Wasta and size of public sector exacerbate Jordan’s economic woes
Amman - “What keeps us up at night is the economy,” Jordan’s King Abdullah II recently told Fox News.
You do not want to be in his shoes, considering the exogenous jolts his tiny nation faced, starting with the “Arab spring” in 2011. Regional tension, especially in neighbouring Syria and Iraq, the kingdom’s traditional trading partner, along with the global economic downturn, has adversely affected tourism, worker remittances and foreign direct investment (FDI) to the cash-strapped Arab nation. Couple this with a higher fuel bill prompted by halted cheap gas supplies from Egypt, together with lofty unsubsidised oil prices, and the result is an oxygen-starved economy.
Jordanian economist Hussam Ayesh said the enormous number of people working in the inefficient public sector is also hampering recovery.
“One of the major setbacks is that 40% of the workforce is employed in the public sector,” Ayesh told The Arab Weekly in an interview. “That’s the highest percentage in the world.”
The phenomenon of wasta, or using family connections and political influence to get a job, and its many relatives including favouritism, cronyism, nepotism and patronage are ruining the potential of the public sector to work effectively and efficiently, according to a government official, who spoke to The Arab Weekly on condition of anonymity due to the sensitivity of the issue.
“You have people who are not truly qualified, and even not qualified at all, in top management positions and this leads to chaos,” the official said.
The problem of wasta will take a long time to be fixed since it is ingrained in the very fabric of the society. “Fighting the phenomenon of wasta is a key requirement to build some sort of trust with our citizens and prove that the government can deliver quality public services,” he noted.
Various Jordanian officials stated that these phenomena are rampant in Jordanian public administration.
The International Monetary Fund (IMF) agrees that one of the key challenges facing Jordan is finding a way to “reduce high and still rising public debt by adhering to the planned public sector adjustment plan”.
On April 24th, the IMF’s executive board completed its sixth review of Jordan’s three-year economic programme supported by a Stand-By Arrangement (SBA). The review’s completion enables the immediate release of about $200 million to help bolster Jordan’s economic reforms, bringing total disbursements under the programme to about $1.58 billion, according to an IMF statement.
Mitsuhiro Furusawa, IMF deputy managing director and acting chairman of the executive board, said “a prudent” 2015 budget, together with the adoption of the new income tax law and other measures, will bring about most of the adjustment planned for this year.
Furusawa acknowledged that progress was made in structural reforms but said more was needed to support growth and reduce persistently high unemployment.
“The focus should be on broad-based labour market policies, especially to increase female labour market participation and reform public sector hiring and compensation practices,” he said. “There is also scope for further improving the business climate and strengthening public institutions.” Jordan’s cabinet endorsed the draft state budget law for 2015 in November 2014, with a slight expansion of 3.2% in spending and an estimated deficit of $1 billion, while public revenues, including grants, are forecast to be around $10 billion. Public debt was estimated at $28 billion.
Yousef Qorneh, head of parliament’s Financial Committee, said he expected the projected higher revenues for 2015 and 2016 to bring improvements to the fiscal situation. Experts agree that the fiscal deficit will fall but it will remain a burden on the government by keeping it dependent on foreign support, especially from Jordan’s main bankrollers, the United States and Saudi Arabia. Regional instability will continue to hold real GDP growth in line throughout 2015-16 but is predicted to strengthen in 2017-19.
Ayesh stressed that Jordan needs to properly use tax revenues for implementing development projects, as taxpayers do not see any positive impact from paying taxes, on their lives. Therefore, there is a huge tax evasion in Jordan.
“To offset its budget deficit, Jordan resorts to borrowing, which has increased overall public debt to unprecedented levels instead of fixing problems such as implementing a fair tax for all, with no wasta allowed for anyone,” said Ayesh.
Jordan pays around $1.4 billion in interests for its loans, nearly double the $900 million usually allocated annually to the Health Ministry, the economist explained.
For Ayesh, growth is hampered, partly because authorities are still undetermined about what economic model works for Jordan.
“To face economic problems, Jordan needs to support the creation of small and medium-sized entrepreneurships that create jobs,” he said. “Jordan needs to invest in talents and encourage innovation in different sectors.”