Jordan plans price rises, taxes to slash deficit

Jordan's Prime Minister Fayez al-Tarawneh speaks to the media after the swearing-in ceremony at Raghadan Palace in Amman May 2, 2012. (REUTERS/Muhammad Hamed)

AMMAN: Prime Minister Fayez al-Tarawneh said Sunday Jordan faced an economic crisis and he plans to raise prices and taxes to avoid a spiraling budget deficit from passing $4 billion this year and further damaging the kingdom’s growth prospects.

Tarawneh said the austerity moves expected before the end of the month would include rises in electricity and premium gasoline prices, but would not affect subsidies on bread for the poor and other items that cushion living standards of a majority of the country’s 7 million on low income.

They were crucial as a signal to Western donors that the aid-dependent kingdom was serious about fiscal consolidation and would pave the way for International Monetary Fund approved financing of projects currently on hold, Tarawneh said.

“There is a need for speedy measures to assure regional institutions and international donors that we are doing our part to put our house in order financially and economically,” Tarawneh was quoted by the state news agency as saying.

Tarawneh, who took office nearly 10 days ago, faces the tough challenge of rejuvenating an economy hit by poor domestic demand and lower foreign cash inflows, including remittances from expatriates in the Gulf. Hard currency earners such as tourism have also been hit by regional unrest.

“The budget situation is much worse that what was expected,” said Tarawneh, whose appointment by the king makes him Jordan’s fourth prime minister in 14 months to have been appointed by the monarch, facing mounting pressures to address calls for faster reforms in the kingdom.

Successive governments have adopted an expansionist fiscal policy characterized by sizeable state subsidies and salary increases after months of protest since early last year inspired by the civil uprisings that swept the Arab world.

To head of greater unrest, the authorities created new state jobs in an already bloated public sector, froze gasoline prices and maintained subsidies for bread.

“Frankly we have a crisis ... the budget deficit and a financing gap and our ability to finance such a gap in addition to the high debt that has hit the roof,” Tarawneh added

Finance Minister Suleiman al-Hafez was also quoted as saying the planned price hikes, that would include higher taxes on luxury goods, were crucial to avoid the budget deficit soaring to 2.03 billion dinars ($2.8 billion) after foreign aid that traditionally covers budget shortfalls.

The budget deficit has been accentuated by a soaring energy bill that hit $4.5 billion last year after the disruption of regular Egyptian gas imports that support 80 percent of Jordan’s electricity generation.

That forced the kingdom to switch to much more expensive diesel to cover its electricity needs.

Hafez said the economy was expected to expand between 2.5 to 2.7 percent this year, lower than earlier projections of at least 3 percent but in line with latest IMF projections.

Hafez said the budget deficit could reach a record 2.93 billion dinars if foreign aid levels fall dramatically this year and the measures were not taken.

Last year the kingdom’s economy was kept afloat after a $1.4 billion cash injection from Saudi Arabia. Officials say this year there was no pledge of support from Saudi Arabia, raising concerns about the state of the budget

Tarawneh said only a fraction of the projected 870 million dinars in foreign aid in the 2012 budget had arrived.

The 2012 budget has set a much lower budget deficit estimate of 1.027 billion dinars or 4.6 percent of gross domestic product that had made allowance for extra foreign aid and a streamlining of a subsidies package that costs over 2.3 billion dinars.

Hafez also warned that public debt could soar to 17.5 billion dinars by year-end, from a current 14.3 billion dinars that was now at 72 percent of GDP.

“There is a need to take urgent steps in the next three months to face the crisis we are in. We are now borrowing more and more to pay for our current expenditure,” Hafez said.

The debt exceeds Jordan’s self-imposed limit of 60 percent of GDP but the extra social spending since the Arab spring to appease protesters has taken precedent, officials say.

Economists said Jordan’s maintaining of a costly subsidy system and upkeeping of a large state bureaucracy was increasingly untenable.

A version of this article appeared in the print edition of The Daily Star on May 14, 2012, on page 6.




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