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Abu Dhabi, UAEWednesday 15 August 2018

Higher electricity prices pare down Jordan’s budget deficit

Higher electricity prices and other revenue-saving measures were helping to cut losses at Jordan's state-owned utility National Electric Power, while paring down the country's budget deficit from 9.3 per cent last year.

Electricity price increases are helping Jordan to reach its target of cutting its budget deficit to 8.3 per cent of GDP this year, according to the International Monetary Fund (IMF).

Higher electricity prices and other revenue-saving measures were cutting losses at the state-owned utility National Electric Power, while paring down the budget deficit from 9.3 per cent last year, the IMF said. It followed an IMF mission to the country to approve the third and fourth tranches of Jordan’s US$2 billion loan from the fund.

“While fiscal consolidation needs to continue, the focus should remain on achieving an equitable distribution of the burden of adjustment and protecting the most vulnerable,” said the IMF representative Kristina Kostial.“As benefits of low utility prices and low effective income tax rates have accrued disproportionately to the well off, utility and tax reforms are essential to a balanced consolidation effort.”

Jordan began increasing utility prices in 2012 to ease pressure on government funds bloated by salary rises and freezes on fuel prices carried out in response to the Arab Spring. Its progress stands in contrast to other regional oil importers yet to get to grips with cutting costly subsidies.

Egypt’s finance minister Hany Kadry Dimian last week warned that without immediate reforms spending on state subsidies next year would be 10 to 12 per cent above the 130 billion Egyptian pounds (Dh68.4bn) budgeted for the fiscal year ending in June.

Egyptian officials have been accused of dragging their heels over moves to scale back fuel subsidies, which eat up about a fifth of state spending. The government was taking too long to roll out an electronic smart card system aimed at reducing energy subsidies, Reuters reported last week, citing statements made by Khaled Abdelghany of e-Finance, the Egyptian firm in charge of the initiative.

The scheme, initiated by the administration of the former president Mohammed Morsi, has been framed as the first step towards cutting subsidies by 25 to 30 per cent in the next five to six years. Egypt is facing a budget deficit of 12 per cent of GDP for the current fiscal year.

“The fiscal position has not improved as the tourism sector and the labour market remain weak,” said William Jackson, an emerging markets economist at Capital Economics. “Ultimately, there needs to be some sustained progress on reform, rather than a reliance on GCC funds.”

The UAE, Saudi Arabia and Kuwait have extended billions of dollars in aid to Egypt under an effort to stabilise reserves and cut foreign-currency shortages in the wake of two revolutions in a little more than two years.

Elsewhere in the region, Tunisia’s interim prime minister Mehdi Jomaa has pledged to reform subsidies without hurting the purchasing power of low-income groups.

tarnold@thenational.ae

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