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Jordan budget gap shrinks as revenue rises

Jordan gets extra 146 million dinars of grants -finmin.

October 4, 2010 2:32 by

Jordan’s budget deficit narrowed by 43.5 percent in the first eight months of 2010 from a year earlier, due to higher grants, improved state revenues and big capital spending cuts, the finance minister said on Monday.

Finance Minister Mohammad Abu Hammour told Reuters the budget deficit for January-August narrowed to 427.9 million dinars ($603.5 million), from 757.5 million dinars for the same period in 2009.

He attributed the contraction to a 54 million dinar increase in local revenues and an extra 146 million dinars in foreign grants.

Abu Hammour told Reuters recently that Jordan was making better-than-expected progress towards its fiscal goal of cutting its budget gap to 6.3 percent of gross domestic product in 2010 by undertaking some of its toughest spending cuts in years.

Jordan posted a record deficit of 1.45 billion dinars ($2 billion) or 9 percent of GDP last year, which was blamed on years of big spending by previous governments during a boom period that saw high aid levels and an investment and real estate bubble.

Abu Hammour said the brighter fiscal outlook would help Jordan’s first Eurobond issue, a $500 million offering expected as soon as this month.

“This will have positive implications on the credit rating of Jordan along with boosting investor confidence in the Jordanian economy as we restore fiscal prudence,” he said.

The government has asked Moody’s Investors Service and Standard & Poor’s for credit ratings ahead of the issue. Moody’s last rated Jordan in 2008, rating its long-term foreign currency debt at Ba2 with a stable outlook.

The government has vowed to make $1 billion in savings in an austerity budget this year, largely via spending cuts including a freeze on government hiring and cuts in non-essential capital spending.

Boosting the fiscal outlook for 2010, total state revenues, including revenues from a general sales tax, income tax and foreign grants, rose 6.8 percent to 3.142 billion dinars in January-August compared with the same period last year.

The government has imposed hefty tax hikes twice since January, including on gasoline, to offset lower revenues due to the double impact of the global downturn and personal tax breaks aimed at keeping lower paid workers out of the tax net.

Total state expenditure, mainly for civil service pay, pensions and debt servicing, fell 3.5 percent to 3.569 billion dinars in January-August compared with the same period last year.

Abu Hammour said spending on capital projects was cut by 34 percent to 530 million dinars as the government changed priorities on major infrastructure projects, leaving most to be completed in partnership with private investors.

He said there was much less room to reduce the government’s operational expenses, much of which went on social services, pensions and salaries.

A recent surge in global wheat prices has raised the cost of bread subsidies while higher oil prices have increased a subsidy on cylinder gas, widely used for domestic cooking to help cushion the country’s low income groups.

Although Jordan liberalised energy prices several years ago, it retained subsidies on certain items to help the poor.

A more than doubling in foreign aid in January-August to 248.7 million dinars against 102.7 million dinars in the same period last year also helped shrink the budget gap, the minister said.

(Writing by Suleiman al-Khalidi; Editing by Susan Fenton)

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