Jordan Watch
An update and analysis of development and reform challenges in Jordan from a social democratic perspective.

Jordan's Communist Style Budget!
Thursday, January 10, 2008

The financial committee of the lower house of Parliament is still discussing the three year public budget (2008-2010). In a report published in Arabic language Jordanian newspapers on Tuesday, the Committee is said to have asked to government to reduce public expenditures by 15% to combat deficit. This is a reasonable action, provided that the reduction should be in running expenditures (salaries, transportation, furnitures, travels and accomodation). However, the "enlightened" committee wants the reduction to be done on capital expenditure which is usually allocated for public services (health, education, energy, transport, housing, etc...). I cannot resist the temptation to think that such recommendation is based on the deputies' eagerness to maintain the running costs for further enrolling of their relatives and voters in the public sector.
 
 
Although every 3 in four Jordanians may think that this is a neo-liberal government with a sinister policy to breakdown the Jordanian state through reduction of subsidies, an analytical look at the budget composition will reveal the contrary.
According to a robust critical analysis by economist Dr.Yousuf Monsur published in the Jordan Times and in this month's "Venture" magazine, the budget of the central government will reach JD5.225 billion, or 42 per cent of the expected GDP. THis does not take into consideration the budgets of many "independent" public institutions where the percentage may reach more than 50% of the GDP.
This percentage, ladies and gentlemen is an indicator of a socialist budget and not a liberal one. Let us take the analysis further to break down the type of public expenditures. According to the same analysis by Dr. Mansur, over 70 per cent of the budget goes to pay salaries for the 30 per cent of the labour force it employs, 10 per cent for government retirees, and 11 per cent to pay back the debt. A quick arithmetic would demonstrate that the government is left with less than 10 per cent to spend on physical and human infrastructure (education, housing initiatives, IT readiness, education, health, etc.), all services that are due for an overhaul.
So our government is in fact not "retreating" from the economy but it has about 70% of its budget allocated for salaries, and leftv with only 10% to manage the services to be provided to citizens. The same 10% is currently under the lens of the financial committee in the Parliamnet where it wants to reduce it by 15%.
I got very intrigued and wanted to know more comparative examples about the sizes of public sector in the world. The first example I though of was the most extreme.
I looked for Cuba, the only communist country in the world which ranks high in the UNDP Human Development Report (51st compared to Jordan at 86) and found that the size of the public sector in relation to GDP is 59% and has a staggering share of labor force of 84% compared to Jordan's 30% employed in the public sector. Contrary to Jordan, Cuba uses 55% of its budget for services and that is the wise use resulting in a better ranking in Human Development Index.
Let us take a look at some emerging economies and how much does the public sector comprise of their GDP through publc spending. This World Bank document focuses on Albania which is an emerging economy moving from communism to social market with a public spending of only 28% of GDP. Other countries of note whose statistics are used in the paper are Ireland (34.3%), Korea (20.8%), Malaysia (28.8%), Chile (21.1%), Romania (30.7%), Spain (39.6%), Slovenia (43.1%), Czech (41.9%), Poland (44.2%) and Bulgaria (40.0%).
The public sector in Jordan need to spend less on running expenditures and more on capital expenditures since development services are created, maintained and enhanced by capital expenditures and with 10% of the budget and only 4.5% of the GDP the public provision of services is very much unable to cope with the increasing demand. Savings should be done in running expenditures but that means no nepotism and social networking benefits for the deputies and influential Jordanains so do not expect such a revolutionary approach.
Our budget is not a neoliberal one, but a mismanaged "communist style" budget focusing on employment more than services.

posted by Batir Wardam in Jordan Economy @ 1:16 AM

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(6) comments


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On January, 10, 2008 2:22 AM , KEF 7alak
from United Kingdom said:

Dear Batir
its not a communist budget, because with all the disadvantages of the communist experience, communism transfered the ex communist countries from rural and a peasant community to an industrial one!
Our governmental economy is a social welfare economy that focuses that people don't get too hungry to fight the system !!
it is very smart by the way, i guess that jordan will always will be like this as long the international powers are the same because jordan's stability and security is one of a regional importance!!

On January, 10, 2008 8:26 AM , masalha1
from Jordan said:

Batir,
See if you can help me with my MATH here, 70% of the budget goes to salaries that means 3.6 billion Jd goes to salaries, lets assume the government employs 300000 employee a simple calculation will put an average government worker at 1015 Jd a month but we all know that 90% of government workers make less than 500 Jd a month so where does the money go and who makes those big fat ass salaries?
Some thing is not right here maybe I understood the whole thing wrong.

On January, 10, 2008 5:48 PM , Ahmad Al Sholi
from Jordan said:

masalha,
I think its not 300000, its much more when you take the retired, the military, and the public sector.

On January, 28, 2008 3:13 AM , Firas
from Jordan said:

Hi Batir,

This is Firas of IheartAmman

I just wanted to say hi and make sure no FREE BATIR banners are needed :D

On February, 07, 2008 3:12 PM , Yusuf Mansur
from Jordan said:

Dear Batir;
Thank you so much for referring to my article. The government does employ 300,000 employees, but when you add the security forces (not counted in teh albor force)the number rises to 550,000. In addition to your excellent comparison, economies where the budget makes up over 50% of teh GDP usually provide excellent public services (schooling from KG to University, clean tab water, unemployment insurance, excelelnt or at least respectable and easily accessible public transportation networks, high quality public health insurance and services). We, alas, don't.

On May, 22, 2009 1:14 AM , Bahjat Tabbara
from Jordan said:

GDP growth is a result more of increasing government spending than anything else in Jordan. The question is, how long can the bubble expand before it bursts? On the face of it, debt is not increasing as a percentage of GDP & is actually under control, but with a lot of support from elsewhere (i.e. Saudi oil terms or transfers of capital from donors & so on).

The real trouble lies in the government spending in order to 'compensate' for failed policies to attract foreign investment. As long as no investment takes place the government has to keep spending extra to keep economic growth rates up.

Indeed, one can argue that the quality of investment is more important than the sheer quantity of investment. Most academic studies appear to indicate that FDI (Foreign Direct Investment) is a by-product of increased trade liberalisation & of course rising production (be it industrial or agriculture).

Jordan is stagnant at both & current policies are inadequate in that they seem to want to attract FDI without promoting the vital requirements in that regard.



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