Jordan unveils major IMF-guided tax hikes to cut public debt

The Jordanian government plans to double prices of subsidized bread, which is due to be implemented early next month, with annual cash transfers to low-income citizens to compensate for the rise. (Reuters)
Updated 16 January 2018
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Jordan unveils major IMF-guided tax hikes to cut public debt

AMMAN: Jordan’s cabinet announced on Monday a major package of IMF-guided tax hikes it says are crucial to gradually lower record public debt needed to get the economy hit by regional conflict growing again.
The package announced on state media includes removing exemptions on general sales tax and unifying low 4 to 8 percent rates on a large number of items at 10 percent while leaving it at 16 percent ceiling for others, alongside raising special taxes on tobacco, premium gasoline and streamlining customs duties.
Prime Minister Hani Al-Mulki said the delay in implementing the much-needed reforms to generate at least 540 million dinars (SR2.862 billion) in extra revenues would increase the already high financing needs and threatens to hit the country’s finances.
The International Monetary Fund (IMF) approved in 2016 a three-year extended ambitious program of long-delayed structural reforms to cut public debt to 77 percent of GDP from a record 96 percent by 2021.
The debt is at least in part due to successive governments adopting an expansionist fiscal policy characterized by job creation in the bloated public sector, and by lavish subsidies for bread and other staple goods.
The package however did not include changes to an income tax law that the IMF officials had insisted in previous rounds of talks were a crucial part of reforms and which the government concerned about a backlash had backed off from adopting.
The IMF said last year this was needed to broaden the tax base and was a benchmark of structural reforms that should have been pushed by parliament by end of 2017.
The government also plans to double prices of subsidized bread which is due to be implemented early next month with annual cash transfers to low-income citizens to compensate for the rise.
Economists said Jordan’s ability to maintain a costly subsidy system and a large state bureaucracy was increasingly untenable in the absence of large foreign capital inflows or infusions of foreign aid, which have dwindled as the Syrian crisis has gone on.
The government has also echoed IMF concerns that without these reforms public external debt will spiral. It will already increase to 47 percent of GDP in 2021 from 37.5 percent, reflecting placements of international bonds and concession borrowing, according to latest IMF figures.
Debt service would peak in 2019-2020 at about 6.5 percent of GDP with Eurobonds that will be due.
The government has said it will mitigate the impact on the poor by exempting sales taxes on basic food products and medicines.
But economists reckon subsidy cuts are bound to worsen the plight of poorer Jordanians, a majority of the country’s population, and removing subsidies has triggered civil unrest in the past.
Critics say any hikes would extract more from the segment of salaried employees that already pays while leaving influential business tycoons outside the tax net.
The country’s economic growth has been hit in the last few years by high unemployment and regional conflict weighing on investor sentiment and as demand generated from Syrian refugee receded, according to the IMF.
Real GDP was revised downwards to 2 percent in 2017 about one percent lower than anticipated at the start of the IMF program and was expected to hover around 3 percent, almost half the levels it attained a decade ago.


Davos Diary: From chalets to snow boots, how to master the WEF logistics

Updated 7 min 19 sec ago
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Davos Diary: From chalets to snow boots, how to master the WEF logistics

  • Swiss hotels are good, with restaurants and facilities that you would really miss in a chalet
  • Best to do away with the shoes/spikes mix altogether, and go for proper, industrial-quality snow boots

DAVOS: Davos is the ultimate networking event, but also in many ways the ultimate logistics challenge. To get to the top of the Magic Mountain along with the 3,000 “masters of the universe” of the World Economic Forum (WEF) Annual Meeting, and stay there productively for the week-long jamboree, requires careful planning.

If you don’t make the right choice in some crucial decisions, you could miss out on the best moments. Here is some advice in four key areas to ensure you maximize the “Davos experience” in 2019.

1. Davos or Klosters as base camp? The two towns are only 20 km apart, but very different. Davos is bigger and more ostentatious; Klosters has the feel of “old money,” and its hotels are mostly all traditional Swiss Alpine style, compared to the modern apartments of Davos. If you stay in Davos, you will be right in the middle of things, with the Congress Center and other power hubs in walking distance. In Klosters you face a 20-minute shuttle ride each day to and from Davos; on the other hand, you are likely to have much more agreeable downtime, and have the opportunity to meet some interesting people, in the shuttle taxis and Klosters hotels.

2. Hotel or chalet? No contest — hotel every time. You will pay through the nose for the top ones, and even the more modest establishments are expensive, even by Dubai standards. But Swiss hotels are good, with restaurants and facilities that you would really miss in a chalet. The other advantage of a hotel is the fact that it is open 24 hours, and if you by chance lose your key, you are not locked out. This happened to me once in Davos, and I can assure you it is no fun to wander the snowy streets in minus-5-degree temperatures begging for a place in which to lie up until the chalet owner can come with a spare key. The hotel will cost you, but it is worth it.

3. Congress or Belvedere? The Congress Center in Davos is where all the big set pieces of the annual meeting take place — the big plenary sessions, the interesting Chatham House-style briefings, and some WEF social events all take place here. You have to be registered with WEF to gain access. But the Belvedere, a Steigenberger hotel, is where many of the most interesting people stay. It is always sold out during WEF, and only those with real pulling power, and plenty of money, can get to stay there. It is the hangout for many of the bankers and financiers who come to Davos to clinch lucrative deals. Best advice: Be registered with WEF for Congress access, but spend your evenings hanging around the Belvedere.

4. Boots or spikes? This is the last item on my “Davos essentials list,” but perhaps the most important. Some attendees wear ordinary day shoes, or even night-time loafers, but this is a fatal error. You can easily spot them, because they are mostly lying on their backs on a treacherous patch of ice, flailing around trying to get up. You will not get to shake too many important hands if you are laid up in hospital with a broken hip. The WEF hands out detachable ice-spikes for the elite who insist on hand-made brogues, but, while these might keep you upright some of the time, detaching and re-attaching is a convoluted process. Best to do away with the shoes/spikes mix altogether, and go for proper, industrial-quality snow boots. It’s amazing how quickly you get used to wearing them, especially when everybody else is. And, after a while, they look quite good even with a business suit.

  • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai