Jordan: 'Gov't might lift subsidies'

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09 February 2010

AMMAN - The government has not yet decided to lift subsidy on gas cylinders, pending a final decision on a bundle of austerity and other measures designed to address a challenging budget deficit.

Speaking separately to The Jordan Times on condition of anonymity yesterday, two senior government officials did not rule out resorting to the "budget assumptions", which entail "painful and unpopular decisions", but insisted such decisions have not been taken yet and will be studied thoroughly before the Cabinet finalises its plan.

They agreed that "the country is facing harsh economic conditions as the state budget deficit has reached an unprec­edented figure."

The deficit hit JD1.5 billion in 2009 and is projected at JD685 million in 2010.

Several local press reports said the government would lift subsidies on cooking gas and other tax-exempted essential items to balance the state finances.

"These are not decisions yet; they are simply budget assumptions that we are considering," one of the two officials pointed out.

On Wednesday, Prime Minister Samir Rifai said during a speech delivered at the Columbia University Middle East Re­search Centre that tough budgetary challenges are currently facing the government and difficult choices need to be made in order to manage the budget and address citizens' "urgent quality of life needs".

Over the past week, the government took decisions to raise the special tax on cellular phone calls from 4 per cent to 8 per cent and increase taxes on tobacco products and alcoholic beverages.

Tayseer Smadi, CEO of the Islamic International Arab Bank, told The Jordan Times yesterday that the government has no other option but to reconsider taxation and subsidy policies.

"The national debt crossed the red line after it topped 60 per cent of the GDP and the budget deficit reached unprec­edented limits, up to more than a billion. This represents a serious threat to the local financial and economic situation and the government has to react fast before its too late," said Smadi, who is also a former planning and international cooperation minister.

"There will be a negative impact on the public's living standards for sure. But it is a step that has to be taken so that all share the responsibility," he noted.

The economist said the government, in light of the difficult economic conditions it is facing, has to focus on quality measures rather than quantity when taking decisions, adding that tax policies have to be implemented in a way that ensures equality and justice, taking into account national interests as a top priority.

Salameh Darawi, an economist and a columnist at Al Arab Al Yawm, said that the budget revenues were based on as­sumptions, or scenarios based on raising taxes on citizens and repealing of tax exemptions on essential items. He said such measures are expected to bring more than JD70 million in revenues.

Darawi added that an additional JD50 million is expected to be generated if the government decided to double the spe­cial tax on octane 90- and 95-octane gas, noting that 80 per cent of the Kingdom's production of these fuels is consumed by the citizens.

"The government would be unable to overcome the consequences of the growing deficit without resorting to the pockets of citizens in the short term," he said.

Spending control policies require the government to take decisions such as integration of ministries and bodies of like-work, abiding by the allocated funds in the budget and should carefully consider floating tenders for new projects, the economist said, adding that the ministries and various government departments have to rearrange the scale of spending priorities within the financial limits.

By Hani Hazaimeh © Jordan Times 2010