Kuwait transfers $250m to Jordan’s central bank

Kuwait transferred $250 million to the Central Bank of Jordan, the state-run Petra news agency reported, citing Finance Minister Suleiman Hafez.

The funds are Kuwait’s contribution to a $5 billion grant for Jordan that was endorsed by the Gulf Cooperation Council (GCC) last year.

At a GCC summit in December 2011, Saudi Arabia, the United Arab Emirates, Kuwait and Qatar agreed to extend $5bn over a five-year period to support development projects in Jordan, with each state contributing $1.25bn.

The $250 million transferred by Kuwait is the first tranche of the GCC countries’ support for this year. 

Jordan, which has one of the smallest economies in the Arab world and imports 96 percent of its fuel needs (the daily equivalent of 100,000 barrels of a oil a day), and until recently was dependent on Egypt for its gas supply, finances its budget and current-account deficits with foreign investment and grants from the Gulf states, the EU and the US.

The kingdom’s public debt-to-GDP ratio increased to about 64 percent by end-2011. Its fiscal deficit could rise to JRD2.93bn ($4bn) this year if economic conditions in the country do not improve, the Jordan Times recently reported, citing Minister of Finance Suleiman Hafez. The kingdom’s debt would rise to JRD17.5bn by the end of the year from JRD14.3bn.

The overall budget deficit has increased to about six percent of GDP in 2011 as a result of commodity subsidies, other social spending and borrowing by the government on behalf of Jordan’s National Electric Power Company to cover more costly imported fuel oil used during extensive periods of interrupted natural gas supply when saboteurs attacked pipelines in Egypt over the past year and a half.

The government accumulated over JRD2.8bn in debt because it had to produce electricity from fuel rather than gas as a result of the disruption of supply from Egypt.

 “Jordan remains highly dependent on commodity imports like oil and grains, tourism receipts, remittances and FDI flows, and external grants,” the International Monetary Fund said in a report in April. The kingdom “is also facing risks from a further deterioration in its terms of trade, unrest in neighbouring countries, and the prospect of further disruptions to natural gas pipeline flows from Egypt,” it added.

Jordan’s economy is forecast to grow 2.8 percent this year from an estimated 2.5 percent in 2011, while inflation is projected to rise to 4.9 percent from 4.4 percent last year, according to the IMF. Government subsidies in total account for about JRD2.386bn annually. The treasury incurs JRD40m a year for every $1 above the price of $100 per barrel of oil.

Multiple attacks on a pipeline that supplies gas from Egypt to Jordan and Israel disrupted imports and increased the kingdom’s energy bill. It has also pressured the country to speed up ways to find alternatives that would make it less dependent on importing of its energy needs.

The kingdom's economy grew 2.9 percent in the second quarter of this year, according to the government’s Department of Statistics.