Abstract
In Jordan, among other countries, the public sector is highly valued because
it offers public services, practices, and steers economic activity so that it
achieves public aims in the economy.
In most of the developing countries, self - resources were insufficient to
finance the process of expenditure which resulted in a financial deficiency in
the public budget of the governments of those countries. So. they were
obliged to cover the deficiency via external and internal loans but their
consequences have been a big burden on the total variables in the economy
in general and also on the money variables via opposite elements to the
money supply This will eventually lead to a continuous increase at the public
level of prices.
Jordan has witnessed social, economic, and political changes during the
eighties and nineties, in other words, there has been a crisis in the dinar
exchange rate in the late eighties of this century ln addition to the first and
second gulf wars that led to rapid growth in the public expenditure to face
those changes.
Consequently, the government had to loan internally andexternally — mean
while most Arab aids were halted — the aids on which the government highly
depended on to finance its budget so that it could cover the deficiency in the
budget which affected the money supply and the Jordanian central bank
reserve of foreign currency and this affected the general level of prices as
well and led to much more inflation.
The study analyses the effect of the external and internal loans at the general
level of prices using theoretical analysis. The study also reveals how the
deficiency affects the inflation average in Jordan during the period of the
study (1988-2002).