JORDAN'S SUBSIDY-FREE 2008 BUDGET PASSES LOWER HOUSE OF

UNCLAS AMMAN 000296 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA AND EEB TREASURY FOR SETH BLEIWEIS E.O. 12958: N/A TAGS: EFIN ECON ENRG PGOV EAID JO SUBJECT: JORDAN'S SUBSIDY-FREE 2008 BUDGET PASSES LOWER HOUSE OF PARLIAMENT REFS: A) AMMAN 26 B) 07 AMMAN 4575 C) 06 AMMAN 1986 ¶1. (U) On January 24, Jordan's lower house of parliament approved the 2008 budget by a vote of 87-11, with three abstentions and nine absentees. Three days of discussion in the parliament focused on the impact of financial reform, particularly the end of fuel subsidies, on limited income citizens. Parliamentarians expressed fears about security and stability. The Senate will now debate the draft budget law and upon its passage by the Senate, the law will be signed by King Abdullah and published in the Official Gazette (Ref B). The lower house's vote was taken using the new, USAID-funded electronic voting system which went online with this session of parliament. (This system is designed to increase transparency by recording votes and discussions so civil society and media can better track and engage decision-makers on issues.) ¶2. (U) The largest change in the 2008 budget from that of 2007 is the elimination of subsidies for petroleum products such as kerosene, diesel, LPG, and fuel oil. While subsidies for gasoline were previously eliminated, prices are nevertheless scheduled to rise an additional 20 percent on February 1 (Ref C). Per liter, the price of regular fuel will increase from 315 fils ($.41) to 499 fils ($.70),unleaded from 640 fils ($.90) to 742 fils ($1),super from 605 fils ($.85) to 702 fils ($.99),and diesel from 315 fils ($.44) to 515 fils ($.73). As a result, prices for premium and unleaded fuel will be higher than international market prices, with the excess revenue used to fund pay raises for civil servants. The price of LPG will also rise, but due to unseasonably cold weather, the GOJ will maintain a temporary subsidy for the gas canisters. The current canister price of LPG JD4.25 ($6) will initially rise to JD7.5 ($10.56) and to JD 10 ($14.10) in April. ¶3. (SBU) Lower house members further urged the government to tighten its belt as the country faces $10.9 billion in foreign debt and an increasing government budget deficit. In response, parliament's financial committee called for cuts of $98 million in capital expenses and $70 million in current expenses, but Ministry of Finance (MOF) Secretary General Ezz Eldeen Kanakria informed EconCouns January 28 that the proposed expenditures, approximately 6.2 percent of GDP, would not be changed. ¶4. (U) Parliamentarians also supported efforts to develop, and budgeted $421 million for, a social safety net which the government intends to use to offset the rising costs of living. Prime Minister Nader al-Dahabi told parliament that the government also plans to exempt further goods from taxation to help citizens cope with rising prices, continuing an early January decision to lift customs duties and exempt taxes on 13 basic commodities (Ref A). ¶5. (SBU) The 2008 budget includes increased salaries for 550,000 public servants and pensioners, retroactive to the beginning of the year. Kanakria commented that the raise approved by parliament exceeds the MOF's proposal, but is not fiscally impossible. Civil servants who earn $420/month or less will receive a $70/month raise. Those earning more than $420 will receive a $63 raise. Pensioners will receive a $42/month increase and National Aid Fund recipients will receive an additional $14 monthly. The government also said that 440,000 citizens with annual per capita income below $1400 will also benefit from additional financial assistance, but no details were provided. ¶6. (U) The budget of the central government will reach $7.3 billion or 42 percent of projected GDP. A budget supplemental will be needed to address the $91 million expense of fuel subsidies for January 2008. Budget annexes for independent bodies of the government could add an additional $1 billion. 70 percent of the budget is for current salaries; 10 percent is for retirees; 11 percent for debt repayment, and 9 percent is earmarked for physical and human infrastructure including education, health, IT initiatives. The GOJ currently employs about 30 percent of Jordan's labor force. Visit Amman's Classified Website at http://www.state.sgov.gov/p/nea/amman RUBINSTEIN