New IMF round forces subsidy cuts

19 April 2002

The government is to make sharp cuts in its subsidies on basic commodities, including bread and fuel oil, by the end of the month, as part of a new agreement with the IMF, Finance Minister Michel Marto said on 14 April. In return, the fund has agreed to extend the country's three-year $174 million extended fund facility by six weeks to May 31, giving time for the government to implement the price rises. At the end of that period, the IMF board will meet to decide whether to approve Jordan's 1999-2002 economic reform programme and consent to a new two-year plan.

The decision to raise the prices of bread, gas and fuel oil is a potentially divisive move at a time when public feeling in Jordan is already running high over the Israeli scouring of the West Bank, analysts say. Previous price hikes on state-subsidised items triggered riots in 1989 and 1996. However, IMF approval for the government's new reform programme is essential if Amman is to secure a wholesale restructuring of its $3,800 million debt at a Paris Club meeting later this year.

Jordan's total foreign debt stands at about $7,000 million, with total debt servicing estimated at $815 million this year. According to Marto, subsidising oil derivatives costs the government about JD 115 million ($162 million) a year while the cost of subsidising bread, barley and bran is estimated at JD 45 million ($64 million).

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