NEW FINANCE MINISTER REVIEWS PARLOUS STATE OF GOJ

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002970

SIPDIS

TREASURY FOR QUARLES

E.O. 12958: DECL: 04/11/2015
TAGS: EAID EFIN PREL EPET KPRV JO
SUBJECT: NEW FINANCE MINISTER REVIEWS PARLOUS STATE OF GOJ
FINANCES

REF: A. RIYADH 2258

B. AMMAN 2753

Classified By: Charge d'Affaires David Hale for reason 1.4 (b) and (d)


1. (C) SUMMARY: Newly appointed Jordanian Minister of Finance
(and former Minister of Planning) Bassem Awadallah told
Charge on April 12 that Jordan will likely face a $282-352
million shortfall as a result of higher-than-expected crude
oil prices and lower-than-expected grant income. The
Minister has a three-year plan to wean Jordan off dependence
on grant aid, but it will require extra foreign assistance
until it is completed. During his upcoming visit during the
IMF/World Bank Spring Meetings, Awadallah will likely press
USG interlocutors for further support of Jordan's efforts to
obtain bilateral and Paris Club debt relief. END SUMMARY.


2. (C) According to Awadallah, higher-than-expected oil
prices have created a large hole in Jordan's budget. Jordan
has included in its 2005 budget an oil subsidy of JD 310
million ($437 million),calculated at an average annual price
of $42 per barrel. At the current world crude price of $54
per barrel, however, Jordan would need to pay a total of JD
450 million ($635 million) in order to maintain the fuel
product prices envisioned in the budget. The JD 140 million
($197 million) difference will be difficult to cover given
current GOJ revenues.


3. (C) The variable price of crude is especially problematic
given the form that the GCC grants will take. Awadallah
noted that Saudi Arabia had chosen to renew its grant to
cover Jordan's expenditures on crude for another year,
starting in April 2004. However, it will grant Jordan JD
15.7 million ($22.1 million) per month in cash rather than
continue to provide 50,000 barrels per day in free crude as
it has over the past two years. (NOTE: This amount tracks
with Prince Sultan's statement, reported ref A, that Saudi
Arabia would provide Jordan with $270 million in cash.) This
grant, given current prices, amounts to no more than half of
the past year's Saudi grant; it also does not provide any
hedge against the possibility of further rises in the world
price of crude. Awadallah did not seem to be aware of a $200
million UAE grant to Jordan mentioned by former Finance
Minister Mohammed Abu Hammour in a meeting with Charge
earlier this month (ref B).


4. (C) Oil is not the only topic giving the Finance Minister
heartburn. Awadallah noted that the GOJ's budgeted capital
spending of JD 750 million ($1.06 billion) remains largely
unfunded by foreign donors. He also alerted Charge to the
likelihood that new Prime Minister Adnan Badran would put
significant pressure on him to allocate more money for social
spending, particularly in the form of wage increases for
lower-income government workers, in ordre to counter the
popular anger he expects to provoke with planned subsidy cuts
(see para. 6 below).


5. (C) Jordan's budgetary picture, however, is not entirely
bleak. Awadallah noted that internal Ministry of Finance
estimates put Jordan's annual revenues for 2005 at JD 150
million ($212 million) more than the figure in Jordan's 2005
budget. He also noted that the growing economy would allow
the GOJ to run a slightly larger deficit in absolute figures
while maintaining a figure that would not substantially
increase Jordan's debt-to-GDP ratio. Nevertheless, Awadallah
predicted an overall figure of JD 200-250 million ($282-352
million) in GOJ spending needs that would not be covered by
domestic or grant revenues.


6. (C) Awadallah told Charge that given the situation of
government finances, he plans to seek international support
at the soonest possible time. Partly in order to take
advantage of the large cluster of decision-makers who will be
gathering in Washington for the IMF/World Bank Spring
meetings, Awadallah said he planned to depart for the United
States on April 15. Awadallah plans to present his plan to
wean Jordan completely from foreign grants through a
three-year budgetary reform process that would include
pension reform and the ending of all subsidies, many of which
he said were hidden in the budget. In addition, Jordan would
ramp up privatization, bringing the GOJ additional income to
retire debt and reducing its expenditures on money-losing
government-owned corporations. This plan, he estimated,
would cut JD 450 million ($635 million) in spending from the
budget each year. Together with a substantial reduction in
debt servicing, the cost of which Awadallah estimated at JD
300-350 million ($ 423-494 million) per year, this would
essentially wipe out the need for foreign grant aid to fund
anything other than capital spending.


7. (C) COMMENT: Awadallah did not give Charge any indication
that he expected any further grant aid from the United
States. He made a strong push, however, for U.S. assistance
in engaging other Paris Club members both for bilateral
relief and for a rise in the Paris Club debt swap ceiling.
USG interlocutors during the IMF/World Bank Spring meetings
should expect a similar pitch. END COMMENT.
HALE