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Jordan Jan-Sept budget deficit narrows 34 pct

Deficit narrows as revenues rise and projects ditched.

November 23, 2010 1:53 by

Jordan’s budget deficit narrowed by 34 percent from a year earlier in the first nine months of 2010, boosted by improved revenues and a freeze on non-essential capital spending, finance ministry sources said on Tuesday.

They said the shortfall shrank to 568 million dinars ($801 million) from 865 million dinars in the same period of 2009 – a year that ended with a record deficit of 9 percent of gross domestic product (GDP).

The authorities have ditched tens of millions of dollars worth of non-essential capital projects as part of austerity measures to slash the 2010 deficit to around 6 pct of GDP this year and help Jordan’s economy ride out the global downturn.

Last year the aid-dependent country ran up a record budget deficit of 1.45 billion dinars, much bigger than expected, as public finances came under strain after the global downturn hurt domestic demand and foreign cash flows, including foreign aid and remittances from expatriates in the Gulf.

The finance ministry data showed total state revenues, which include general sales tax, income taxes and foreign grants, rose 6 percent to 3.451 billion dinars against the same period last year.

The latest figures include a rise in foreign aid to 176 million dinars in grants from major Western donors — the United States, the European Union and Japan — from 102 million dinars in the same period last year.

Foreign aid has long cushioned Jordan’s economy from disruptions and helped finance almost half of its budget deficit. A sharp decrease in aid contributed to the budget deficit spiralling to unprecedented levels, officials say.

State finances were given a boost by two rounds of hefty tax hikes since January, including on gasoline, to offset lower revenues due to the double impact of the global downturn and major personal tax breaks to spur investments and domestic consumption.

Total expenditure, mainly civil service pay and debt servicing, fell slightly to 4.019 billion dinars until September against 3.922 billion dinars in the same period last year, according to the official data obtained by Reuters.

The government’s ability to cut current government expenditure is limited as salaries and pensions of a bloated civil service comprise the bulk of state spending.

Most of the savings came from a sharp drop in capital expenditure by 270 million dinars in the first nine months of 2010 against the same period 2009, the data showed.

As part of the public spending cuts the government plans to offer major infrastructure projects through private-public partnerships under lucrative terms that attract foreign investors.

Top economic policymakers pin their hopes of boosting revenues on an improved business climate that attracts more capital inflows as the economy begins to recover from the downturn.

(Writing by Suleiman al-Khalidi; editing by Stephen Nisbet)

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