Jordan on 5 February announced an “emergency” budget for 2003 with a projected deficit of JD316mn ($445mn) as Finance Minister Michel Marto warned that this will be a difficult year for the Jordanian economy. The budget, which was announced later than usual, “takes into account everything that could happen and we are ready for all eventualities,” said Mr Marto, who added that war in Iraq would cost the Jordanian economy some $1.5bn. The fragile Jordanian economy is expected to be hit particularly hard by the current conflict in Iraq, especially as a result of future higher oil import costs, disrupted trade with Iraq and lower tourism revenue (MEES, 31 March).

Total revenues for 2003 are projected at JD2,125mn ($2,993mn), a 1.8% increase on the 2002 budget, while expenditures are set at JD2,441mn ($3,438mn), 7.1% above the budgeted figure for 2002. On the revenue side, the government is expecting a marginal decline across the board, including a 2.3% slide in domestic revenues and notable falls in customs duties (-10.6%) and fees (-11.4%). However, these effects are counterbalanced by a 33.1% increase in foreign grants from JD242mn ($341mn) in the 2002 budget (preliminary figures come in higher at JD277.4mn – $391mn) to JD322mn ($454mn) in 2003.

Grants to Jordan are actually likely to exceed this projected amount, as it was already due to receive $250mn in economic assistance from the US in 2003 before the war started ($145.5mn of which was signed over earlier this year – MEES, 3 February). Since the war started, however, US President George W Bush has submitted a proposed $75bn war budget to Congress which, if passed, would see Jordan receive a further $700mn in economic aid and $406mn in military aid from the US alone (MEES, 31 March).

On the expenditure side, the 2003 budget benefits from Jordan’s negotiations with the Paris Club, which resulted in the rescheduling of $1.2bn of the country’s $3.8bn debt (MEES, 5 August and 15 July 2002). Interest payments on a commitment basis are expected to fall 10% to JD270mn ($380mn), while interest payments on a cash basis are due to fall by 42.3% to JD168mn ($237mn), although most of the benefit has already been seen in the preliminary figures for 2002. Total budgeted interest payments for 2002 came to JD591mn ($832mn), or 8.8% of GDP, while the corresponding figure for 2003 is JD438mn ($617mn), or 6.0% of GDP. This fall in interest payments has helped to free up funds to increase spending in other areas, notably capital expenditures (16.7%), pensions and social security (12.3%), defense and security (8.2%) and wages, salaries and allowances (4.8%). 

The level of the deficit (4.3% of GDP) is in line with the experience of recent years when deficits have consistently stayed at around the 4% of GDP mark. Despite this, Jordan has managed to bring down the level of net public debt from a recent peak of 105.1% of GDP in 1999, to an estimated 88.2% of GDP in 2002, according to IMF figures. This has been brought about, says the IMF, by a large portion of the debt being financed through non debt-creating flows. In addition, the government’s fiscal adjustment has been aided by the extension of the General Sales Tax (GST) to the retail sector in 2001, despite a few teething problems in implementation. Further measures to improve tax revenues were also put in place in 2002 to safeguard the fiscal deficit target for the year, including important steps towards the authorities’ objective of eliminating all price subsidies in the near future. In 2002, Jordan trimmed subsidies on some basic goods including oil products such as kerosene and diesel (but not gasoline), bread, bran and barley. The target set by the IMF and Jordan in 2002, following an agreement for a 2002-04 reform program, was to bring foreign debt down from the level of 80% of GDP to 65% of GDP.

Jordanian Budget, 1999-2003

(JDMn)

Source : Jordanian Ministry of Finance.

Note : Some figures have been revised and therefore differ from previous MEES budget reports.

$1 = JD0.71

¹ Preliminary figures for 2002 closed accounts.

² Current expenditures include interest payments on commitment basis.

³ Primary Balance: Equals total revenues minus non-interest total expenditures.

⁴ Current Balance: Equals domestic revenues minus current expenditures.

Overall, Jordan’s economic and fiscal health looks reasonably good, and the downward trend in the country’s debt is certainly a positive indication of the government’s efforts to implement sound macroeconomic policy and structural reform. According to Mr Marto, GDP growth reached 5% in 2002 and he expects the same level of growth in the coming year. Per capita GDP is also expected to grow from JD1,270 ($1,789) in 2002 to JD1,335 ($1,880) in 2003. However, it is difficult to escape the fact that Jordan is a country in an unenviable position geographically, politically and economically. The country is sandwiched between the two regional hotspots – Israel and Iraq; its population, more than half of which is of Palestinian origin is restive due to Israeli occupation of the West Bank and the US attack on Iraq; and it remains economically dependent on handouts from the US, the very country which is sponsoring Israel and has invaded Iraq. The US will continue to support Jordan economically and militarily, as without that help the Jordanian economy would be in dire straits and the political consequences would be serious for King 'Abd Allah’s government. But in the longer run, as the war in Iraq continues, if the “roadmap” for Palestine fails to materialize and Jordanians feel the impact of these negative shocks on the economy, they may begin to question the advantages of US hegemony.

© Copyright MEES 2004.