Jordan's budget deficit rises as food prices soar

04 July 2008
Rising oil and food prices over the first six months of 2008 force Amman to spend more on subsidies.

Jordan’s budget deficit has climbed to JD826m ($1.2bn), about 6.5 per cent of gross domestic product (GDP), after the government struggled to keep spending under control in the first half of the year.

The country’s Finance Ministry forecast a budget deficit of JD724m, about 5.6 per cent of GDP, when it published its spending plans at the beginning of 2008.

But the rise in oil and food prices on global markets has forced the government to spend more money on its remaining subsidies, leading to an increased budget deficit.

“The government has to be active in trying to refinance some of its debt on the external markets,” says Luc Marchand, Jordan analyst at ratings agency Standard & Poor’s. “It may also have to speed up privatisation to gain more receipts.”

The extent of the problems with Jordan’s public finances emerged when the government had to recall parliament from its summer break in late June to pass a supplementary budget.

The government had to request an extra JD190m from parliament after it agreed to increase the salaries of the kingdom’s civil servants and members of the armed forces by about JD300m in February.

The Jordanian Constitution forces the government to recall parliament for any major increase in spending.

Figures released by the Finance Ministry on 2 July reveal that the additional government spending far exceeds the JD190m contained in the supplementary budget.

Government spending has now increased to more than JD5.7bn, up more than JD500m from the original budget of JD5.2bn.

The Finance Ministry had proposed to find the extra money for the civil servants and soldiers’ salaries by cutting its capital spending by 10 per cent.

Essa Saleh, director of studies and economic policies at the ministry, told MEED in February that the different ministries would cut their spending by JD112m in 2008 by postponing work on major projects (MEED 22:2:08).

However, according to the July update to parliament, capital spending is already JD43m above the original spending plan of JD1.1bn.

Aid from foreign governments has helped to keep the size of the budget deficit in check.

The Jordanian government has received commitments of $663m from foreign governments in 2008, including a previously undisclosed donation of $300m from Saudi Arabia.

Marchand expects the government will also collect more money through taxation than previously forecast. “We are expecting JD100-200m more taxes,” he says.

Inflation has reached 13 per cent, up from the original Finance Ministry forecast of 10 per cent, because of continued increases in oil and food prices.

Marchand has increased his forecast of tax revenues partly because inflation will raise the amount of sales tax collected.

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