Tuesday, September 04, 2007

The case of the runaway budget

The government is preparing an annex to the 2007 budget, making allocations for an additional 500 million dinars in expenditures. This has been marketed to cover the costs of retaining fuel prices and livestock feed at current levels. However, the numbers don’t add up.

The government claims that keeping fuel prices as they are will cost 237 million dinars after not having any budget for this item originally. Some analysts think this number is inflated. Moreover, the lower cost of Iraqi oil is not considered. Anyway, despite these reservations I will take the number at face value.

I mentioned the story of the cattle feed earlier. It seems that a few months ago, the government held a census of livestock in the country. The counters colluded with the farmers to inflate the number of heads, ostensibly in order to increase the amount of any government payouts that may be given to herders. The inflated count led to the conclusion that subsidies for feed will cost 160 million instead of the budgeted 60 million. Of course, the ghost heads will not eat, and so the conclusion that this 100 million dinar differential is untrue. At one point, the lifting of the subsidies was expected to save 33 million dinars. Anyway, I will take the 100 million dinars at face value as well.

So, the increased expenditures according to the most pessimistic outlooks total 337 million dinars. So, what about the extra 163 million? The government simply says that this is for “other expenditures for which their allocations were not enough” in the original budget. How convincing.

It should be noted that this year’s budget of 4.3 billion dinars is the largest in history. It originally showed a 9.3% growth over the 2006 budget, with inexplicable rises in recurring expenditures. A 100 million dinar annex has already been passed to fund a modest pay raise for government workers. It is clear that government spending is out of control, as our public debt rose by over 200 million dinars in the first six months of this year. It’s no wonder that the former minister of finance got out of Dodge, although this does not relieve him of the responsibility for his role in this mess.


At 7:31 PM, Blogger Hatem Abunimeh said...

If you factor the 6.30% rate of inflation for 2007. The residual 3%increase would look modest by any stretch of any imagination.

At 7:43 PM, Blogger Khalaf said...

Pay for government workers did not go up by 6.3%. Salaries and benefits are pretty much stagnant, so spending on other aspects went up by more than 3% after inflation.

More importantly, services provided by the government are deteriorating. We are paying more for less.

At 9:44 PM, Blogger Hatem Abunimeh said...

I'm not an economist or anything like that but there is no relationship between inflation on one hand and salary increases for civil servants on the other hand.Of all of the primary causes listed for inflation; wage increase isn't one of them. In reference to the deteriorating services, work ethics or lack of it has a lot to do with it.

At 11:39 PM, Blogger Unknown said...

I know this is unrelated, but it seems Jordan is going Nuclear!

interesting given your tri-series on the subject

what do you think about the plans so far?
Do you think coupling the project with water desalination is a good idea?
If this would generate only 30% of the kingdom's energy by 2030, how can we export any energy? how much fossil fuel would it really save? And when would this project truly pay for itself? (i.e., the initial cost is offset by the operational savings)

Now, a political twist: why do you think Jordan is considering this at this point? is it truly to solve the energy problem? or is there a political side to this project?

Finally, the elephant in the room question: would this affect the health of Jordanians? do the jordanian engineers/government/bureaucrats have the clean track record to maintain and upkeep such a delicate nuclear plant?

ok, one more question: Jordan seems to be going with Kazak instead of China (your own recommendation) - what do you think of that?

sorry for the many questions - You are the expert blogger on the subject.

At 12:10 PM, Anonymous Anonymous said...

Its also interesting to look at the other side of the coin: tax revenues. The government's increased reliance on sales tax (over income tax) as a source of revenue over the past few years has resulted in record high tax revenues for the government.

At the same time, Jordan seems to employ the "taxation WITHOUT representation" principle. The government is reaping higher tax revenues, is still on a spending frenzy, and Jordanians don't have ability to question, examine, and change how the government runs its own budget.

At 11:18 PM, Anonymous Anonymous said...

Actually the government is missing out on millions of tax dinars from private companies in the form of corporate income tax. After having asked several corporate lawyers in Amman who service hundreds of local companies, they all said to me that the vast majority of private companies don't pay the income tax that they should.
To corroborate this fact, ask people who work in Jordanian banks about the existence of "US dollar" accounts for many trading companies that never make it to the official accounting books. Let alone the service industries (like restaurants) where a good chunk of cash revenue is never declared.
Some companies even declare losses and get tax credits for later years.
Imagine the government suddenly able to collect a decent amount of income tax from companies. That would surely cover the budget deficit.


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