.

Three judges to rule
On the other hand, in 1485, the Ottoman Sultan, Bayazid II, banned Muslims under his rule from printing in Arabic, and Sultan Selim I enforced the ban in 1515.

In 1727, almost three centuries after the invention of the press, Sultan Ahmed III granted one man, Ibrahim Muterferrika, permission to print.

However, three judges had to read the printed books to ensure that there were no mistakes in them. A fourth judge supervised the whole process. As expected, few books were printed under this stifling control process. Only 17 books were printed under Ottoman rule during 1729-1743. Consequently, Ibrahim and his offspring gave up the press in 1797.

As for the countries under Ottoman rule, the press was only introduced in 1798 in Egypt when Napoleon’s army left it behind. And no wonder why Egypt came to lead the region in terms of cultural and scientific products. Meanwhile, the whole region was three and a half centuries behind the rest of the world.

The fax became obsolete
Another story is the ban on the fax machine in a neighbouring country until 1999, by which time the use of the fax was becoming obsolete as email replaced it. Another country banned its citizens from having passports until the 1960s so they would not be exposed to how people are governed in the outside world.

The moral of recounting these stories, if it is not apparent by now, is that one of the laziest exercises in governance, one that relieves the bureaucrat and harms the nation and its development, is to ban an activity instead of properly regulating it.

The many implied threats of severe punishments, exaggerated fines, vague descriptions of would-be crimes, and the obvious intent of curtailment of freedoms do not belong to a state that claims to seek modernity and development.

Let us focus elsewhere
Let us just do away with this miserable draft and focus on implementing the Economic Modernization Vision (EMV) and achieving its benchmarks (among the 100,000 jobs created this year or was it a year from its launch, I wonder!).

Published in Jordan News: 

https://www.jordannews.jo/Section-36/Opinion/Preserving-freedom-and-progress-30013 

Mail my package, please (16 July 2023)

A recent flurry of complaints has surfaced yet again about the spread of mail orders and the eased customs regulations on packages valued at less than JD200, placing customs fees/taxes at JD5–10 per package. The attack on mail orders has focused on the losses to the importing merchants as customers choose to purchase through mail orders.

However, the arguments used are not only remiss but also one-sided and lack comprehensiveness.

Retailers in Jordan complain that such a practice, allowing packages of mail-order purchases to enter the Kingdom at such a small fee, is harmful to them and the government budget (they claim that the government loses out on what can be more revenue in customs). Hence, they are asking for a revision of current regulations. Additionally, they claim that those who purchase through mail-ordered packages risk being sold fake products and will suffer from being unable to return the items.

The claim regarding the budget is meant to urge the government to tax the mail parcels further. Such an argument is bogus as it is unlikely that the government would generate any revenue if it were to depart from the current regulation and go into over-taxation. Simply put, people would stop buying through the mail, and the government would lose the revenue it currently generates from the current 1.1 million mail parcels per year.

Also, it is well established in the economic literature that if a tax rate is doubled, its deadweight loss (the overall economic loss in an economy caused by a new tax on a product) will quadruple. In other words, the excess burden on the economy (buyers and sellers) will increase faster than revenue increases. It is, therefore, important when suggesting policy changes to consider not only the change in government revenue a tax increase would cause but also the increased deadweight loss the tax increase would perpetuate.

Furthermore, many of those that use mail orders from overseas are guaranteed the authenticity of the products (while some stores in Jordan offer fakes unbeknown to the buyers) and are offered return policies, including money-back guarantees that are not commonly available in the retail stores in Jordan.

Moreover, people who order goods via mail seek alternatives, the newest or modern varieties, and options that may be available outside the Jordanian market. Most Jordanian retailers do not turn over their products quickly and keep displaying old merchandise. One reason for this is the excessive taxation paid on such products. Hence, buyers would not purchase the offered retail product because it is not what they want. A policy such as raising tax that limits their choices is a lazy and blunt instrument, to say the least.

The real problem that retailers suffer from when it comes to imports is not mail parcels but the high and numerous taxes and fees. Jordanians pay 121 types of taxes and fees. Look, for example, at some of the taxes that importers face: Tariff tax, unified additional tax, general sales tax, fines, deposits, and insurance, fees for combustible materials, payments to revitalize tobacco cultivation, rewards, and endeavours, universities, and municipalities, subsidy fees for agricultural products, other department fees, veterinary fees, passport fees, livestock census fees, stamp fees, fees for displaying cinematic film, overload fines, walking fees, road tolls, drawing paintings of Jordanian products, inspection fee, additional tax, social affairs tax, insurance for Al-Hussein City for Youth, insurance for the Directorate of Civil Aviation, taxes for municipalities,  taxes for universities, additional tax, and import fees.

Such a baffling and innovative array of taxes fees can best be described as a comedy of compiled errors. Can you imagine what a dilemma tax compliance is for importers? Also, they have to pay the import duties and fees whether they end up selling the product, which explains why retailer turnover of goods is extremely low. 

Alas, the creativity of the legislature and executive branches of government in the search for a fistful of dinars and a few dinars more is genuinely baffling. Instead of restricting people’s choices as a policy response, let’s lower the taxes and fees, which is where the problem lies. It is not the fault of people that they decide to maximize their own choices and utilities; and it is not a bad that foreign producers and shippers are mass customizing and shipping efficiently; in developed countries where customs duties and fees are low, governments hardly ever face such a complaint about mail orders.

Published on Jordan news:

https://www.jordannews.jo/Section-36/Opinion/Mail-my-package-please-29756

Busting economic myths, Jordan does not consume more than it produces 10 July 2023

International development organizations such as the World Bank and the IMF often claim that Jordanians consume more than they produce, raising concerns about the economy's sustainability. However, historical data contradicts this claim, demonstrating that it is not always the case.

Let us examine the historical data using the ratio of final consumption expenditure (household and government) to GDP, as provided by the World Bank. From 1976 to 1985, this ratio stood at 113 percent, driven by aid inflows and rising incomes in the oil-producing Gulf countries. In 1986-1989, the ratio was 100 percent, indicating a balance between expenditures and income. Toward the end of this period, expenditures were even lower than income (99 percent and 95 percent in 1988 and 1989, respectively). From 1990 to 1999, consumption relative to GDP was 95 percent, consistently lower than income. In the period from 2000 to 2019, consumption accounted for 98 percent of income.

Jordan is not consuming more than it produces
These findings indicate that Jordan is not consuming more than it produces. However, the country's spending has a limited impact on labor productivity, resulting in a decline in per capita income. Recently, the World Bank downgraded Jordan's classification from upper middle-income to lower middle-income, attributing the change to adjustments in population estimates used to calculate per capita income.

Thus, earning Jordan the dubious honour of being the only country last year whose classification has been downgraded.

Proves to be harmful
Government consumption expenditure not only fails to enhance productivity and competitiveness but also proves to be harmful. Why? Because it is pro-cyclical, increasing during times of high private demand and decreasing during low private demand, contrary to John Maynard Keynes' counter-cyclical theory.

The recent 2.8 percent increase in GDP in the first quarter should not be cause for celebration. It should be compared with the first quarter of 2022 when growth was 2.5 percent, rather than the fourth quarter. Additionally, the growth is not attributed to government economic policies, decrees, strategies, or actions. Instead, it is primarily driven by government services and the banking sector, which does not indicate a significant recovery.

So, the famous phrase uttered by the Noble Laureate economist Milton Friedman “We are all Keynesians now,” which refers to the government’s involvement in the economy to spur total demand in times of low economic activity, does not apply to Jordan. In fact, in Jordan, we are not Keynesian now, we were never Keynesian and looks like we are not likely to become Keynesian any time soon.

In conclusion, Jordan needs to fit the Keynesian economic model, which emphasizes government intervention during periods of low economic activity. The country has never adhered to this model and is unlikely to adopt it in the future. Can we change this paradigm? I hope that we can, instead of the eat, pray, and love version we are going with now.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Busting-economic-myths-Jordan-does-not-consume-more-than-it-produces-29655 

الاقتصاد والتعليم في الأردن 21 6 2023

 

خضعت مسألة التعليم والإنفاق عليه للكثير من الحوار بين الاقتصاديين، فهل نعتبر التعليم سلعة عامة ام سلعة خاصة؟ فالسلعة العامة لها خاصيتين هامتين وهو ان استهلاك شخص ما لا يقلل من جودة استهلاك أخر لها، كما أن استهلاك أحد ما لها لا يعني استبعاد الاخرين من استهلاكها، تماما كخدمة الأمن الوطني التي يقوم بها الجيش، فهو يحمي كل من في الوطن دون تمييز أو إقصاء.

حسب هذا التعريف لا يعتبر التعليم سلعة عامة بل هو سلعة خاصة ينتج عنها منافع خاصة لمتلقيها.  وهو ما يدعيه أتباع مدرسة شيكاغو التي يرتكز عليها فكر صندوق التقد والبنك الدولي. ولكن من ناحية أخرى فان التعليم يؤدي الى منافع عامة وليست خاصة فقط، فقوة العمل الماهرة المتعلمة ضرورية بل هي ركيزة أساسية وداعم لا يستغنى عنه في بناء وانتاج اقتصاد يقوم على المعرفة ويقود الى ثراء الدولة، وبالتالي الحكومة من خلال ما تفرضه من ضرائب ورسوم وبالتالي يُمكّنها من تقديم خدمات عامة أفضل. والتعليم هو سلّم الفقراء للخروج من مصيدة الفقر، كما أن رفع سوية تفكير الفرد وقدراته على الانتاج يؤدي الى تحسين أوضاع الآخرين وليس وضعه هو فقط. ولقد ثبت وعلى مر قرون طويلة بأن الدول التي لا تستثمر في التعليم او توليه الاهمية الكافية هي الدول الخاسرة والعكس صحيح.

إذا، بغض النظر عما يعتقده البعض بأن التعليم سلعة خاصة يجب أن تتوفر لمن يستطيع أن يدفع تكلفتها، فإن التعليم مسؤولية وطنية وحكومية والاداة الاهم في رفع سوية التنمية في الوطن.

وبالنسبة للأردن، هذا البلد الذي كان رائدا في المنطقة من حيث مستويات ونوعية التعليم فيه، نجد أننا وقبل 25 عاما وبالتحديد في عام 1996 كانت نسبة الإنفاق العام (الحكومي) على التعليم تصل الى 7.5% من الناتج المحلي الإجمالي، ولكن، وبعد ربع قرن، ورغم ارتفاع أعداد الطلبة بحوالي 70% إلا أن الإنفاق تراجع ليصبح 3.2% من الناتج المحلي الإجمالي.

وإذا نظرنا الى الموازنة العامة للعام 2023، نجد انه تم تخصيص حوالي ثلاثة مليار دينار من النفقات الجارية للإنفاق على الأجهزة الأمنية والأمن العام وهو مبلغ يفوق بكثير مستوى الانفاق على التعليم والصحة والنقل معا بنحو 8%، كما ان الإنفاق تحت بند دعم الجامعات الحكومية بلغ 70 مليون دينار وهو أقل مما كان عليه عام 2021 حين كان الدعم 74 مليون دينارـ مما يُعني تقليل الإنفاق على التعليم بالقيمة المطلقة بالرغم من تزايد أعداد الطلبة المطرد.

ربما كان السبب في تراجع الإنفاق هو اتباع برامج الإصلاح التقشفية التي يقدمها صندوق النقد الدولي للأردن وغيره من الدول. ولكنا يجب ان نتفق تماماً مع فكرة أن لا تمس اي إجراءات تقشفية رواتب المعلمين سواء أولئك في وزارة التربية والتعليم أو في التعليم العالي، فالأولى التوجه بدلاً من ذلك الى ترشيد الإنفاق بشكل عام في الحكومة وإعادة التوجيه نحو رفع رواتب المعلمين ورفع كفاءاتهم من خلال برامج التدريب والتعلم المتطورة، وتحسين المدارس وجعلها مدارس تجميعية كبيرة بملاعب ومختبرات وأنشطة تحفز الطلبة على التفكير التحليلي الناقد والعمل كفريق والتواصل مع الآخرين. لا بد من تحسين التعليم العام في الاردن بحيث لا يكون هناك فارق كبير بين التدريس في المدارس العامة والخاصة.

على الأردن العمل على تحسين النظام المدرسي بأكمله. ففي الوقت الحالي يتسع حجم الفجوة بين المدارس الخاصة والعامة، مما يعني أن الفقراء لن يخرجوا من مصيدة الفقر الموروثة عن آبائهم وأمهاتهم، بينما يصبح أبناء الأثرياء أكثر ثراءً. ليؤدي الانقسام المتزايد بين تعليم أبناء الأغنياء والفقراء إلى تداعيات اجتماعية وسياسية واقتصادية تعاكس مسار التنمية في الأردن.

الوضع الحالي لا يقتصر على الأردن، فقد تراجعت البلدان النامية في جميع أنحاء العالم عن الاقتصادات المتقدمة في التنقل التعليمي بين الأجيال (والذي يؤدي أيضًا إلى انتقال الدخل بين الأجيال)، بينما أدركت الاقتصاديات المتقدمة أنه ليس لدى كل الآباء ثروات وممكّنات ينقلونها إلى أطفالهم، وبالتالي فقد قامت الحكومات بملء هذه الفجوة بين الفقراء والأغنياء من خلال أنظمة تعليم تمكينية عامة ومتاحة للجميع.

إن البلدان التي لا تلتفت إلى أهمية هذا الامر وتتعامل معه تواجه نتيجة مؤلمة وهي أن يزداد فيها الفقر والتخلف عمقاً وانتشاراً. ولقد أدركت الدول المتقدمة أيضا أهمية تكوين رأس المال البشري وهو ما يعرفه قاموس أكسفورد بأنه "المهارات والمعرفة والخبرة التي يمتلكها الفرد أو السكان، ويُنظر إليها من حيث قيمتها أو تكلفتها بالنسبة لمنظمة أو دولة". وهو رأس مال يضاهي بل يفوق في الاهمية رأس المال النقدي أو ذلك الناجم عن احتياطيات البلد من المواد الخام. 

أطلق البنك الدولي مؤشر رأس المال البشري (HCI) في عام 2018 لقياس تطور رأس المال البشري حول العالم. ويلاحظ أن مؤشر HCI الخاص بنا قد انخفض من 0.56 إلى 0.55 خلال العقد الماضي. الأمر الذي يعني أن إنتاجية الطفل المولود في الأردن اليوم ستكون 55% مما هو ممكن عندما يكبر. والجدير بالذكر أن ترتيب الأردن أقل من المتوسط في منطقة الشرق الأوسط وشمال إفريقيا ومجموعة البلدان ذات الدخل المتوسط الأعلى.

بالنتيجة؛ فان العملية التعليمية في الأردن نجحت وبتفوق في محاربة الأمية وغدت لبضع عقود من الزمن رائدة في المنطقة من حيث جودة التعليم ونوعية مخرجاته... ولكن هذا تغير كما نعلم ونلاحظ جميعاً. ولكي تعود رائدة ومن أجل تحسين رأس المال البشري في الأردن، تحتاج الحكومة إلى الاستثمار بشكل أكبر وبفعالية وكفاءةٍ أعلى لتحسين نتائج التعليم.

عن تأجيل دفعات القرض الشهرية - 15 نيسان 2023

 

يطالب المستهلكون والتجار البنوك بتأجيل سداد قروضهم الشهرية، وقد أيد هذا الطلب ومبرراته مجموعة من البرلمانيين، وبالمقابل كان هنالك حجج تبدو موضوعية بالرفض من قبل المصرفيين أنفسهم، والعديد من النقاد. ولقد اكتسب هذا النقاش زخمًا خلال شهر رمضان المبارك وعطلة العيد القادمة.

رفع البنك المركزي الأردني سعر الفائدة الرئيسي من 2.5 في المائة في 3 آذار2010 إلى 7 في المائة في 26 آذار2023. ووفقًا لقاعدة بيانات البنك المركزي الأردني، فإن سعر الفائدة الجديد (7%) هو الأعلى منذ عام 2017، ليبلغ  التصعيد في سعر الفائدة 4.5 في المائة من خلال تسع زيادات اطلقها البنك المركزي خلال الفترة المذكورة. بالمقابل، كانت الأسباب المعلنة لهذه الزيادات سببين: أولاً، الحفاظ على جاذبية الدينار الأردني بالنسبة للدولار الأمريكي واستمرار سعر الربط بين الدولار والدينار منذ العام 1995؛ ثانياً، لمكافحة التضخم.

يخضع كلا السببين للنقاش، فهنالك دليل عملي قوي على أن الحفاظ على هامش سعر الفائدة بين الدينار والدولار الأمريكي غير فعال في جذب الودائع بالدينار، مقابل الودائع بالدولار، خاصاً عندما يكون معدل النمو الاقتصادي الحقيقي منخفضًا. أي وبعبارة أخرى، فإن الهامش التفضيلي الضئيل بين العملتين يكون دافعاً هزيلاً في الدفاع عن جاذبية أي عملةٍ، عند مقارنته بما يمكن خسارته في حال انهيار العملة، والذي يتخطى عادةً هذا الهامش بنسبة كبيرة. أي انه في حال سقوط عملة ما كما حصل في تركيا في الثمانينات مؤخراً وارجنتينا ومصر، كان بنسب أرقام مزدوجة. لذا، فان الهامش بين الدولار والدينار يكون أقل فاعلية في الدفاع عن عملةٍ إذا كان معدل نمو الاقتصاد الكلي بطيء.

ومن ناحية أخرى، فإن هامش سعر الفائدة بين الدولار والدينار يصبح فعالاً في جذب الودائع بالدينار عندما يكون الاقتصاد ومعدلات نموه في وضع جيد وهو ما حدث في الفترة 2008- 2004. أي ان التفاؤل الذي يتسبب به معدلات نمو اقتصادية مرتفعةٍ يقود الناس الى جعل ودائعهم بالدينار بدلا من عملات أخرى للاستفادة من هامش سعر الفائدة التفضيلي، حيث أن العقلانية تقودهم إلى وضع ودائعهم بالدينار لارتفاع الفائدة على الدينار بالنسبة للدولار.

أما الحجة الثانية وهي مكافحة التضخم ورفع سعر الفائدة كالوسيلة لمحاربته، فإن الحجة المستخدمة ليست دقيقة تماماً. فعلى الرغم من أن رفع سعر الفائدة قد يؤدي إلى تقليص المعروض النقدي وبالتالي تقليل السيولة في أيدي الناس، ففي حالة الأردن، أحد أكثر البلدان تحريرا للتجارة، حيث تشكل الواردات ما يقارب ثلثي الناتج المحلي الإجمالي، ينبغي للمرء أن يأخذ بالحسبان أن ثلثي التضخم مستورد، تقرر أسعاره دول العالم المصدرة للأردن.

أيضا، وبما أن الاقتصاد مترابط ولا يمكن تحريك أحد مدخلاته أو جوانبه دون التأثير في كافة المدخلات الاخرى، فإن رفع سعر الفائدة سيزيد من تكلفة الإنتاج، ويقلل من تدفق الاستثمار، ويقلل من الطلب على السلع التي تشكل جزءاً كبيرا من الدخل كالعقارات مثلاً، وبالتالي يقلل من معدلات النمو الاقتصادي مع عدم التأثير على التضخم في حد ذاته. وعلى سبيل المثال، في حين ارتفع مؤشر الإنتاج الصناعي في آذار 2023 بنسبة 0.9 في المائة، ارتفع مؤشر أسعار المنتجين أيضًا بنسبة 3 في المائة (والذي يشكل حالة شاذة في اقتصاد إنتاجي)، وارتفع مؤشر أسعار المستهلك بنسبة 3.91 في المائة، أي أن رفع سعر الفائدة لم يخفض من التضخم كما يعتقد البعض.

ويختلف الأردن عن الولايات المتحدة، حيث لا يُسمح للبنوك هناك برفع سعر الفائدة على القروض السابقة، فعندما يأخذ شخص ما قرضًا بسعر الفائدة القديم، لا يتأثر قرضه بزيادة سعر الفائدة، بينما يتأثر فقط أولئك الذين يرغبون في الاقتراض من جديد. ولكن في الأردن، يرتفع سعر الفائدة على كل من القروض القديمة والجديدة. وهو أمر غير صحي أو صحيح على الإطلاق. لماذا؟

فلننظر الى مثال حقيقي؛ حصل أحد الزملاء في العمل على قرض لمدة 30 عامًا بقيمة 37 ألف دينار أردني وبنسبة فائدة بلغت 5.75 في المائة قبل عامين. نتيجة رفع سعر الفائدة من المركزي قام البنك المقرض برفع سعر الفائدة الى 9.45 بالمائة، أي بزيادة قدرها 3.7 في المائة أو65 في المائة من الفائدة الأصلية. لم يقم البنك بزيادة أقساطها الشهرية فقط بل قام أيضاً برفع فترة السداد بما يقارب عامين. زميلتي، حتى لو فازت باليانصيب وأصبحت قادرة على سداد القرض مبكرًا، سيتعين عليها دفع المبلغ بالكامل بالإضافة إلى جميع مدفوعات الفائدة، حيث أن البنوك في الأردن تخصم أيضًا مدفوعات الفائدة أولاً، وهي ممارسة سخيفة. البنوك لدينا لا تخسر أبداً.

لاحظ أن عبء مخاطر القرض كاملة، والذي عادةً ما يكون مضمونًا بممتلكات عقارية تتجاوز بكثير قيمة القرض، يقع على عاتق المقترضين وليس على البنوك. كما أن البنوك لا تحتاج إلى الاقتراض من البنك المركزي الأردني لأن لديها ودائع كبيرة بالدينار والدولار، خاصة وأن الأردنيون اصبحوا يتجنبون أسواق الأسهم والعقارات لصالح الودائع المصرفية وفوائدها. وبما أنها لا تقترض من البنك المركزي فلماذا ترفع سعر الفائدة حين يرفعها المركزي؟ طبعا الإجابة معروفة: زيادة الأرباح.

هل يجب على البنوك تأجيل الدفعات هذا الشهر؟ من مبدأ المنافسة مع الآخرين والسعي وراء توسيع قاعدة العملاء فإن من المنطقي أن يفعل ذلك بنك واحد على الأقل أو أكثر. ولكن إذا تحركت البنوك بتوافق مع عدم تأجيل الدفعات قد يعتبر البعض هذا التصرف إشارة إلى وجود نوع من التواطؤ الضمني بين البنوك، وهو أمر غير قانوني بموجب قانون المنافسة الأردني وضار بالاقتصاد.

هل تأجيل سداد القرض (بفائدة) مجزٍ للمقترضين؟ يعتمد، فبالنسبة لأولئك الذين يرغبون في الاستهلاك والانفاق الآن (رمضان والعيد مناسبتان لزيادة الإنفاق، تليهما فترة من الفقر الإضافي المؤقت) بأي ثمن، يجب أن يكون لديهم الخيار. اما من ناحية البنوك فهم لا يخسرون شيئاً، بل في الواقع يكسبون. أما إذا كان المرء مقتصدًا حتى في الشهر الكريم وموسم الأعياد، فمن الأفضل له عدم زيادة الانفاق وكلفة الاقتراض الآن.

هل من الجيد للناس من الناحية الاقتصادية أن يؤجلوا المدفوعات الآن لتمكينهم من الإنفاق أكثر حالياً؟ بالطبع نعم، حيث سيؤدي الطلب المتزايد إلى زيادة في الناتج المحلي الإجمالي، حتى لو كانت الزيادة بصورة مؤقتة، ففي كل الدول، وكما هو معروف احصائيا، ينفق الناس أكثر خلال الأعياد الدينية أو الوطنية المختلفة، فيتنشط الاقتصاد مع ازدياد الطلب خلال هذه الفترات ثم تنخفض وتيرة النشاط مع تراجع الاستهلاك بعد هذه المناسبات. وعلى سبيل المثال، يزداد النشاط الاقتصادي قبل وخلال فترة أعياد الميلاد المجيدة في الغرب في شهر كانون الأول، ولكي لا تتراجع الوتيرة في الشهر الذي يليه، تقوم المحلات التجارية بعمل تنزيلات ما بعد العيد لتنشيط وتمديد فترة الشراء.

هل القطاع المصرفي متضرر بما يكفي ويحتاج إلى السيولة، مما يبرر رفضه لتأجيل الدفعات؟ أبداً لا. لقد نما القطاع المصرفي بالأسعار الثابتة خلال السنوات الأربع الماضية بمعدل متوسط 3.5٪، وفي عامي2021 و2022، نما بنسبة 4.2 في المائة و4.4 في المائة على التوالي، بينما بلغ معدل نمو الاقتصاد 2.2 في المائة و2.5 في المائة في ذات الفترة. وفي عام 2020 كان القطاع المصرفي هو الأقل تأثراً من بين كافة القطاعات بجائحة الكورونا، حيث نما بنسبة 3.1 في المائة بالأسعار الثابتة، ونما الاقتصاد بنسبة سالب 1.3 في المائة.

باختصار، فإن طلب تأجيل السداد أمر غير ضارٍ بالبنوك، بل إنه يدر عليها عائدات إضافية. وحسب قواعد المنافسة التي تتطلب يشذ أحد البنوك على الأقل عن القاعدة، ونظراً لوجود الطلب على التأجيل، وعدم وجود مخاطر إضافية على البنوك، وبما أن البنوك لا تعاني من معدلات نمو وأرباح منخفضة، فان المنطق يقول بأنه لا ينبغي ان يكون تأجيل الدفعات أمرًا مثيرًا للجدل.

On postponing the monthly loan payments- Apr 15, 2023

Consumers and traders are requesting that the banks postpone their monthly loan payments. And the outcry and its justifications, supported by a group of parliamentarians, have been rebutted by many seemingly objective arguments from the Central Bank of Jordan (CBJ), the bankers themselves, and several pundits. However, the debate gained momentum during the Holy Month of Ramadan and the upcoming Eid holiday.

The CBJ raised its main interest rate from 2.5 percent on March 3, 2010, to 7 percent on March 26, 2023. According to the CBJ database, the new rate is the highest it has been since 2017. The 4.5 percent escalation occurred over nine raises during the mentioned period. Conversely, the announced reason(s) for these raises were two: safeguarding the attractiveness of the Jordanian dinar relative to the US dollar and maintaining the dollar-to-dinar peg of 1995; and combating inflation.

Both arguments, however, are subject to debate. There is strong empirical evidence that maintaining the interest rate margin between the JD and the US dollar is not effective in attracting JD deposits versus dollar deposits when the real economic growth rate is low. In other words, the paltry margin between the two currencies is dismal when compared to what would be a catastrophic collapse of a currency, which would be in double digits. On the other hand, the dollar-to-dinar margin is effective in attracting dinar deposits when the economy is doing well. Meaning, when people are optimistic about the economy, rationality leads them to dinar deposits as they pay higher and there is very little risk.

As to combating inflation, and raising the interest rate, the argument used is not accurate. Even though it may shrink the money supply and thus reduce liquidity in the hands of people, in a country like Jordan where imports are almost two-thirds of the GDP, one should discern that two-thirds of the inflation is imported. Consequently, raising the interest rate will raise the cost of production, lower the inflow of investment, reduce demand for large ticket items such as real estate, and thus reduce economic growth while not affecting inflation per se. For example, while the Industrial Production Index rose in March 2023 by 0.9 percent, the Producers Price Index also rose by 3 percent (which, in a productive economy, would be an anomaly), and the Consumer Price Index rose by 3.91 percent.

In the US, banks are not allowed to raise the interest rate on existing loans; in Jordan, they are. Hence, when someone takes a loan at the old rate, they would not be affected by the interest rate increase. Only those wishing to borrow anew will be affected. In Jordan, the interest rate rises for both old and new loans; this is not healthy at all. Why? Let us demonstrate with an actual example. A colleague has taken a 30-year loan of JD37,000 at 5.75 percent two years ago; the interest rate now is 9.45, an increase of 3.7 percent or 65 percent of the original interest. The bank did not increase her monthly payments; it simply increased the repayment period by almost two years. Given that the banks in Jordan also deduct the interest payments first, which is an absurd practice; my colleague, even if she won the lottery and became able to pay the loan early, would have to pay the full amount plus all interest payments. The bank never loses.

Note that the whole risk burden of the loan, which is typically guaranteed by a real estate property that far exceeds the value of the loan, is upon the borrowers and not the banks. Also, the banks do not need to borrow from the CBJ since they have ample dinar and dollar deposits as Jordanians shy away from the stock and real estate markets in favour of bank deposits. The CBJ is not interfering with the banks even though as a regulator its law empowers it to do so.

So, should banks postpone payments this month? It stands to reason that at least one bank or more would do so to compete with others and expand their client base. Should banks move in unison, the move would be considered by some as a signal that some form of tacit collusion exists in the banking sect, which is illegal under the law and harmful to the economy.

Is postponing loan payments with full interest good for the borrowers? Depends. For those that desire to consume now (Ramadan and Eid are occasions for increased spending, followed by a period of temporarily heightened poverty) at all costs, they should have the choice. The banks lose nothing; in fact, they gain. If one is frugal, it is better not to increase borrowing now.

Is it good for the economy that people can postpone payments now to enable them to spend more? Of course yes, A heightened demand leads to a surge in the GDP, even if temporary. All nations spend more during the religious or national holidays, whether it is Eid or Christmas, spending goes up before and during the festive occasion and declines thereafter to pay off the debt that was accumulated.

Is the banking sector hurting and is therefore in need of cash, which justifies its refusal to postpone the payments? Not at all. The banking sector grew at an average rate of 3.5 percent in constant prices over the past four years. In 2021, and 2022, it grew by 4.2 percent and 4.4 percent, respectively while the economy grew by 2.2 percent and 2.5 percent. In the COVID year (2020), the banking sector was the least affected as it grew by 3.1 percent in constant prices and the economy grew by a negative 1.3 percent.

In summary, offering those who request a postponement of payment is costless to banks and even revenue-generating. Competition rules indicate that since there is a demand, and no additional risk, postponing payments should not have been so controversial.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/On-postponing-the-monthly-loan-payments-28118

Addressing inequalities in Jordan 26/03/2023

Countries like Jordan, which adhere to and follow the reform paradigms of the Bretton Woods Institutions  namely the International Monetary Fund (IMF), the World Bank, and the World Trade Organization — hardly ever focus on assuaging inequalities, including gender inequality, which combine to create costly deficits in their economies. The government should avoid being labeled as a creator of inequalities by simply ignoring them in the course of its avowed compliance to IMF policies.

The Jordanian economy suffered over the last 25 years from a rise in the numbers of both the extremely poor and the extremely rich. To be fair, this has also been a global phenomenon. However, in Jordan this was coupled with escalating challenges caused in part by the lack of emphasis on productivity and public innovation. Consequently, the economy currently suffers from high levels of national debt (similar to early 1990s levels), the highest unemployment rate in the past 30-some years and a 50 percent unemployment rate among youth, and fast-rising interest rates, where the Central Bank of Jordan and private banks increased interest rates eight times in the past 12 months.

Furthermore, even though the COVID-19 pandemic alerted policy makers to the plight of women and underscored the necessity to address the disparities they suffer from, it seems that, after a mere two years, the distress call has ebbed and withered, and even vanished due to neglect, yet again. In spite of an intellectually active and vibrant civil society that has appeared to gain strength and make some progress towards diminishing the gender gap, that progress has remained slow relative to the rest of the world.

Strategic shortcomings As a side note, feminist economics is not the only field where Jordan has failed to win the race. While economists around the world have been focusing on new streams of economic thinking, such as behavioral economics, integrating innovation into economic policy and the public policy debate, and modern monetary theory, Jordanian economic policy remains traditional or orthodox in almost every sense of the word.

Worse still, the economic debate in this part of the world remains focused on government budget deficits, and the rising national debt — not on how and where the money should be spent, or how to bring about equalities where there are inequalities. What is more, if inflation threatens advanced economies that pumped trillions of dollars into their economies in a bid for sustainability as a quick response to COVID-19, Jordan timidly follows the age-old response of “raise the interest rate”, even though pandemic measures in Jordan did not come close to those of such economies.

Types of inequalities On a positive note, gender inequality in education has been reversed. Jordanian women are now better-educated than men. However, wage inequality in the private sector has widened as the gap has increased from 15 percent to 17 percent. Moreover, Jordanian women still suffer from one of the lowest labor participation rates in the world.

Among the other inequalities that Jordan experiences are spatial income inequalities in urban and rural spheres as well as at the governorate level. Inequality among governorates, caused by disproportionate access to infrastructure, education, and health services, contributes even more to the Kingdom’s total inequality than urban-rural inequality. This spatial inequality contributes significantly to income inequality and economic growth imbalances, especially since Jordan lacks an adequate public transportation system, which results in a daunting lack of geographic mobility among the poor.

Another inequality is in the realm of education, tied to the wealth and education levels of parents. Children of the poor go to public schools where government spending has been stagnant, insufficient, and inefficient for more than a decade. On the other hand, the children of well-to-do parents attend private schools, some of which are on-par in terms of quality of education and fees with the top private schools of the world. Needless to say, this leads not only to income inequality but also to intergenerational immobility among the poor, and a no-exit-through-learning status quo. One must caution that such a state of affairs in education creates a dangerous schism in society that grows from one generation to the next.

What can the government do? Part of the solution to Jordanian inequalities is a set of progressive economic policies. At the education level, such policies include investing in education and ensuring equal access to services, internet, and social security; launching awareness campaigns on the benefits of education to reduce the drop-out rate; and further subsidizing school supplies, conditional on parents’ income and wealth. The government can also impose stricter measures to combat child labor, offer better-targeted full scholarships to less advantaged children, and implement a flexible program allowing university students in need to work on campus to cover some of their expenses.

In terms of progressive fiscal policies, a starting point would be a progressive income tax, avoidance of the IMF prescriptions and paradigms, income redistribution aimed at reducing wealth inequalities, and a comprehensive package of public services. The government should also take measures to combat involuntary unemployment, enhance access to social security, provide adequate and timely minimum wage laws, ensure that the country has an effective, first-rate antitrust/competition law, and emphasize spending on innovation, digital technologies, and artificial intelligence without undermining job security for the current and future labor force. Finally, to encourage local economic development and decrease spatial inequalities, there is an urgent need for a proper public transportation system.

Published in Jordan News: 

https://www.jordannews.jo/Section-36/Opinion/Addressing-inequalities-in-Jordan-27756

 

How the global economy will impact Jordan in 2023 Mar 06,2023

Global monetary tightening has been spearheaded by the Federal Reserve (Fed) — the central bank of the US — and the European Central Bank (ECB). Both have been aggressively fighting inflation caused by the Russia-Ukraine war, heightened post-COVID demand, and the disruption in supply chains, which peaked in the US at 9 percent in June 2022, followed with some lag by the euro zone at 10.7 percent in October 2022.

While the US and the EU have been facing high economic growth rates after the onset of COVID; Jordan has not. Here is a breakdown of the possible impact of the global monetary policy on the Jordanian economy in 2023.

Interest rates

At the start of 2023, the Fed had raised its federal funds rate by 425 basis points, and the ECB had raised its key interest rates by 250 basis points. Jordan, with the peg of its dinar to the US dollar, has followed the Fed policy almost perfectly. Moreover, with additional rate increases by the Fed and the ECB, the Jordan Central Bank is expected to increase the interest rate to its peak by June 2023.

While inflation has apparently subsided in the US and EU and is expected to drop further in 2023, interest rates have risen and Western economies do not seem to be heading toward a recession. Meanwhile, Jordan, which was facing an extremely long (13-year) depression as measured by the real per capita income, saw slight gains in terms of growth rates in 2022. This marginal growth was possibly driven by the increase in the value of potash and phosphate exports and a rise in tourism receipts and remittances.

Hence, Jordan may seem to buck the global trend so far, which should not be surprising since the Kingdom benefits when the world goes into a recession as the prices of imports, which are almost three times its exports, fall and thus provide a reprieve to aggregate production and consumption. Yes, one would expect exports to also decline, but two factors come into play here: Jordanian exports are mainly garments and raw materials such as potash and phosphate; and the trade balance has been markedly negative since the inception of the country.

Cost of debt

Jordan’s economic growth rate in 2023 will likely fail to meet expectations. It will decrease as both demand and supply decrease with the rise of interest rates. Demand decreases as the final prices of large ticket items (those that take up a significant portion of an individual’s average income) become more expensive due to the increase in the cost of debt. Already, the number of returned checks has risen, credit card debt is on the rise, and savings have decreased as Jordanians have dipped into their nest-eggs to spend.

Imports and production

Some imports will become more expensive as the prices of certain commodities such as wheat may rise due to shrinking supply. Jordan lucked out in 2022 as wheat purchases had been made before the start of the Russian-Ukraine war. However, if the war goes on, the cost of wheat imports will rise.

On the other hand, suppliers, including current and would-be producers such as investors, will find production more expensive, and will thus curtail their output. Given that Jordan’s inflation is imported — 87 percent of all caloric intake and 93 percent of energy is imported — the upshot is a continued inflation rate with greater stagnation.

Weakened growth from costly consumption and production, and greater leakage due to balance of trade expansion, which siphons added value from the GDP, could lead to lower growth in 2023 than previously predicted. Let us hope that this will not be the case.

Published in Jordan News on Mar 06,2023

https://www.jordannews.jo/Section-36/Opinion/How-the-global-economy-will-impact-Jordan-in-2023-27369