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Abu Dhabi, UAESaturday 15 December 2018

Jordan cabinet approves $13 billion budget for 2019

The state expects revenues of 8.6 billion dinars next year, boosted by IMF-backed tax increases

Omar al Razzaz has pushed the new tax bill, saying its passage was needed to get a clean bill of health from the IMF. REUTERS
Omar al Razzaz has pushed the new tax bill, saying its passage was needed to get a clean bill of health from the IMF. REUTERS

Jordan’s cabinet approved on Wednesday a 9.25 billion dinar (Dh48 billion) budget for 2019 as part of a reform of public finances to ease the country’s record debt burden and spur economic growth hit by conflict in the region, officials said.

Finance minister Izzedin Kanakrieh said the budget, which will be sent to parliament for approval, envisaged a deficit equal to 2 percent of Jordan’s gross domestic product.

The cabinet expects state revenues of 8.6 billion dinars next year, boosted by IMF-backed tax increases to help the kingdom restore fiscal prudence for a sustained recovery, the officials added.

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Estimates in the projected budget include around 600 million dinars in foreign aid. Direct cash support by major donors traditionally covers chronic budget shortfalls.

Mr Kanakrieh told the pro-government al Mamlaka television station that a tax bill that parliament approved earlier this month will help the government to cut down on rampant tax evasion.

Critics say the tax bill will dampen domestic consumption and deal a blow to investor sentiment, already hit by political uncertainty over risks of a new wave of protests.

An earlier version of the bill triggered some of the largest protests in years last summer that brought down the previous government.

Prime minister Omar al Razzaz has pushed the new tax bill, saying its passage was needed to get a clean bill of health from the IMF and lower the cost of servicing over $1.4 billion (Dh5.2 billion) in foreign debt due next year.

Jordan’s economy has been badly hit by conflict in neighbouring Syria and Iraq, both traditionally major trading partners.

Its public finances are under strain and the government is struggling to curb a public debt of more than $37 billion (Dh136 billion), equivalent to 96 percent of GDP.

An expansionist fiscal policy in previous years characterised by job creation in the public sector had pushed the debt to record levels.

Over the last two years the kingdom has raised general sales taxes and cut subsidies under an IMF austerity programme aimed at lowering public debt to 77 percent of GDP by 2021.

Jordan cannot expect high levels of aid that have underpinned the stability of the kingdom to be maintained indefinitely, Western donors say.

But the austerity steps have hurt the economy, with growth expected to continue to stagnate at around two percent next year. That is almost half the levels seen over the last decade during a boom period fed by high aid levels and capital inflows and investments.

While the government has focused on fiscal reforms, it has refrained from public wage reforms that remain a red line, donors say.

Economists say maintaining a large bureaucracy which consumes the bulk of state expenditure is increasingly untenable.