Deficit soars to record high

26 October 2007
Jordan's budget deficit for 2007 will be more than twice the government forecast because the kingdom's oil subsidy has become increasingly expensive as the price of oil has risen, according to a leading independent economist.

Jordanian economist Fahed Fanek expects the government's budget deficit to be up to JD 900 million ($1,271 million) by the end of 2007. 'If the government insists on keeping oil derivative prices at current levels, the budget will suffer the widest deficit ever,' he says. A budget deficit of $1,271 million is much higher than international credit ratings agencies are predicting. Ratings agency Moody's Investors Service, forecasts a budget deficit of $697 million for 2007. Jordan's Finance Ministry forecast a 2007 deficit of just JD 385 million ($544 million) at the last budget in December 2006. However, since then the price of oil has hit more than $90 a barrel. Former finance minister Ziad Fariz resigned in August after fellow ministers blocked his plan to bring the spiralling deficit under control by ending petrol subsidies. The Finance Ministry raised petrol prices six times between April 2002 and April 2006, but prices in the kingdom are still artificially low. New Finance Minister Hamad Kasasbeh promised to scrap the oil subsidy from the beginning of 2008. Moody's analyst Tristan Cooper says the government will struggle to end the oil subsidy because of public hostility to more expensive petrol (MEED 12:10:07). Jordan's population became reliant on cut-price petrol from Saddam Hussein's Iraq over many years. In 2006, Amman did a deal with the Iraqi government to buy cheap oil in bulk. However, Baghdad has failed to supply Jordan with as much oil as it expected under the deal.

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