Price Controls in Jordan-An Economic Assessment Study on Price Setting


 Full Report - PDF File  النسخة العربية
 

Executive Summary

·   The impact of rising commodity and fuel prices coupled with the fact that the exchange rate is fixed to the US Dollar has created inflationary pressures in the Jordanian economy and resulted in public outcries against price hikes and pressure on policy makers to impose general price controls

·   These inflationary pressures pose a significant and new challenge to consumers but also to policy makers

·   A number of short and long-term recommendations are outlined to alleviate inflationary pressures in the country

Key Findings

·   Jordan has been experiencing increasing inflation with the greatest increase occurring in prices of food items which are of particular importance to the poor as they comprise a large proportion of their income

·   Jordan has been affected by the increasing oil prices mainly due to the exchange peg of the JD-US Dollar for which monetary policy could not adjust to ameliorate the cost of oil

·   Poverty in Jordan is estimated at ~14% with a poverty line of JD553 per capita per year. Taking into account the rising inflation and its consequences for the poor and their expenditure and consumption patterns, the poverty line is expected to increase and be distributed particularly among women and in rural areas

·   Jordan is experiencing falling economic growth and decreasing unemployment with a number of possible different explanations:

o   Economic growth may have been primarily due to growth in building and real estate activities given that investments were concentrated in that sector over the 2002-2007 period thus crowding out other sectors fromthe capital market.Economic growth did not result in job growth for Jordanians but in greater inflation

o   Jordanian productivity may have declined due to growth in income generated from the sale of real estate assets and stock market speculation

o   The government increased employment over the last four years while overall productivity did not increase correspondingly

·   Overall, the recent growth in Jordan did not enhance the development drive resulting in rising unemployment rates

·   The Jordanian government adopted a policy towards price liberalization in 1991, however, despite this, the prices of goods and services in various economic sectors are still determined through the provisions of applicable laws, rules and regulations

·   Placing price controls normally has negative consequences such as:

o   Shortages of products

o   Deteriorating quality of goods and services

o   Limited consumer choice

o   Introduction of monopolies

·    “Price controls are not the appropriate answer for Jordan particularly given the high unemployment and poverty rates in the country, the declining GDP growth rate and the current fiscal and monetary policy restraints”

·   Three alternative price control mechanisms are defined for Jordan and include:

o   Price controls of some “strategic goods”  

o   Dynamic price controls

o   Rationing as an alternative

Recommended Actions/Initiatives

The report outlines a number of recommended policies for the short and long term

Short-Term Recommendations

·   Revise the Peg

·   Reduce customs duties, sales tax and other taxes on basic commodities

·   Increase consumers’ awareness of prices 

·   Allow imports of goods that suffer from domestic protection

·   Continue the policy of availing goods at co-ops

·   Expand and properly regulate bazaars

·   Encourage the creation of import-boards to help break import monopolies (monopsonies)

 

Long-Term Strategies

·   Introduce the Consumer Protection Law that has already been drafted

·   Convert the Competition Directorate into a Commission

·   Improve the business environment (easy in, east out for the private sector)

 

Report Name

Date

Timeline

Price Controls in Jordan-An Economic Assessment Study on Price Setting

2008

Not Relevant

Author

Supporting Donor

Envision Consulting

USAID

Sector

Lead Ministry

Macro-Economic & Fiscal Stability

Ministry of Finance

Key Topics

Alternative Price Control Mechanisms – Economic Growth – Evading Controls – GDP – Inflation – Poverty – Price Controls – Unemployment 

 

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