Jordan To Implement Austerity Measures Shortly

The Jordanian government plans to adopt a number of austerity measures aimed at plugging the widening budget deficit, Jordan’s newly-appointed Prime Minister Fayiz Tarawnah told a group of newspaper editors in 'Amman on 12 May. Mr Tarawnah said that the package, which he expects to implement before he presents his policy statement to parliament soon, will consist of a reduction of subsidies on certain commodities (not basic items), and an amendment of certain laws to increase state revenues, including the income tax law. He explained that a new list of price increases to be announced will exclude basic commodities such as kerosene, diesel, LPG, wheat and barley and said that the package will partially tackle the budget gap, without harming low- and middle-income Jordanians. But electricity rates and premium gasoline prices are set to increase, according to the prime minister. Jordan liberalized its energy sector several years ago, but last year it kept a freeze on some types of products to head off political unrest.  

The prime minister thanked the governments of the Gulf Cooperation Council and especially Saudi Arabia, for providing financial assistance to the kingdom in these difficult times and stressed that Jordan currently needs financial aid to support its budget rather than projects. But Mr Tarawnah revealed that out of the JD870mn ($1,227mn) projected foreign grants in the 2012 budget, only JD18mn ($25mn) have actually been received so far (MEES, 26 December 2011). Last year Saudi Arabia granted Jordan $1.4bn in budget support (MEES, 1 August 2011).

At the meeting with the editors, the Minister of Finance Sulaiman Hafiz disclosed that government subsidies currently total JD2,386mn ($3,364mn) annually. He warned that if the current economic conditions persist, and no corrective measures are taken, the 2012 budget deficit would rise to JD2,930mn ($4,131mn) before factoring in foreign aid, and to JD2,060mn ($2,905mn) with it. He also said that public debt would also rise from JD14.3bn ($20bn) to JD17.5bn ($25bn) by the end of the year. Mr Hafiz noted that the major challenge was the rise in oil prices, with every dollar increase in its price above $100/B raising the cost to the treasury by JD40mn ($56mn) a year. He estimated that GDP growth rate in 2012 will now fall to a range of between 2.5-2.7% from the previous 3% projected in the budget when it was first drawn up, as a result of weakening economic indicators. 

Against this gloomy outlook, Mr Tarawnah said it was imperative for the government to find immediate solutions because, as he put it, the situation “is much worse than I expected.” He therefore said it would be less costly for all to introduce reforms today rather than in the future. 

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