JORDAN PREPARES A TOUGH BUDGET FOR 2006

1. (C) SUMMARY: Jordan's revised 2006 budget goes a long
way to getting the country's fiscal house in order. The GOJ
will continue to cut fuel subsidies, will base its budget on
an estimate of $60/barrel oil, and will assume only
guaranteed foreign assistance. The budget of Finance
Minister Adel Kodah will bring down the deficit from 16.1% of
GDP in 2005 to 7.5% in 2006. Despite the bombings of
November 9, Kodah is determined to go ahead with this tight
budget. It may well be time to lobby again reluctant Paris
Club members regarding Jordan's request to raise its debt
swap ceiling and to urge Gulf states to renew their support
to Jordan. END SUMMARY.



2. (C) On November 7, Jordan's Finance Minister Adel Kodah
provided the Ambassador with details of a revised budget for


2006. The budget directly addresses many of the fiscal
challenges the GOJ must overcome to restore its fiscal
stability. First, the government will base the 2006 budget
on an estimated price of $60/barrel of oil, up from
$42/barrel in the 2005 budget. It projects slower growth in
real GDP of 5-6% for 2006, down from what should be real GDP
growth of over 7% in 2005.



3. (C) Under the terms of the revised 2006 budget, the
government will make difficult choices to hold the line on
spending. There will be no increases in government salaries
and pensions for civil servants and the military. The
government will continue its politically-difficult cuts to
fuel product subsidies, raising product prices in March 2006,
September 2006 and, in March 2007, removing the last of the
subsidies. (NOTE: These fuel subsidies will cost the
government 310 million Jordanian dinars ($434 million) in
2005; that figure will fall to JD 124 million ($173.6
million) in 2006. END NOTE). The government will then fully
liberalize the fuel market in 2008. In addition, subsidies
for commodities (largely foodstuffs) and independent GOJ
agencies (those with their own sources of revenue such as the
Jordan Investment Board) will be cut by 10%.



4. (C) In 2005, the government included expected foreign
aid in its budget, relying on what it hoped it would be
getting from several Gulf countries. When much of this
assistance did not materialize, the 2005 budget, already
struggling under soaring oil prices, was hit hard. The 2006
budget, by contrast, will include only foreign aid of which
the government is reasonably confident, largely from the
U.S., European Union and Japan.



5. (C) According to Kodah, all of these steps will bring
down the projected deficit substantially. The government
will register a deficit, before including foreign aid, of
16.1% of GDP in 2005. The revised budget for 2006 will bring
this down to a deficit of 7.5% of GDP for 2006. When aid is
included, this revised budget reduces the deficit for 2006
down from 5.6% to 5.1% of GDP.



6. (C) COMMENT: The revised 2006 budget is another in the
series of the GOJ's politically difficult steps in restoring
its fiscal health. Further lowering the fuel product
subsidies and freezing government and military salaries and
pensions will not be popular. The events of November 9 will
undoubtedly add to government costs in enhancing security
throughout the country and particularly at the borders. From
post's perspective, it may well be time to support Jordan's
request to raise its debt swap ceiling under the Paris Club
once again and to lobby the members who have resisted the
request. It is also time to renew our earlier messages to
Saudi Arabia, Kuwait and the UAE calling for them to
reconsider their aid programs to Jordan (now only Saudi
Arabia provides a reduced level of assistance). Our
understanding is that Gulf States were waiting for Jordan to
make difficult fiscal choices, including cutting fuel
subsidies. Jordan has now done that. It is now time to
remind these countries of the importance a stable Jordan
brings to this region, especially against the backdrop of the
November 9 attacks.
HALE