Options for Immediate Fiscal Adjustment and Longer Term Consolidation (Presentation Document)


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Executive Summary

Jordan reached large deficits at unsustainable levels of around 18% of GDP in 2011 and 2012.

While the government has initiated measures for fiscal consolidation, further action is required and a range of options can be considered to further reduce deficits by 5% of GDP in 2013.

Key Findings

·   Various options for Jordan to reach debt stabilizing primary deficit in 2013 are identified. These options also aim to reverse the trend and act across different elements:

1.      Revenues

2.      Remuneration of public sector personnel

3.      Energy and power sectors

4.      Subsidies

5.      Water sector

·   The 2013 budget is an opportunity to start immediate measures to set the stage for longer term structural change in public finances

·   Jordan should seek international expertise to design and/or implement tax, sector and public financial management reforms. Other options related to improving fees collection, maintenance, reducing water wastage, and increasing investments should also be considered

Recommended Actions and Initiatives

·   The following revenue measures can generate up to 2% of GDP:

o   Stop sales tax and other tax exemptions introduced from 2008 onwards

o   Reinforce tax administration to stop the accumulation of arrears

o   Recover the accumulated arrears

·   A number of other measures are identified on the spending side and include:

o   Freezing the hiring and remuneration of civil and military personnel and cutting allowances – this would generate up to 1.2% of GDP in savings

o   Freezing on pension has a potential to generate up to 0.8% of GDP in savings

o   Additional savings of up to 0.3% of GDP can be generated from capital spending

·   The following measures will help Jordan manage losses from the energy and power sector:

o   Use the pricing formula on monthly basis and consider moving to the weekly adjustment

o   Tariff adjustment to cost recovery at National Electric Power company (NEPCO)

o   Recover the losses of the past through a temporary surcharge

o   Introduce new brackets and electricity tariffs for households that would be more in line with expenditure deciles

·   Reforming food subsidies would include pricing at cost recovery where 75% would come from the top 7% deciles while the three poorest deciles can still be supported through a targeted transfer ideally managed by a reformed and enhanced National Aid Fund

·   The water sector ranks second after NEPCO with a deficit of 1.2% of GDP. The following measures are identified to reform the sector:

o   Cost of alternatives for residential consumers and for agricultural users show that cost recovery is feasible

o   Stopping direct transfers from the government to the sector would generate savings up to 0.2% of GDP

o   More measures can be taken to improve fees collection, maintenance and reduce water wastage and increase investments

 

Report Name

Date

Timeline

Options for Immediate Fiscal Adjustment and Longer Term Consolidation

(Presentation Document)

August 2012

2013

Author

Supporting Donor

The World Bank

The World Bank

Sector

Lead Ministry

Fiscal Policy

Not Applicable

Key Topics

Deficit –Energy – Food Subsidies –Fiscal Options –National Aid Fund – Power – Remuneration – Revenues – Water Sector

 

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