Monday, May 28, 2012

(This story was originally published Sunday.)

DUBAI (Zawya Dow Jones)--Jordan's government has approved controversial measures to increase electricity and fuel costs as it grapples with the effect of higher energy prices on its budget deficit.

The state-run Petra news agency said the cabinet approved a 26% increase in high-octane gasoline prices to 1.0 Jordanian dinar ($1.41) per liter, as well as unspecified electricity price increases for the banking, telecoms, ports, mining and hotel sectors. The prices of jet fuel, liquefied gas and bunker fuel for ships were also increased, Petra said.

The price hikes follow the approval last week of various austerity measures, including a freeze on public sector hiring and higher taxes on banks, mining companies and hotels.

In its budget for 2012, the Jordanian government said it plans to curb its budget deficit this year by raising revenues through tax reforms and ending blanket subsidies on gasoline and diesel fuel.

The measures marked a change in direction for the government, which mostly increased social spending and energy and food subsidies in an attempt to curtail domestic unrest in the wake of the Arab spring protests. Jordan's budget deficit is expected to have reached about 6% of gross domestic product in 2011, even after taking into account $1.4 billion of grants from oil-rich Saudi Arabia, Jordan's neighbor to the south.

The International Monetary Fund has that Jordan needs to implement tighter fiscal and monetary policies in order to rein in the government's budget deficit, control its external debt and keep inflation under control. Natural gas prices have increased sharply after the flow of imported gas from Egypt was cut by numerous pipeline explosions in the Sinai desert.

"Higher fuel and food prices as well as increased oil imports' costs have negatively impacted the payments balance," said the Arab Monetary Fund in April, which extended Jordan with a $34 million loan last month to help bridge the country's balance of payments for 2011.

-By Leila Hatoum, Dow Jones Newswires; +971-4-446-1686; leila.hatoum@dowjones.com; Twitter @ZDJnews

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

28-05-12 0347GMT