By Massoud A. Derhally
Sum is part of GCC-backed, US$5bn fund over five years to support development in kingdom
Kuwait will pay US$1.25bn to Jordan through the Kuwait Fund for Arab Economic Development after the Gulf state's government completes needed procedures, the state-run Petra News Agency reported, citing Jordanian Minister of Finance Suleiman Hafiz.
Kuwait will start transferring the money within two months, Hafiz told the agency.
The Gulf fund was allocated by the GCC during last year’s summit to support development projects in the Hashemite Kingdom.
Saudi Arabia, UAE, Kuwait and Qatar decided to extend US$5bn over a five-year period to support development schemes in Jordan. Each GCC nation will pay US$1.25bn.
The Kuwaiti grant will be used to finance capital spending within the budget, the minister said.
Jordan's fiscal deficit could rise to JRD2.93bn (US$4bn) this year if economic conditions in the country do not improve, the Jordan Times reported in May, citing Hafez.
The kingdom's fiscal deficit would be JRD2.06bn after the receipt of foreign aid and grants, the Amman-based newspaper reported, citing Hafez. The kingdom's debt would rise to JRD17.5bn by the end of the year from JRD14.3bn.
The overall budget deficit increased to about 6 percent of GDP in 2011 as a result of commodity subsidies, and 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.
"Jordan remains highly dependent on commodity imports oil and grains, tourism receipts, remittances and FDI (foreign direct investment) flows, and external grants,'' the International Monetary Fund (IMF) 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".
The kingdom's public debt-to-GDP ratio increased to about 64 percent at the end of 2011.
Jordan, one of the smallest economies in the Arab world, imports almost all of its energy needs and finances its budget and current-account deficits with foreign investment and grants from Gulf states, the EU and the US.
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.
I question how this country is in a position to donate this type of money when they are suffering from a stagnate economy? In May the IMF stated that,"Kuwait will have exhausted all its oil savings by 2017 if it keeps on spending money at the current rate." For years now Kuwait has needed to diversify its economy and improve its infrastructure and climate for investment if it was to remain in good financial health, but has failed . With the unstable political climate in Kuwait, the government and parliament needed to push through an agenda which improved the investment climate and promoted sustainable and inclusive growth but failed to do so. This failure to do this puts the timetable for Kuwait's KD30bn development plan at risk, if not attainable at this time unless someone who deeply cares for this nation, pushes these crucial projects through which could jumpstart the economy. That should be Kuwait's priority not sending money overseas.
And who is going to bail out Kuwait? The IMF stated widely in the press that if Kuwait does not diversify their economy and continue in a stagnated development path this country will be in a financial crisis situation by 2017. Not that far away. So why it is that the 30bn dollar development plan that has been on the desk awaiting approval by this government, which is imperative to jumpstart this economy, is being once again tossed on the government's floor? If I were a young Kuwaiti and my future was at stake, I would demand that they implement the development plan for my future and question why my government is allowing these types of funds to constantly go overseas when it should be invested in the local crumbling economy. Kuwait is the only GCC nation that is not on a development path with an aged national carrier flying on it's last wing from an aged airport that can no longer handle the passenger levels to say the least.
IMF has been wrong on almost everything they said so far, so I would not use them as an informed source.