Research studies

Discretionary fiscal policy and its role in confronting the economic crises in Jordan for the period (2000-2020)

 

Prepared by the researcher

  • Prof. Adib Qasim Shandi: Wasit University / Faculty of Administration and Economics 
  • Researcher Ali Al , Hadi Rashid Abboud Al , Yasiri: Wasit Education Directorate

Democratic Arab Center

Journal of Afro-Asian Studies : Fifteenth Issue – November 2022

A Periodical International Journal published by the “Democratic Arab Center” Germany – Berlin.

Nationales ISSN-Zentrum für Deutschland
ISSN  2628-6475
Journal of Afro-Asian Studies

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Abstract

The research dealt with discretionary fiscal policy and its potential to influence the macro economy by facing the crises that the economy is exposed to, through a package of tools used by the financial authority through the mechanism of transferring the impact of fiscal policy facing the economic cycle to some macroeconomic variables.

 Fiscal policy is one of the most important macroeconomic policies, which has the responsibility to achieve a number of goals, as it shares with macroeconomic policies in achieving them, while it is unique in achieving some of them, and the most important of these goals is to achieve financial stability and then economic stability through the events of a package  of the intended changes in spending or revenue programs.  The results of analyzing the course of the discretionary fiscal policy in the Jordanian economy showed that an expansionary fiscal policy was followed during the study period and economic reform programs were followed since 2000, but they, like the countries of the region, were affected by the events that the region experienced in terms of political and economic crises.

Introduction

The subject of analyzing the economic crises that hinder the course of economies from time to time is of high importance, especially if these analyses are close to the decision-making circle, they will affect economic policy with a view to correcting the misfortune of the economy when it goes through situations of instability that alternate between recovery and recession, and then work to adapt and coordinate them in accordance with macroeconomic policies in order to avoid problems caused by market failure and conflicts of interest related to the organization of the productive process as required by the processes of creation Stable economic environment. In this context, this study is designed to track the effectiveness of discretionary policy and its role in confronting these crises to which the Jordanian economy is exposed, which reflect a situation of targeted changes in public spending or public revenues, and therefore the existence of a package of economic policies, whether expansionary or deflationary and according to the conditions of the stage, is a matter of utmost necessity to re-correct the course of the economy, which provides a measure of balance and relatively distances it from crises in order to reach states of stability that protect the economic system. From distortions in its components and financial balances.

First: Methodology 

Importance of the study:

  The importance of the research was manifested in identifying the mechanism of work of discretionary fiscal policy and its role in economic crises through its impact on some macro variables to diagnose positive effects and in a way that enhances the efficiency of the performance of economic environments and at the same time design indicators that allow economic policymakers to make appropriate financial decisions.

Study Problem:

The basis of the problem is the weakness of fiscal policy in Jordan and its inability to achieve economic stability because the fiscal policy in Iraq is a fiscal policy in line with the economic cycle, i.e. expenditures increase with the boom or economic recovery associated with oil prices and decrease with its decline, which in turn affects the allocation and distribution of resources and thus economic stability.

Objective of the study:

The research aims to identify the role of discretionary fiscal policy in reducing the severity of economic crises and mitigating their effects on economic environments and thus achieving the desired objectives of their application.

Study Hypothesis:

The study is based on the assumption that economic crises on the economies of countries can be mitigated through the application of discretionary fiscal policy, given the latter’s characteristic of performing functions that would be an organized factor in the allocation and channeling of resources towards the desired channels and thus create an environment that incubates stability and stimulates sustainable economic growth.

Second: The concept of discretionary policy:

Focusing on the theoretical framework of fiscal policy is of paramount importance given the functions that this policy performs in terms of summarizing, distributing and achieving overall stability by targeting the use and stabilization of the overall level of prices to achieve economic growth. Therefore, the basic roles of fiscal policy have evolved to keep pace with the development in the role of the state in economic activity, so it has become natural that the emergence of economic and political forces is accompanied by a change in the financial activities of the state to keep pace with its role in economic life. The traditional concept of fiscal policy refers to it as “a package of actions and means that enable the state to obtain adequate financial resources to cover its public expenditures”(Abdul Hamid, 2005) while others define it as “the policy of using public financial instruments with the aim of influencing macroeconomic variables in order to achieve desired goals and achieve sustainable growth. ( Valley, 2000)

Abdjman refers to fiscal policy as “that government program that performs a number of basic functions embodied in the function of privatization, the function of distribution and the function of stability, in the sense that the role of the government is concentrated in the provision of public goods with net social benefits and different from the benefits of the net characteristic, and these goods include education, defense and contract execution, as for the function of distribution it relates to the distribution of income and wealth, as the market economy has failed to achieve equitable distribution of them, and the function of stability It concerns the use of the public budget to achieve full utilization, stability in prices, economic growth and balance of payments balance”(Abdegman, 1999) Thus, achieving economic stability by curbing the problems and crises to which the economist is exposed, Kenz in his book “General Theory, Interest and Money 1936” refers to allowing the state to direct the course of economic activity by employing the tools of fiscal policy to achieve economic, social and political goals, since these tools are the main pillar in addressing economic crises in cases of boom and bust, since each tool includes two basic policies:( My Weight,2007)

  1. Automatic fiscal policy
  2. Discretionary fiscal policy

Automatic fiscal policy is described as “those changes in government expenditures and public revenue behaviour to influence the level of economic activity, guide its course and address problems under prevailing conditions”.( Lide,2021) That is, it is “a set of desirable changes in government tunnels and taxes that will affect the level of GDP (Abdjman, 1999). In addition to maintaining growth by mitigating the severity of the fluctuations of the economic cycle, these changes are automatic or subjective without the need for government intervention and the tools of this policy are called automatic controls.

That is, the fiscal policy of automatic stabilizers is a tax or internal spending mechanism that automatically increases aggregate demand when a recession occurs, and reduces the volume of aggregate demand when the economy is in inflation, away from measures on the part of the government. Automatic tools are divided into two parts:( Ayed,2010)

– Subsidies and remittances, reflecting the assistance received by the family sector and used as a means of redistributing income among social classes.

– Progressive taxes, which are directly related to income, so that their revenue rises in the recovery phase and decreases in the event of a depression.

Discretionary or discretionary fiscal policy is defined as “one that targets the deliberate change in aggregate demand through consistent changes in government spending and taxation”.(Martin, 2002) Some suggest that “this policy brings about a series of changes in tunnel programs or tax revenues by adopting a series of deliberate actions in fiscal policy” ( Karl,2007) It takes it upon itself to follow up on cyclical fluctuations in public expenditures and revenues in such a way as to enable it to estimate a different budget at each level of national income, which is expressed by the periodic adjustment or balance in the periodically adjusted budget, through which it can depict a clear vision of the foundations of the short-term deficit or surplus resulting from the fluctuations of the economic cycle, as well as provide an analytical means to determine whether changes in the budget adopt the expansion or reduction of aggregate demand, and who Then the intended intervention by policymakers serves both situations.

 The deliberate changes in the budget required by discretionary policy are procedures relating to general tax rates or both, and take three forms.:( Maria,2014)

– Changing taxes while maintaining the stability of government tunnels.

– Change overhead and keep taxes constant.

– Consistent changes in both expenditures and taxes at the same time.

If tax rates are reduced and the volume of public expenditures remains unchanged, this means an increase in the disposable income of households and businesses, i.e. an increase in the size of private tunnels, and that the size of this increase will depend on the size of the tunnels in the tax rates, as well as whether this decrease is temporary or permanent. This form of discretionary policy is ineffective, especially if the tax cuts are temporary. In the case of higher tax rates and stable spending rates, this policy is more effective than addressing inflationary situations because it will reduce the disposable income of individuals and thus reduce aggregate demand. In the second form of discretionary fiscal policy measures, embodied in the control of deflationary tendencies, when spending on goods and services increases along with stable taxes, this measure will lead to increased aggregate demand, while reducing government spending in cases of inflation is not effective as a result of high business expectations in the economy and therefore a decline is not likely.

The other form is the most effective and superior to the two forms mentioned to control inflationary and deflationary tendencies.( Muhammad,2012) From the foregoing, it is noted that there are two main tools used by the Government with regard to discretionary fiscal policy to influence the level of economic activity and to correct the course of output, which are embodied in discretionary expenditure rates and discretionary revenue rates. that the government’s measures adopted to employ any type of policy to ensure that cyclical economic problems are corrected and addressed should take into account the appropriate timing and accurate forecasting,

Thus, fiscal policy will have two approaches, one involving automatic fixers and the other on discretionary fiscal policy. That is, the adoption of flexible planning of fiscal policy according to what the government authority deems appropriate, that is, it addresses each macroeconomic event separately away from any attempt to respond in the same way from one event to another, and the success of this intended fiscal policy in terms of the time available for reaction lies in the occurrence of harmony, effectiveness and cost reduction, which in turn depends on how the economy responds to corrective actions and determines the pattern of intended changes in budget items, whether they are supportive towards economic stability.

Second: Diagnosing the reality of fiscal policy in Jordan:

The general budget includes a probabilistic estimate of state expenditures and revenues, i.e. what is expected to be spent by the executive branch and what it is expected to collect from revenues during a later period. The accuracy of the estimates is an important factor in the gain of government work by society and the legislature (Abdul Wahid, 1996), there are expenditures that are easy to estimate accurately assuming their continuity, such as in the form of obligations on the government, such as salaries of employees, and there are other types that are difficult to estimate where the estimate depends on factors that are difficult to control, such as investment expenditures, while estimates of public revenues, although dependent on tax laws, are affected by economic activity for the subsequent period. Therefore, when estimating both revenues and public expenditures, it is necessary to make estimates of the economic and social situation expected to be during the same period, that is, the legislative branch, which is the program of the government in the coming period. This program reflects its policy in all economic, social and political fields through what the various objects of expenditure and revenues behave to (Awadallah, 1994), as long as the public budget is a forecast and an estimate (Taher, 1992).

The Jordanian economy is characterized by the scarcity of its natural resources, its small size, the narrowness of its domestic market, and its dependence since its inception on foreign financial aid and remittances of expatriates, which is a source of its growth. This made the Jordanian economy highly sensitive and vulnerable to the fluctuations of foreign markets, both regional and international, and the private sector began to weaken, so the state took the initiative to invest in infrastructure projects, in mining industries, and contribute to the capital of some other industries. A relatively open economic policy has always been pursued. Jordan has also tended to develop its human resources, spreading schools throughout the Kingdom, aided by the high demand for education at all levels. Educated people tended to look for job opportunities in the Arab oil countries, and their remittances became a major source of income from foreign currencies.

When foreign aid declined in the eighties of the last century, the tunnels in the province continued at their levels, which were financed by borrowing from international markets, so debt accumulated and the public budget was unable to provide its services, which led to the crisis of the economic situation and the late eighties, and this had many repercussions, the first of which was to resort to the International Monetary Fund to reschedule debt and to obtain more loans. Second, the devaluation of the Jordanian dinar and the consequent decline in the real income of the citizen. High inflation rates and monetary instability. Third, adherence to the IMF’s prescription for restructuring the economy.

This has lost control of the government in some respects. The nineties of the last century represented the pinnacle of challenge for the Jordanian economy. It has a decline in the level of real growth. It has been negative in some years, the trade deficit has worsened, unemployment has worsened, poverty has spread, and the volume of aid, foreign grants and remittances of expatriates has shrunk, all despite the implementation of economic adjustment programs described by the International Monetary Fund to solve Jordan’s economic and social problems.

1-Analysis of Fiscal Policy Instruments in the Environment of the Jordanian Economy:

  1. Analysis of public expenditures in Jordan for the period) 2000-2020)

Fiscal policy begins its work through public expenditures and control over the size and structure of the economy, which is determined during periods of unemployment and recession The policy of public spending in order to stimulate aggregate demand by raising the levels of public spending and increasing the percentage of public spending by reducing taxes on investors and reducing taxes in consumer spending, while in cases of inflation what is required to be followed by fiscal policy is to reduce its spending and raise the percentage of taxes to reduce consumer spending. Public expenditures are a tool used by the state to satisfy public needs, so they are one of the most important tools of fiscal policy of any country and by which the objectives of economic policy are translated into real actions, projects and programs, and through which the state intervenes in economic and social activity, and through the analysis of the development of the structure of the public budget and study it and we can evaluate the performance of the government, and despite the increase in the level of public spending during the period of research in Jordan, but the state  It has not been able to achieve its economic and social objectives of achieving high levels of economic and social balance and growth, as the public budget is in an imbalance in its structure in general, which was also reflected in an imbalance in the structure of current investment expenditures, compounding the imbalance in the economic structure of the country. Public expenditures in the environment of the Jordanian economy are divided into two parts:

First: Current (operational) expenses in Jordan for the period  )  2000-2020)

Public expenditures in Jordan are composed according to the economic division into investment expenses and operational (current) expenses, operating expenses include public expenditure carried out by the state that targets the affairs of its administration and obtaining the goods and services that its administration needs to satisfy current needs, and also consists of expenses that are collected and intended to pay salaries, wages, factory expenses, other allocations, current transfers, services including guarantee, salaries of retirees issued in kind and paid in cash, in-kind transfers and payments.  Benefits. The volume of public expenditures is closely related to the concept of the prevailing system of government and the clarification that the satisfaction of public needs is based on a decision issued by the state, and this decision is governed by political considerations more than financial political considerations, because it reflects his fiscal political philosophy and its appreciation of the importance of those needs on the other hand, given the table (1) which shows the evolution of current expenditures for the period (2000-2020) in the environment of the Jordanian economy, as current expenditures on  Although it recorded its lowest level of (1718.3) million dinars in (2000), it accounted for (12.99%) of the total public expenditures, this increase in current expenses resulting from the decision to increase the salaries of workers and retirees that began to be implemented in the second half of the previous year, while current expenses witnessed a significant increase in (2004) reaching (2377.8) million dinars and their percentage of total public expenditures amounted to (14.28%), and this increase is caused by the addition of a new item To support Fuels have emboldened the dramatic rise in global oil prices and the increase in domestic consumption that has resulted from the increase in the income of individuals.

While current expenditures were recorded in (2009) where they amounted to (4586.0) million dinars, while their proportion of total public expenditures amounted to (19.33%), this is due to the increase in most items of current expenditure, where defense and security expenses and compensation of employees and retirees increased, as well as the decline in subsidies and support, while current expenses in (2014) recorded a significant increase of (6716.6) million dinars, while their proportion of public expenditures amounted to (24.79%), and this increase is due to the rise in most items. The problem of these expenditures, while current expenditures recorded an increase in (2018) where they amounted to (7619.6) million dinars, while their proportion of public expenditures amounted to (25.85%), and this increase in current expenses was due to the increase in the items that make up them, especially the item of subsidies and the item of interest payments of internal and external debt, while current expenses were recorded in the years (2019-2020) where current expenses increased and amounted to (7897.2, 8388.5) million dinars,

While its percentage of public expenditures (26.28%, 28.35%), this increase in the mentioned years was due to the government’s adoption of a set of measures to control current expenditures and focus on the health sector in its spending, most notably the deduction of a percentage of the salaries of the highest categories such as donation to support the Hama Witan Fund and the account of the Ministry of Health due to the spread of the Corona pandemic and the measures taken in those years.

Second: Capital expenditures (investment) in Jordan for the period   2000-2020

Public investment expenditures are important tools in achieving economic growth, which is mostly in the form of the preparation of physical and intangible infrastructures (e.g. buildings, roads, bridges, education, health, electrical energy insurance, research and development, support and innovation, etc….) and also includes commodity inventory, (Alexiou, 2009).  These expenditures are for the formation of capital, as they aim to develop the national wealth and attic government investment expenditures are one of the most important expenditures, which focus mainly on infrastructure projects and these have significant effects on the added value in the national economy, which gives them importance to spending policy.

Looking at Table (1), which shows the development of expenditures in the environment of the Jordanian economy and the analysis of the aspect of investment expenditures for the period (2000-2020), the duration of the study was characterized by a decrease in investment expenses compared to the size of operational expenses, as those expenses increased significantly until they became a significant weight on the general budget of the state.

Through the data of table (1), where the volume of operating expenses amounted to (288.4) million dinars for the year (2000), while the percentage of operating expenses (2.18%) of the total public expenditures, we also see that the volume of operating expenses in (2004) continued to rise, as the volume of operating expenses amounted to (802.7) million dinars, while we note their percentage amounted to (4.82%) of public expenditures, and this increase in operating expenses is attributed to the increased interest of the government in spending on development projects due to its active role in providing The infrastructure needed to attract foreign and domestic investments on the one hand, and achieve sustainable development on the other.

The increase in investment expenditures from public expenditures continued, as the volume of investment expenditures in (2008) and the volume of expenditure was (958.5) million dinars, while the proportion of investment expenses of total public expenditures amounted to ( %4.44  .

While it is noted from the data of the table that the percentage of investment expenses in (2009) of the value of public expenditures increased as the value of operating expenses amounted to (1144.5) million dinars, and was (4.82%) of public expenditures, while in (2014) the operating expenses increased to (1136.3) million dinars, and their percentage was (4.19%) of the volume of public expenses, and this increase in the volume of operating expenses is attributed to the support of government units and workers’ compensation, as the highest percentage of these expenses was exorbitant, while the volume of operating expenses was taken Decreased in the years (2018-2020) where operating expenses amounted to (947.7 and 822.8) million dinars respectively, while the percentage of investment expenses for each year (3.22%, 2.78%) respectively of total public expenditures,

 Table 1 The evolution of the structure of public expenditures in the environment of the Jordanian economy for the period (2000-2020)/(million dinars)

Years Capital expenditure/overhead Current Expenses / Overhead Ratio of public expenditure / GDP Gross Domestic Product (GDP)

2007=100

Growth rate% Capital Expenditures Growth rate % Current spending Growth rate % Overhead
2000 1 2 3 4 5 6 7 8 9 10
2001 2.18 12.99 15.16 13226.5491 ——- 288.4 —— 1718.3 —- 2004.7
2002 2.34 12.83 14.91 13923.5826 12.86 325.5 3.99 1786.9 3.53 2075.5
2003 2.98 12.61 15.59 14728.8959 34.81 438.8 3.97 1857.9 10.66 2296.7
2004 3.16 13.41 16.57 15341.8635 10.62 485.4 10.73 2057.2 10.71 2542.6
2005 4.82 14.28 19.09 16656.2339 65.37 802.7 15.58 2377.8 25.09 3180.5
2006 3.50 16.14 19.65 18013.1498 -21.40 630.9 22.30 2908.0 11.27 3.538.9
2007 4.08 16.01 20.09 19470.9495 25.87 794.1 7.22 3118.1 10.55 3912.2
2008 4.00 17.78 21.77 21062.9275 6.01 841.8 20.08 3744.2 17.22 4586.0
2009 4.24 19.81 24.05 22586.2656 13.86 958.5 19.48 4473.4 18.45 5431.9
2010 4.82 19.33 25.42 23720.9341 19.41 1144.5 2.52 4586.0 11.02 6030.5
2011 3.97 19.55 23.52 24270.0344 -15.88 962.8 3.48 4745.4 -5.34 5708.2
2012 4.24 23.02 27.26 24934.3489 9.79 1057.1 20.95 5739.5 19.07 6796.6
2013 2.64 24.29 26.93 25540.0935 -36.11 675.4 8.07 6202.8 1.20 6878.2
2014 3.90 23.11 27.00 26206.6765 51.17 1021 -2.37 6056.1 2.89 7077.1
2015 4.19 24.79 28.98 27093.5309 11.29 1136.3 10.91 6716.6 10.96 7852.9
2016 3.95 23.85 27.81 27769.9287 -3.35 1098.2 -1.37 6624.5 -1.66 7722.7
2017 3.63 24.43 28.06 28323.7113 -6.29 1029.1 4.45 6919.1 2.92 7948.2
2018 3.67 24.60 28.27 28914.8596 3.02 1060.2 2.80 7113.0 2.83 8173.2
2019 3.22 25.85 29.07 29474.0995 -10.61 947.7 7.12 7619.6 4.82 8567.3
2020 3.05 26.28 29.33 30050.4556 -3.40 915.5 3.64 7897.2 2.86 8812.7
2000 2.78 28.35 31.14 29584.2575 -10.13 822.8 6.22 8388.5 4.52  9211.3

 Source: From the work of the researcher based on: Central Bank of Jordan Annual Reports.

  1. Analysis of public revenues in Jordan for the period 2000-2020

The structure of public revenues shows the proportions of the contribution of sources of financing to the general budget and the relative importance of each source, but the proportions and importance of contribution vary from country to country depending on the degree of economic development. The nature of the revenue structure and the proportions of the impact of each of them in providing revenues to the public budget can be identified, as public revenues are the second main part of the tools of fiscal policy and these revenues enable the government to carry out its tasks towards its citizens and economy, as the performance of the various functions of the State requires sufficient financial resources to cover the expenses resulting from the performance of these functions and the national income represents the vessel.

From which you obtain financial resources during a period of time that is mostly a year, and due to the expansion and development caused by the increase and complexity of public expenditures, this has been reflected in the development that has occurred in public revenues through their increase and the multiplicity of their types and purposes, so that public revenues are not limited to ordinary revenues, (such as taxes and fees), as they include exceptional revenues (such as loans and cash issuance) as well as are no longer limited to covering public expenditures in the way that classical thought used to advocate while becoming an important tool which have a clear impact on economic and social activity. Through public revenues, the State seeks to achieve social and economic objectives, as well as public expenditures, and the sources of such revenues are determined by the regular revenues that the State receives periodically (such as taxes) and the extraordinary revenues it receives irregularly. (Withheld,1971) Public revenues in the environment of the Jordanian economy are divided into two parts:

First: Analysis of domestic revenues in Jordan for the period   2000-2020

Local revenues are one of the important revenues that contribute to public revenues and that the state receives from various local sources, which include tax revenues and non-tax revenues, as public revenues are obtained through their increase and the multiplicity of their types and purposes, so public revenues are not limited to ordinary revenues, (such as taxes and fees), as they include exceptional revenues (such as loans and cash issuance), while we note through public revenues to achieve social and economic goals as well as public expenditures and that the sources of these revenues are determined  The normal revenues that the state receives periodically (such as taxes) and the extraordinary revenues that it receives otherwise.

Considering the data of table (2), which refers to the indicator of domestic revenues in the environment of the Jordanian economy, where domestic revenues in (2000) amounted to (1560.7) million dinars, while the proportion of domestic revenues of total public revenues (86.66%), while we note the increase in domestic revenues in (2004) amounted to (2147.6) million dinars, while it was (72.59%) of the total public revenues, and this increase in domestic revenues is attributed to the government’s decision to raise the rate of general tax on sales. In the environment of the Jordanian economy, either in (2008) continued to rise in domestic revenues to reach (4375.4) million dinars, and the proportion of domestic revenues was in the total

Public revenues (85.90%), and this increase in domestic revenues is due to public revenues as a result of the increase in tax revenues and pension deductions all this led to an increase in domestic revenues in the environment of the Jordanian economy, and in a related context continued to rise in domestic revenues to reach (2014) where local revenues amounted to (6031.3) million dinars, while the proportion of domestic revenues of total public revenues (82.99%), and this increase in domestic revenues was attributed to the improvement in government measures taken to include the imposition of a tax on A range of luxury goods, as well as the imposition of a customs services allowance on imported goods and the doubling of visa fees, all this led to an increase in local revenues in the environment of the Jordanian economy, while an increase in the revenue of domestic revenues for the year (2018) amounted to (6944.9) million dinars, while it was (88.59%)  Of the total public revenues, this increase is due to the government’s cancellation of many tax exemptions on sales and raising the percentages imposed on a number of goods, which led to raising domestic revenues in the environment of the Jordanian economy, either in (2020) the volume of domestic revenues decreased to (6238.0) million dinars, while the proportion of domestic revenues of the total public revenues (88.75%), and this decrease in domestic revenues is due to the measures of bans and closures taken by the government to face the spread of The Corona pandemic and the resulting economic contraction all these reasons led to the decline of local revenues and their failure to achieve their target levels in the budget law in the environment of the Jordanian economy.

Second: Analysis of non-petroleum revenues in Jordan for the period   2000-2020

External revenues, which are the revenues represented by financial assistance and subsidies received by the state from various external sources, which contribute to increasing public revenues and are considered important revenues in the environment of the Jordanian economy.

Looking at the data of table (2), which refers to the analysis index of non-petroleum revenues in the environment of the Jordanian economy, where non-petroleum revenues in (2000) amounted to (240.2) million dinars, while the proportion of non-petroleum revenues of the total public revenues (13.34%), while we note the decrease in non-petroleum revenues in (2005) amounted to (500.3) million dinars, while it was (16.34%) of the total public revenues, and this decrease in non-petroleum revenues is attributed to the decline in grants and subsidies. which were offered by Saudi Arabia and the United States of America and granted economic and social transformation programs in the Jordanian economic environment, either in (2008) continued to rise in revenues of the United States of America and the granting of economic and social transformation programs in the Jordanian economic environment, either in 2008 continued to rise in revenues of the United States of Saudi Arabia. Non-petroleum revenues to reach (718.3) million dinars, and the proportion of non-petroleum revenues of the total public revenues (14.10%), and this increase in non-petroleum revenues was due to the provision of foreign aid All this led to an increase in the revenues of external grants in the environment of the Jordanian economy, and in a related context continued to rise non-petroleum revenues to reach (2014) where non-petroleum revenues amounted to (1236.5) million dinars, while the proportion of non-petroleum revenues of the total public revenues (17.01%), and attributed to this increase In non-petroleum revenues to the increase in US grants and GCC grants to finance development projects, all this led to an increase in non-petroleum revenues in the environment of the Jordanian economy, either in (2020) the volume of non-petroleum revenues increased to (790.9) million dinars, while the proportion of non-petroleum revenues of the total public revenues (11.25%), and this increase in non-petroleum revenues is due to the increase in US grants, the European Union grant and the grants of the Gulf Fund for Development all this It led to higher revenues in the environment of the Jordanian economy.

Table   2 The evolution of the structure of public revenues in the environment of the Jordanian economy for the period (2000-2020) (million dinars)

Years Ratio of public revenues/GDP Percentage of Aid/Public Revenues Ratio of domestic revenues/public revenues  

Gross Domestic Product (GDP)

 

growth rate %

 

Foreign Aid Revenue

 

growth rate %

 

Domestic Revenue

 

growth rate %

 

General Revenues

2000 1 2 3 4 5 6 7 8 9 10
2001 13.62 13.34 86.66 13226.5491 ــــــــــ 240.2 —- 1560.7 —- 1800.9
2002 13.54 13.10 86.90 13923.5826 2.83 247.0 4.96 1638.1 4.68 1.885.1
2003 13.72 13.20 86.36 14728.8959 7.98 266.7 6.53 1745.1 7.20 2020.8
2004 15.52 28.67 71.33 15341.8635 155.94 682.6 -2.66 1698.6 17.83 2381.2
2005 17.76 27.41 72.59 16656.2339 18.81 811 26.43 2147.6 24.24 2958.5
2006 17.00 16.34 83.66 18013.1498 -38.31 500.3 19.29 2561.8 3.50 3062.1
2007 17.82 8.78 91.22 19470.9495 -39.12 304.6 23.52 3164.4 13.29 3469.0
2008 18.86 8.65 91.35 21062.9275 12.74 343.4 14.65 3628.1 14.49 3.971.5
2009 22.55 14.10 85.90 22586.2656 109.17 718.3 20.60 4375.4 28.26 5093.7
2010 19.06 7.37 92.63 23720.9341 -53.58 333.4 -4.29 4187.8 -11.24 4521.2
2011 19.21 8.62 91.38 24270.0344 20.49 401.7 1.73 4260.1 3.11 4661.8
2012 21.71 22.44 77.56 24934.3489 202.46 1215.0 -1.44 4198.9 16.13 5413.9
2013 19.79 6.48 93.52 25540.0935 -73.06 327.3 12.57 4726.9 -6.64 5054.2
2014 21.97 11.10 88.90 26206.6765 95.26 639.1 8.31 5119.8 13.94 5758.9
2015 26.82 17.01 82.99 27093.5309 93.48 1236.5 17.80 6031.3 26.20 7267.6
2016 24.48 13.04 86.96 27769.9287 -28.33 886.2 -2.00 5910.6 -6.48 6796.8
2017 24.96 11.83 88.17 28323.7113 -5.66 836.0 5.46 6233.6 4.01 7069.6
2018 25.68 9.53 90.47 28914.8596 -15.32 707.9 7.76 6717.4 5.03 7425.3
2019 26.60 11.41 88.59 29474.0995 26.39 894.7 3.39 6944.9 5.58 7839.6
2020 25.80 10.17 89.83 30050.4556 -11.88 788.4 0.30 6965.9 -1.09 7754.3
2000 23.76 11.25 88.75 29584.2575 0.32 790.9 -10.45 6238.0 -9.35  7028.3

Source: From the work of the researcher based on: Central Bank of Jordan Annual Reports.

2-Analysis of the deficit and surplus in Jordan for the period ( 2000-2020 :

The general budget went through various developments, in its early stages the ancient nations and civilizations were collecting money and its tunnels without following the foundations or rules for this, and the process of controlling the parts of the general budget, namely revenues and then expenditures in Britain began in 1733, where the British Parliament began to monitor the executive in collecting taxes and after almost a hundred years demanded that the executive branch obtain from him appropriations for public expenditures until the Parliament adopted public revenues and public expenditures combined and periodically Thus, the scientific, academic and practical form of the general budget that is applied at the present time has emerged. (Al-Hajj,2009) In the phase of economic freedom and the establishment of balance on the basis of the interaction of market forces, the effects of the public budget on the economic and social construction were limited by the dominance of the idea of neutral finance, and with the growth of the role of the state and the spread of the idea of planning and the use of fiscal policy tools to influence the course of economic and financial variables, the importance of the public budget emerged as a framework within which public revenues are directed to the various channels of expenditure in pursuit of national goals. (Abdul Majeed, 1996)

Its economic objectives are to seek economic balance even if it requires a departure from the principle of budget balance, where the budget deficit (financing by deficit) and its surplus are used as a tool to achieve the balance of the national economy at the level of full employment and as required by the prevailing economic situation in the economy, whether in cases of boom or depression.

Its social objectives are no less than the economic objectives of the general budget, as they have become a means of redistributing national income through the imposition of progressive taxes, especially direct ones, and directing their proceeds to finance some types of expenditures that benefit the poor classes, such as social security subsidies or the availability of social services such as education and health, and thus lead to the redistribution of national income, achieving justice and reducing differences in the incomes of individuals. The budget with its financial objective is the mirror reflecting the financial position of the state, it clearly reveals the reality of the financial situation of the state, its balance gives the impression of the integrity of the financial position of the state or its achievement of a deficit or surplus, and each of the two situations has effects on various other financial and economic aspects of the economy. (Al-Ali,2003) Looking at the data of Table 3, which shows the deficit and surplus in the environment of the Jordanian economy for the period (2000-2020), it is noted that the budget has achieved a fiscal deficit in the year (2000) where the deficit amounted to (-203.8) million dinars, while the performance of the general budget in (2003) showed that the budget deficit in the environment of the Jordanian economy (-161.4) million dinars, a remarkable improvement compared to its performance in previous years and that the reason for this is due to the political events witnessed in the region, especially the war. On Iraq came its shadow on the general budget and those effects were reflected on domestic revenues on the one hand, On the other hand, Jordan’s receipt of additional financial assistance of an exceptional nature has led to mitigating the impact of the decline in domestic revenues on the public budget, which contributed to the reduction of the total budget deficit, while it is noted that the general budget deficit increased in 2009, where the deficit reached (-1509.3) million dinars, as this is due to the reflection of the negative impact of the global financial crisis on the budget of the Jordanian economy significantly, noting the decrease in the fiscal deficit in the general budget in (2014) where the deficit reached (-585.3). One million dinars, this improvement in the general budget is due to the continued commitment of the government to fiscal reforms within the framework of the national economic reform program in the environment of the Jordanian economy, while in (2019) where the budget deficit increased to (-1058.4) million dinars, and this increase in the budget deficit is attributed to the decrease in public revenues and the increase in spending in the public budget in the environment of the Jordanian economy, all this led to a rise in the fiscal deficit, while a rise in the fiscal deficit in (2020) amounted to (-2182.4) million dinar The reason for this increase is due to the spread of the Corona pandemic and its repercussions on the national economy and its direct impact on the public budget on the side of public revenues as well as the increase in public expenditures to face the pandemic in the environment of the Jordanian economy.

  Table  3The evolution of the structure of the budget surplus or deficit in the environment of the Jordanian economy for the period (2000-2020) / (million dinars)

Years Ratio of surplus and budget deficit to GDP Gross Domestic Product (GDP) Growth rate of surplus or deficit Budget surplus or deficit Overhead Public Revenue
2000 -1.54 13226.5491 **** -203.8 2004.7 1800.9
2001 -1.37 13923.5826 -6.58 -190.4 2075.5 1885.1
2002 -1.87 14728.8959 44.91 -275.9 2296.7 2020.8
2003 -1.05 15341.8635 -41.50 -161.4 2542.6 2381.2
2004 -1.33 16656.2339 37.55 -222.0 3180.5 2958.5
2005 -2.65 18013.1498 14.77 -476.8 3538.9 3062.1
2006 -2.28 19470.9495 -7.05 -443.2 3912.2 3469.0
2007 -2.92 21062.9275 38.65 -614.5 4586.0 3971.5
2008 -1.50 22586.2656 -44.96 -338.2 5431.9 5093.7
2009 -6.36 23720.9341 36.27 -1509.3 6030.5 4521.2
2010 -4.31 24270.0344 -30.67 -1046.4 5708.2 4661.8
2011 -5.55 24934.3489 32.14 -1382.7 6796.6 5413.9
2012 -7.14 25540.0935 31.92 -1824.0 6878.2 5054.2
2013 -5.03 26206.6765 -27.73 -1318.2 7077.1 5758.9
2014 -2.16 27093.5309 -55.60 -585.3 7852.9 7267.6
2015 -3.33 27769.9287 58.19 -925.9 7722.7 6796.8
2016 -3.10 28323.7113 -5.11 -878.6 7948.2 7069.6
2017 -2.59 28914.8596 -14.88 -747.9 8173.2 7425.3
2018 -2.47 29474.0995 -2.70 -727.7 8567.3 7839.6
2019 -3.52 30050.4556 45.44 -1058.4 8812.7 7754.3
2020 -7.38 29584.2575 16.20 -2182.4  9211,3 7028,9

 Source: From the work of the researcher based on: Central Bank of Jordan Annual Reports.

2-Analysis of public debt in Jordan for the period ( 2000-2020:

In the event of insufficient taxes as a source of financing, the State may resort to alternatives to finance its expenditures, one of which is the public loan it obtains, where it uses it as a source of financing its expenses, and therefore the public debt “constitutes all financial obligations under which the State is obliged to pay interest on it and undertakes to repay the principal amounts borrowed and the volume of public debt increases through the increase of public loans”. (Taher, 1988) The State also resorts to public loans, especially in cases of financing capital formation operations, i.e. investment expenditure, or when facing the burden of war expenditures, compensating for the resulting losses and facing a temporary deficit in the State’s public revenues. (Abdul Hamid, 2007)

The problem of indebtedness is one of the hottest issues in the world today, as indebtedness has moved from a problem that concerns developing or mainly poor countries to a problem that has become a concern for many of the world’s major industrialized countries, including the United States, as the public debt of many countries has escalated to critical levels as a result of the massive growth in public spending that accompanied the crisis in light of the narrow view of the real financial ability of these countries to service their debts in the long term. Which opened the debate about the future of the financial conditions of these countries and the importance of the need to put the government sector and public spending under control, and the public debt in the environment of the Jordanian economy is no different from the rest of the countries as the total public debt has increased due to the nature of its economy as well as the political and security conditions in the region, so we will analyze the internal and external public debt in the environment of the Jordanian economy during the period (2000-2020), as the public debt index in the environment of the Jordanian economy can be clarified from the data of the table ( 4), as the total public debt in (2000) amounted to (5997.7) million dinars, and amounted to (45.35%) of the GDP Divided into two parts, internal and external debt, where the share of external debt was about (4794.7) million dinars, and the internal debt of it about (1203) million dinars for the year (2000), while in (2004) the total public debt increased to (7430.8) million dinars, and its percentage of GDP (44.61%), while the share of internal debt reached about (2082) million dinars, and external debt (5348.8) million dinars, and this reason is due to the government’s efforts to reduce dependence on external borrowing and replace it with borrowing. From internal sources in order to reduce the burden of public debt on the one hand and its structure on the other, while in 2009, the data of the table showed an increase in the total public debt, it recorded an amount of (10955) million dinars, while it recorded (46.18%) of the outputThe largest share of the internal debt was at the expense of the external debt, where the internal debt amounted to about (7086.0) million dinars, while the external debt amounted to about (3869.0) million dinars, and this is attributed to the global crisis, which led to dependence on internal borrowing and avoidance of dependence on external debt, while in (2014) where the total volume of public debt is gradually rising, as we note that the total public debt reached about (22651.1) million dinars, while it accounted for (83.60%) of GDP, This increase in the volume of public debt mainly reflects both the financing needs of the public budget in addition to the financing needs of both the electricity company and the water authority, and in a related context, the table data showed an increase in the total public debt in (2020) as the public debt recorded an amount of (33032) million dinars, while it recorded a percentage (111.65%) of GDP and the largest share of internal debt was at the expense of external debt, where the internal debt amounted to about (18933.7) million dinars, while The external debt amounted to about About (14098.3) million dinars, and this increase is attributed as a result of the spread of the Corona pandemic led to a decrease in GDP and increased indebtedness in the environment of the Jordanian economy.

Table 4Index of the ratio of public debt to GDP for the period (2000-2020)/(million dinars)

Internal Debt Internal debt growth rate External debt Growth rate of external debt Total Public Debt Gross Domestic Product (GDP) Public Debt to GDP Years
7 6 5 4 3 2  1 2000
1203 —- 4794.7 —- 5997.7 13226.5491 45.35 2001
1369 13.80 4742.8 -1.08 6111.8 13923.5826 43.90 2002
1656 20.96 5123.4 8.02 6779.4 14728.8959 46.03 2003
1815 9.60 5391.8 5.24 7206.8 15341.8635 46.97 2004
2082 14.71 5348.8 -0.80 7430.8 16656.2339 44.61 2005
2467 18.49 5056.7 -5.46 7523.7 18013.1498 41.77 2006
2961 20.02 5186.5 2.57 8147.5 19470.9495 41.84 2007
3695 24.79 5253.3 1.29 8948.3 21062.9275 42.48 2008
5754.0 55.72 3640.2 -30.71 9394.2 22586.2656 41.59 2009
7086.0 23.15 3869.0 6.29 10955 23720.9341 46.18 2010
7980.0 12.62 4610.8 19.17 12590.8 24270.0344 51.88 2011
9996.0 25.26 4486.8 -2.69 14482.8 24934.3489 58.08 2012
12678.0 26.83 4932.4 9.93 17610.4 25540.0935 68.95 2013
13440.0 6.01 7234.5 46.67 20674.5 26206.6765 78.89 2014
14621.0 8.79 8030.1 11.00 22651.1 27093.5309 83.60 2015
15486.3 5.92 9390.5 16.94 24876.8 27769.9287 89.58 2016
15793.7 1.98 10299.0 9.67 26092.7 28323.7113 92.12 2017
15402.1 -2.48 11867.2 15.23 27269.3 28914.8596 94.31 2018
16220.7 5.31 12087.5 1.86 28308.2 29474.0995 96.04 2019
17738.0 9.35 12338.2 2.07 30076.2 30050.4556 100.09 2020
18933.7 6.74 14098.3 14.27 33032 29584.2575 111.65  

 Source: From the work of the researcher based on: Central Bank of Jordan Annual Reports.

Conclusions:

  1. Discretionary fiscal policy is important for achieving economic stability through its tools through public spending or revenues, any deliberate changes, because stability is not achieved automatically.
  2. Achieving economic stability requires directing fiscal policy to achieve that goal through discretionary fiscal policy in order to stay away from economic crises and expose the economy to inflation or unemployment.
  3. The adoption of one of the economic policies, whether expansionist or deflationary and as required by the economic situation, is absolutely necessary to re-correct the course of the economy and keep it away from economic crises.
  4. Fiscal policy focuses on fiscal discipline as one of the most important indicators of economic stability through the development and application of explicit procedures and rules that can be implemented.
  5. The Jordanian economy is considered a rentier economy and is therefore vulnerable to external rather than internal influences.

Recommendations

  1. Great interest in discretionary fiscal policy in order to achieve the economic goals, which are to achieve stability by addressing cyclical fluctuations as well as raising the level of real GDP.
  2. Attention to fiscal discipline as it is able to provide space to enable the government to intervene to face unexpected shocks in light of the volatile economic environment in the Jordanian economy
  3. . Work to raise the productive efficiency in various sectors of the economy and diversify production in order to get rid of the economic rents that the economy suffers from.
  4. Correcting the structural imbalances in the Jordanian economy in order to raise the level of economic performance and thus its reflection on the increase in financial revenues.
  5. Paying attention to investment tunnels and working to increase them in order to improve the economic situation of the country and develop its infrastructure.
  6. The importance of coordination between fiscal and monetary policies for the ability of monetary policy to achieve economic stability.

  References 

  1. Abdel Muttalib Abdel Hamid, Economics of Public Finance, University House, Alexandria, 2005, pp. 18-19.
  2. Mahmoud Hussein Al-Wadi, Zakaria Ahmed Azzam, Public Finance and the Financial System in Islam, vol. 1, Al-Masirah Publishing and Distribution House, Amman, 2000, p. 182.
  3. Michael Abedgman, Macroeconomics, Theory and Politics, translated by Muhammad Ibrahim Mansour, Al-Marrakesh Publishing House, Riyadh, 1999, p. 517.
  4. Khalid Wasef Al-Wazni, Ahmad Hussein Al-Rifai, Principles of Macroeconomics between Theory and Practice, 3rd Edition, Wael Printing and Publishing House, Jordan, 2007, p. 244.
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  11. Tariq al-Hajj, Public Finance, First Edition, Jordan, Safaa House for Publishing and Distribution, 2009, p. 148.
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  14. Abdullah al-Taher, Introduction to the Economics of Public Finance, First Edition, Riyadh, King Saud University Press, 1988, p. 369.
  15. Abd al-Muttalib Abdel Hamid, Economic Theory and Macro and Partial Analysis, University House, Alexandria, 2007, p. 448.
  16. Martin Feldstein, The Role for discretionary fiscal policy in a low interest rate environment, Working Paper 9203, Cambridge, September 2002, P2.
  17. Karl E. Case, Ray C.Fair, Principles of Macroeconomics, Pearson Education, Inc. Upper Saddle River, New Jersey, 2007, P176.
  18. Maria Grazia Attinasi and Alexander Klemm, The Growth impact of discretionary fiscal policy measures, Working paper series, July 2014, P 6-7.
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  21. Alexiou،،2009، Government spending and Economic Growth: Econometric Evidence from the south Eastern Europe (SEE)، Journal of Economic and Social Research 2014، p1.
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