Jordan's 2009 Budget Grows Deficit with Bonuses and

UNCLAS AMMAN 002982

UNCLASSIFIED
SIPDIS

STATE FOR NEA/ELA AND EEB

E.O. 12958: N/A
TAGS: EFIN ECON PGOV EAID JO
SUBJECT: Jordan's 2009 Budget Grows Deficit with Bonuses and
Development Projects

REFS: A. AMMAN 2669

B. AMMAN 2316

C. AMMAN 1903

D. AMMAN 78


1. (U) Summary: The Finance Ministry presented the $8.69 billion
2009 central budget to Parliament on October 26. The budget is 8.2%
larger than 2008 because of growing capital expenditures including
the King's housing initiative, as well as bonuses for civil servants
and pensioners. This budget includes less for subsidies and GOJ
predicts that falling world oil and grain prices will lessen their
need. The growing budget will be matched by a deficit which is
predicted to grow 103% after foreign grants compared to 2008. End
Summary.

2009 Budget 8.2% Over 2008 Budget
--------------

2. (U) The Minister of Finance, Dr. Hamad Al-Kasasbeh, presented the
2009 central budget to Parliament on October 26. The budget
projects total expenditure at $8.69 billion, domestic revenue at
$6.76 billion, foreign grants at $966 million and the deficit at
$973 million (ref A). This budget is 8.2% larger than 2008
primarily because of additional capital expenditures. In his
statement to Parliament, Al-Kassasbeh projected 2009 real GDP growth
to be between five and six percent, current account deficit to drop
to 12 per cent of GDP, inflation to be between six and seven percent
and deficit as percentage of GDP at 4.6 after foreign grants and 9.2
before grants.


3. (SBU) Dr. Ismail Zaghloul, Director General of the Budget
Department, informed EconOffs on Oct 29 that the budget was
submitted to Parliament much earlier than usual this year,
reflecting GOJ's progress in building budget capacity and in
anticipation of significant Parliamentary discussion. He predicted
that it would pass before the start of the 2009 fiscal (calendar)
year and without changes, albeit after a heated debate. He also
said that the 2009 budget incorporates a 6 percent additional bonus
on the salaries and pensions of civil and military servants in
anticipation of a request from Parliament. (Note: Parliament cannot
increase expenditure, it can only reduce it. In 2008, Parliament
insisted on a salary increase, which required the government to
issue the first budget annex almost immediately after the passing of
the original budget (ref C). End Note.) Zaghloul also said that the
2009 budget includes $70 million for the King's housing initiative
(ref B),$28 million for expropriation of land to construct a cargo
airport in the Jordan Valley (ref D),and about $31 million for
development projects in Ma'an, a poor rural governorate which has
been the site of political unrest for decades.

Falling Prices of Commodities Reduce Expected Subsidy Costs
-------------- --------------

4. (SBU) Zaghloul projected that there would not be any fuel
subsidies in 2009, noting that the crude equilibrium rate for
subsidy-free LPG at the current selling rate of $9.20 per canister
is around $52 per barrel (ref A). He also projected that fodder
subsidies would amount to $35 million and would be required in the
first quarter, but given falling world prices, fodder would be sold
at market rate thereafter. Wheat subsidy would amount to $268
million, and hedging costs, mostly for wheat, would amount to $7 to
$14 million.


5. (SBU) Zaghloul also said that the government will submit the
budgets of independent government agencies shortly. He said that in
addition to the agencies in the 2008 submission, this year will
include agencies that were recently created, such as the Bureau of
Investment in Foreign Exchanges (translated),the National Museum,
The Irbid, Mafraq and Ma'an development areas, and the Samra
electricity generation company.


6. (U) Key 2009 budget highlights (Million Dollars):

2009 2008 % change
--------------
Total Revenue 7,722 7,558 2.2
Domestic Revenues 6,756 6,514 3.7
Tax Revenues 4,601 4,052 13.6
Non-Tax Revenues 2,155 2,462 -12.5
Foreign Grants 966 1,044 -7.4
U.S. 205 258 -20.7
Saudi Arabia 352 644 -45.4

EU 93 141 -34.0

Deficit after grants 973 480 102.6
percent of nominal GDP 4.6% 2.6%

Deficit before grants 1,939 1,524 27.2
percent of nominal GDP 9.2% 8.1%

Expenditures 8,694 8,038 8.2
Current 6,766 6,544 3.4
Civil 1,529 1,262 21.2
Military 2,289 1,868 22.5
Others 2,948 3,414 -13.6
Pension 1,009 806 25.1
Interest on Public Debt 614 548 12.0
Social Safety Net 236 658 -64.2
Wheat and Fodder Subsidy 304 530 -42.7
Subsidy of Independent
Government Institutions 393 498 -21.1

Capital Expenditure 1,928 1,493 29.1


Financing Budget

Sources 3,938 5,351 -26.4
Loans 3,938 3,778 4.2
Foreign loans withdrawals 105 108 -2.04
Domestic loans 3,832 3,670 4.4
Privatization proceeds - 1,573

Uses (expenditures)
Deficit Offset 973 480 102.6
Repayment of Domestic Loans 0.70 0.35 100.0
Repayment of Foreign Loans 415 396 4.7
Amortization of Gov debt to CBJ 113 -
Amortization of Domestic Debt 2,436 2,331 4.6
Partial buy back of
Paris Club debt - 2,144



7. (U) The Department of Budget published all budget related
information and tables online. The 2009 data is available in Arabic
so far, an English version is anticipated soon. The Department's
website address is www.gbd.gov.jo

Visit Amman's Classified Website at
http://www.state.sgov.gov/p/nea/amman

BEECROFT