Jordan scraps fuel and food subsidies

CURBING DEFICIT: Jordan's government has scrapped fuel and food subsidies as part of 2008 budget. (Getty Images)

Jordan's finance minister unveiled a 2008 national budget on Monday that lifts remaining fuel and food subsidies to reduce a budget deficit threatening to derail robust economic growth.

Hamad Kasasbah told parliament that projected state expenditure had been set at 5.225 billion dinars ($7.36 billion) for 2008, up 13.4% from a readjusted 2007 spending figure.

The government forecast a budget deficit of 724 million dinars or 5.6% of gross domestic product (GDP) compared to 616 million dinars or 5.4% in 2007, finance minister Hamad Kasasbah told parliament.

This year's budget deficit worsened due to the spiralling cost of crude oil with a higher import bill for petroleum products and record world grain prices that raised the cost of wheat subsidies along with a drop in foreign aid.

"The government knows that next year will be a year full of challenges and believes facing them is a joint responsibility that requires decisions that preserve our gains and economic and social security," Kasasbah told parliament.

Kasasbah said the government was able to reduce the budget deficit this year from a forecast 1.076 billion dinar by fiscal prudence and higher revenues.

Officials say the government will phase out remaining subsidies on petroleum products and food this year to rein in the budget deficit even at the risk of social unrest with the erosion of living standards following sharp rises in prices of imported wheat and energy products.

The budget has allocated 380 million dinars for a social safety net to indirectly bolster living standards of the poor who form a majority of the country's over 5.7 million population.

Kasasbah said this would go towards targeted aid such as raising salaries of low income state employees and extending financial support to state sponsored projects to fight unemployment and poverty.

"Through this safety net we will seek to lift living standards those needy segments to exceed the negative impact of the lifting of some subsidised items," Kasabah said.

The government forecasts inflation to double this year from an estimated 5% this year due to rise in energy prices, imported food and other imports.

Kasasbah said extra capital spending allocated in the budget would upgrade the country's basic infrastructure and finance social development schemes to subsidised new housing for the poor.

Grants from donor countries, traditionally used to cover some of the budget shortfalls, were forecast to rise to 440 million dinars from a readjusted 346 million dinars in 2007.

Total state revenues, including foreign aid, were forecast to reach 4.501 billion dinars, an increase of 12.8% from a readjusted 2007 estimate with higher tax receipts and continued economic growth.

The draft budget is expected to be passed by parliament, which is dominated by pro-government loyalists.

The government also expects economic growth to remain around 6% with continued inflows of private and Arab Gulf investments and a liberal business climate despite regional political uncertainty. (Reuters)

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