Jordan’s year 2002 budget, approved by the government on January 13, forecasts only a 0.99% increase in total expenditures to JD2,280mn ($3,214mn) and a 0.38% increase in total revenues to JD2,087mn ($2,942mn) revealing a relatively austere approach to fiscal policy for the country and only a minimal 3.45% rise in the deficit to JD435mn ($613mn – see Table below). While current expenditures rose by 3.8%, capital expenditures are projected to fall by 3.39% to JD430mn ($607mn) from JD445.10mn ($627.6mn) the previous year, although figures for preliminary 2001 estimates show that the allocated spend for 2001 was not exhausted. Data obtained from the Ministry of Finance show that for the preceding fiscal year, only 73%, or JD325.5mn ($460mn) was spent, suggesting that some projects may have been put on hold. GDP for the year 2002, according to the ministry is expected to climb by 6.18% to JD6,700mn ($9,447mn). 

Capital expenditure financed by external loans is forecast to increase to JD98.60mn ($139mn) – a significant 54.79% increase from the revised 2001 estimate of JD63.70mn ($89.8mn), although it will fall by 6.18% from the original 2001 budgeted figure. And while actual capital expenditure fell in 2001 to JD325.50 ($459mn), it was still higher than the JD288.40mn ($406mn) and JD299mn ($421mn) spent in 2000 and 1999, although falls behind the 1998 figure of JD365.50mn ($515mn). “Despite not using the full allocation for capital expenditure, the bottom line is that they are still using it to stimulate the economy and attack poverty pockets,” notes Nabil Dahdah, Jordan Investment Trust’s Director of Research and Studies. Nearly one third of Jordan’s 5mn people live below the poverty line, while unemployment is officially estimated at 14.9% although unofficially put much higher.

Jordanian Budgets 2002-1998

(JD Mn)

$1=JD0.708.

*        Current expenditures include interest payments on commitment basis.

**      Primary balance: Equals total revenues minus total expenditures and net lending excluding interest payments.

***    Current balance: Equals domestic revenues minus current expenditures.

**** IMF definition of budget deficit.

(1)                 JD63mn is deducted from total expenditures which represents rationing of expenditures.

(2)                 Estimates.

Note: Table, provided by Jordan’s Ministry of Finance, differs from prior MEES Jordan budget reports.

Current expenditure, however, still forms the bulk of spending and is expected to climb to JD1,913mn ($2,697mn) in 2002, up 7.06% on the 2001 revised budget estimate of JD1,786.9mn ($2,519mn) and up 3.79% on the original 2001 budget forecast of JD1,843mn ($2,598mn). Increases for the year 2002 are seen across-the-board in areas such as wages, decentralized agency costs, and defense and security, and especially in the areas of cash basis interest payments and pension and social security costs.

Interest payments in 2001 are set to rise to JD291mn ($410mn), an increase of 41.13% compared to the previous year. Of particular concern for Jordan are the ballooning pension and social security payments, which are forecast to total JD339.10mn ($478mn) or 5.1% of 2002 GDP. They are set to rise by 11.7% from the 2001 revised estimate of JD303.40mn ($427mn), 10.3% higher than the originally budgeted 2001 level and substantially higher than the actual levels seen in the three years prior to that. Pension payments are forecast at JD320.80mn ($452mn) in 2002, up from the revised 2001 estimate of JD292.7mn ($412mn) and initial 2001 budget of JD294.4mn ($415mn), and have increased sharply from the JD268.6mn ($378.7mn) spent in 2000, and JD238.5mn ($336mn) in 1999 and JD235mn ($166mn) in 1998.

Social security payments are less weighty, but are also on the increase, forecast to rise to JD18.3mn ($25.8mn) in 2002, from the revised estimate of JD10.7mn ($15.1mn) in 2001, up from the original estimate of JD13mn ($25mn) for 2001. “The growth in pension payments is alarming and what is due to be paid in the coming years should in effect be looked upon as part of the internal debt burden of the government,” said Henry Azzam, CEO at Jordan Investment Trust, proposing that measures should be taken to put retirees receiving government pensions under the umbrella of the Social Security Corporation.

Nevertheless, economists note that Jordan is tackling its more pressing problems, as it also attempts to restructure within the International Monetary Fund’s (IMF’s) guidelines. It has allocated an extra-budgetary JD275mn ($387mn) for 2002 which is part of the economic and social transformation plan that it introduced last November in an attempt to stimulate economic growth and fight poverty and unemployment (MEES, 26 November 2001). It will be funded from JD100mn ($141mn) of privatization proceeds and JD150mn ($211mn) of new foreign aid pledges. Jordan is also trying to boost the economy through increased spending on education and information technology, particularly outside the capital, 'Amman, said Mr Dahdah. “The government is now starting to introduce computer proficiency at earlier grades and is also concentrating on vocational training.” However, while funds allocated under current expenditure for scholarships and training will climb to JD13.5mn ($19mn) in 2002 from the revised 2001 estimate of JD12.8mn ($18m), money spent on universities and municipalities will fall to JD44mn ($62mn) in 2002 from the 2001 revised estimate of JD48mn ($67mn).

Meanwhile, debt remains a pressing problem and Jordan must allocate JD591mn ($834mn) or 25% of its total expenditure to pay instalments and interest on foreign debt. Debt amounts to 6.5% of GDP when grants are excluded and rescheduled interest is included, in accordance with IMF definitions of budget deficits. However, if foreign aid is added, the debt level drops to a more acceptable 2.9% for 2002, compared to 3% in the 2001 revised estimate and 2001 in the original budget. Mr Azzam forecasts real GDP growth at 4% this year if none of the projects under the economic and social transformation plan are implemented, although if the additional capital expenditures associated with the plan are spent, he expects growth closer to 4.5% in real terms.

Jordan is still relying heavily on loans for budget funding, with foreign grants set to make up 11.59% of total revenue in 2002. It has been seeking, with some success, both to reschedule $6.9bn (JD4.89mn) foreign debt and attract more foreign aid. The country’s strong relationship with the US has seen the Bush administration, as part of its 2003 spending plan, propose that Jordan become the fourth largest recipient of US aid (after Israel, Egypt and Colombia) with a doubling of its allocation to $448mn (JD317mn) from $225mn (JD159mn) this year. Jordan was also the first Arab country to secure a Free Trade Agreement with the US (MEES, 8 October 2001). France has also agreed to convert about $33mn of Jordan’s Paris debts into investments in the country, which has external debt totaling some $6.9bn (JD4.89mn). Jordan owes the money mostly to the industrialized nations of the Paris Club, but also to the US.

© Copyright MEES 2004.