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| July 14, 2003 | Monday | Jumadi-ul-Awwal 13, 1424 |
World economies: report
After slowing down in the first quarter, economic activity appears to have gained momentum in the second quarter and the outlook for the year as a whole remains positive. The various economic reforms introduced by the government, the return of confidence to the domestic scene after the Iraqi crisis, the expansionary fiscal and monetary policy being implemented, the continuing surge in exports and international aid to the country, and good prospects for Jordanian companies in Iraq could see Jordan recording real GDP growth of 4 per cent to 4.5 per cent in 2003. This is slightly lower than last year’s growth of 4.9 per cent, but is close to the 4.2 per cent recorded in both 2000 and 2001.
According to official figures, the GDP in the first quarter 2003 rose by 2.8 per cent at fixed prices and 3.9 per cent at current prices, compared to 4.3 per cent and 5.5 per cent respectively in the same period a year ago. The consumer price index in the first five months of the year was up 5.1 per cent, reflecting mainly higher fuel and transportation prices as well as the impact of the higher sales tax on certain goods and services and the weakening of the Jordanian dinar and dollar exchange rate vis-a-vis the euro. The real GDP growth in the first quarter this year has been the lowest quarterly growth since the first quarter of 1999 when the economy recorded negative growth of 0.5 per cent. The cloud of uncertainty that hovered over Jordan and the region because of the anticipated war on Iraq and the fact that several consumers and businesses delayed decisions to spend and invest until the situation became clearer, dampened growth in certain economic sectors, especially manufacturing, wholesale and retail trade, and restaurants and hotels.
More than 90 per cent of the real GDP growth in the first quarter originated in three sectors: the transport and communication sector, the finance, insurance and real estate sector, and the government sector. The manufacturing sector, which recorded real GDP growth of 10.7 per cent in the first quarter last year, saw growth slowing down to 0.2 per cent in the corresponding period of 2003. Most of the drop was due to disruption of exports to Iraq and harsh winter weather. During the first four months of 2003, total government revenues were 13 per cent lower than the corresponding period last year, while total government expenditures were 12.2 per cent higher, allowing the budget deficit to rise four-fold to JD203 million ($286 million) on a cash basis. This has forced the government to take several corrective measures to boost revenues including a controversial 5 per cent withholding tax on interest income, 4 per cent sales tax on monthly bills of mobile phones, 2 per cent increase in sales tax applicable to several commodities and above all, hiking prices of petroleum products.
The private sector is disappointed by the surge in taxes to finance rising public expenditures. It is true that 84 per cent of total government expenditures are current expenditures, mainly wages and salaries and interest payments, which need to be paid irrespective of the revenues generated. Nevertheless, because of various debt rescheduling agreements and the general decline in interest rates, at least the debt service portion of current expenditures should have been lower. Besides, the government is expected to rationalize excessive expenditure, reduce waste, tackle the rising monthly allocation made for the pension of public sector employees and scale back the unduly large public sector.
The Central Bank of Jordan has been following an expansionary monetary policy, with interest rates on the dinar moving in line with dollar interest rates. The prime lending rate for the major Jordanian banks has dropped to 6.5 per cent recently and the rediscount and deposit rate to 2.5 per cent from 5 per cent a year ago. Interest rates on the dinar may continue to edge lower in the second half of the year, and should therefore help the expansion of credit facilities and boost activities in the interest-sensitive sectors of the economy. The construction sector, which recorded a growth rate of 11 per cent last year, continued to rise this year. The growth in this sector is attributed to the large number of infrastructural projects currently being implemented and the surge in the number of housing and apartment buildings under construction. This sector has strong forward and backward linkages with other sectors of the economy.
With the economic growth rising at 4 per cent to 5 per cent in the past few years and population growth close to 2.8 per cent, per capita income and the standard of living of Jordanians must be improving at around 2 per cent in real terms, the highest rate since the early ‘80s. Those who are working in the public sector and are mostly living on fixed wages and salaries are not feeling this improvement. On the contrary, higher direct and indirect taxes are eating into their gross income. Furthermore, activities in the retail trade, restaurant and hotel sector continue to be subdued for the third year in a row, depriving participants in these sectors from any improvement in their standard of living. However, other private sector participants are clearly better off.
The review of the implementation of the fiscal and macro-economic policy targets for 2002/03 reveals that Tanzania has continued to attain significant achievements. During the period under review, the economy grew by 6.2 per cent in real terms compared with 5.7 per cent in year 2001-02. The inflation rate fell from 5.2 per cent in year 2001, to 4.5 per cent in June 2002 and 4.2 per cent by end-March, 2003.
The average economic growth rate of 5.6 per cent per annum attained in the last three years when compared with previous growth rates and an average of 3.4 per cent achieved by African countries, is encouraging. However, this growth is still too low to the needs of the population growing at 2.9 per cent per annum, and to have a significant impact on our problems of poverty and unemployment.
The rate of inflation has continued to drop, reaching 4.3 per cent in April 2003 as compared to 4.5 per cent in June 2002. This decline in inflation is attributed to improvement in food availability and distribution, coupled with deliberate government policies to control expenditure as well as money supply in the country. , the decline in the inflation rate from 30 per cent in 1995 to 4.3 per cent has been of great benefit.
The economy has stabilized, which, among other things, is a prerequisite for its growth and sustainability, attract investments, and bring improvements in the monetary sector. Despite achievements attained to date, the rate of growth is still not high enough to ensure a rapid reduction of poverty. The productive sectors, especially agriculture which contributes about 50 per cent of GDP and employs about 80 per cent of Tanzanians, is still weak and requires immediate transformation.
Although the rate is still below the level required to rapidly eradicate abject poverty,it is also encouraging to note that macroeconomic stability has been sustained for quite some time and investments continue to rise in various sectors of the economy. Improvements in the social and economic sectors are on-going, new roads are being constructed while the existing roads are being repaired. However, the unsatisfactory increase in disposable income among the majority of the population in the rural and urban areas, the fall of the inflation rate has not been of much benefit to the majority of the people.
The improvement in Saudi Arabia’s macro-economic performance this year masks inherent weaknesses in the oil-dependent economy and the authorities’ reluctance to push forward urgently needed reforms. After alarming the business community with large and mysterious overspending in the 2001 budget, the kingdom started this year with a more hopeful outlook. By the end of the first half of 2002, oil prices had rebounded, with the Saudi price at about $22 a barrel, above the $17 budget forecast, and production rising beyond the Opec quota. This, combined with low interest rates, has increased liquidity and boosted the equity and real estate markets.
The finance minister estimates a smaller than the projected $12 billion budget deficit this year. Real non-oil private sector growth for the first half, was just under 4 per cent. However, with a continued reliance on oil and a population growing at more than 3 per cent a year, 71 per cent of which is under the age of 29, the country needs higher real economic growth rates than the 1 per cent to 2 per cent recorded in recent years to absorb new entrants into the workforce. Most of the promised economic reforms have yet to materialize.
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