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Jordan on track for 3.4 pct growth this yr-FinMin
Spending restraint to cut budget deficit by a third.
October 18, 2010 3:10 by Reuters
Jordan’s finance minister said on Monday that the country was on track to meet its 3.4 percent growth target this year as corporate tax cuts had boosted capital inflows and helped the country recover from the economic downturn.
Mohammad Abu Hammour also told Reuters’ Middle East Investment Summit that an austerity plan introduced earlier this year to get the country’s ballooning budget deficit under control had restored fiscal restraint after years of free-wheeling spending.
The government would meet an IMF-approved target to cut the 2010 budget deficit by a third to 1 billion dinars, or 6 percent of GDP, and lower still in coming years, he said.
“We have made a lot of progress with our adherence to a strict consolidation plan that has won the approval of our donors and the IMF and is showing tangible results,” Abu Hammour said.
A series of stimulus measures introduced at the start of the year to attract foreign investors and businesses showed signs of generating more capital inflows and helping spur domestic investment, Abu Hammour said.
They include a reduction in corporate taxes for banks, industry and services along with long-term tax breaks for foreign direct investment in industrial and free zones.
Second-quarter GDP data showed the economy’s fundamentals were “strong” as growth picked up to 2.9 percent year-on-year, from 2.03 percent in the first quarter, Abu Hammour said.
He gave no figures for fund flows, but said economic growth was on target to reach 3.4 percent this year, up from 2.3 percent growth last year, the economy’s worst performance since 1989 when the country was forced to seek assistance from the International Monetary Fund.
GDP growth in 2008 was 7.8 percent.
The IMF said recently that Jordan’s dependence on capital inflows and remittances from the Gulf, which were hit by a drop in oil prices during the financial crisis, made the country much more vulnerable than other Middle Eastern countries.
An improved regional climate would help speed economic recovery in Jordan next year, Abu Hammour said.
On the fiscal side, the minister was was confident Jordan could meet an IMF-approved target to cut the 2010 budget deficit by a third to 1 billion dinars ($1.41 bln), through public spending cuts and other steps to rein in the country’s stretched budget.
“Our austerity package has helped restore public finances onto the right track after years of unrestrained spending,” Abu Hammour told Reuters.”
A cut in the deficit to 1 billion dinars would bring it down to 6 percent of gross domestic product, and Abu Hammour said it could fall further in coming years. “… Our target is to bring it to below a 3 percent (of GDP) ceiling from three to five years as we continue fiscal restraint,” he said.
Abu Hammour said the deficit narrowed by 43.5 percent in the first eight months of 2010 from a year earlier.
Last year’s record deficit of 1.45 billion dinars ($2 bln), or 9 percent of GDP, 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.
Government revenues were rising after two rounds of tax hikes, including on gasoline, as part of the fiscal consolidation, Abu Hammour said.
Personal tax breaks to keep lower paid workers out of the tax net and to bolster middle class incomes had stimulated consumption while the overhaul of corporate taxation had encouraged more domestic investments, Abu Hammour said.
“Our austerity measures plus the stimulus measures have not only bolstered the macroeconomic outlook and injected fiscal discipline … but have moved the economy further towards recovery over the course of next year,” Abu Hammour added.
(Editing by Susan Fenton)