Daily Times

The economic reform programme, agreed with the International Monetary Fund (IMF), says nothing on how to stimulate the economy and achieve higher rate of growth. The IMF programme focuses mainly on the budget deficit and the volume of debt and its rate of GDP. The assumption is that such financial reforms will create the right environment for economic growth. But this assumption is not correct. The reduction of budget deficit means that public expenditure will be reduced while taxes and fees will be raised. Even though these measures are needed, they by no means promote growth. The opposite may be the more likely outcome. The structural reforms called for by the IMF programme are of course necessary, but they have nothing to do with economic growth, except in an indirect and insignificant way. Things beings so, the government needs to formulate its own additional special programme to encourage economic growth, other than throwing money on problems, which is no more affordable, while trying to reduce the budget deficit and prevent public debt from rising faster than the economic growth rate. The fiscal policy is under pressure, and little can be done, as it is restricted by tight ratios and timely targets. Under the circumstances, the government has no alternative but to look to the Central Bank of Jordan (CBJ) for help. CBJ leads a banking system that controls huge amounts of money and can make a difference. The banking system has the ability to finance growth if the central bank comes up with a plan, incentives and enforceable equations. In a way, the solution may be in the hands of the central bank, as central banks in general take on their shoulders the responsibility to promote economic growth. As far as I know, the central bank has no plan in this direction. It might work on one if required. Once, we used to have a set of specialised credit corporations doing an excellent job in financing sectors of the economy assigned to them. We used to have an Industrial Development Bank, which was sold out to be converted to an unneeded Islamic Bank. We used to have a Housing Bank that, for some reason, was allowed to go commercial. We used to have an Export Financing Bank that somehow was converted into a commercial bank. Most, if not all, these specialised credit instructions came about from the central bank, when resources were limited. Since resources are now available in abundance, and can do miracles, the central bank can move in that direction if requested by the government. The central bank showed willingness to take more responsibility on its shoulders, such as the responsibility for financial stability and supervising insurances companies. Perhaps it can as well take up the duty to spur the growth of the economy, directing the huge resources of the banking system, estimated to exceed JD30 billion, into that directions. The prime minister might consult the governor of the central bank and see if the bank can do something about economic growth. Courtesy The Jordan Times