Jordan announces rise in prices to battle deficit

Jordan\'s prime minister Fayez al-Tarawneh Jordan’s new prime minister Fayez al-Tarawneh said on Sunday his government planned price rises soon for some essentials to prevent a spiralling budget deficit from passing $4 billion this year and further damaging the kingdom’s sluggish economy.
Tarawneh said the austerity moves expected before the end of the month would include rises in electricity and premium gasoline prices, but would not affect subsidies on bread for the poor.
He said they were crucial as a signal to the country’s Western donors that the aid-dependent kingdom was serious about fiscal consolidation.
“There is a need for speedy measures to assure regional institutions and international donors that we are doing our part to put our house in order financially and economically,” Tarawneh was quoted by the state news agency as saying.
Although Jordan liberalised energy prices several years ago, it retained last year a freeze on further gasoline hikes and some basic commodities to head off the potential for unrest.
Finance minister Suleiman al-Hafez was also quoted as saying the planned price hikes, that would include higher taxes on luxury goods were crucial to avoid the budget deficit soaring to 2.03 billion dinars ($2.8 billion) after foreign aid that traditionally covers budget shortfalls.
Hafez said the budget deficit could reach a record 2.93 billion dinars if foreign aid levels fall dramatically this year and the measures were not taken.
Last year the kingdom’s economy was kept afloat after a $1.4 billion cash injection from Saudi Arabia.
Officials say this year there was no pledge of support from Saudi Arabia, raising concerns about the state of the budget.
The 2012 budget has set a much lower budget deficit estimate of 1.027 billion dinars or 4.6 percent of gross domestic product that had made allowance for extra foreign aid and a streamlining of a subsidies package.
Successive governments have adopted an expansionist fiscal policy characterised by sizeable state subsidies and salary increases after months of protest since early last year inspired by the civil uprisings that swept the Arab world.
To head of greater unrest, the authorities created new state jobs in an already bloated public sector, froze gasoline prices and maintained subsidies for bread.
Economists said Jordan’s ability to continue to maintain a costly subsidy system and the upkeep of a vast state bureaucracy, whose salaries consume the bulk of the $9.6 billion state expenditure, was increasingly untenable in the absence of large foreign capital inflows or infusions of foreign aid.