The International Monetary Fund has warned Jordan it faced worsening fiscal vulnerability if it fails to rein in growing public spending that critics say is driven by political rather than economic concerns, officials and politicians said on Thursday.
They said the IMF, which concluded a two-week mission on Tuesday had warned the debt-laden kingdom it needed to adopt "tighter macroeconomic policies" to curb inflation and restrain public spending threatening to derail robust economic growth.
The IMF team told Jordanian officials they must meet this year's budget deficit target of 5.5 percent of gross domestic product - the highest in almost a decade - by "resisting new spending cuts" and tighter government spending.
"The IMF said this would achieve a significant reduction in fiscal vulnerability and avoid a deterioration in the fiscal position and higher inflation that would dampen overall growth," one official who requested anonymity told Reuters.
This was despite a bold move to reduce fiscal pressures when Jordan fully liberalised energy prices and cut food subsidies last February after years of subsidies which critics and politicians said eroded the living conditions of poor Jordanians, a majority of the country's 5.7 million population.
Fears of a social backlash prompted the government last August to backtrack from the last round of an agreement with the International Monetary Fund (IMF) to lift subsidies on fuel begun in 2005.
Jordan said there was no alternative to the move to shield its economy from the spiralling cost of imported oil. But independent politicians say IMF-guided reforms have been a gamble in a country with a restive population and high unemployment. In past years civil unrest has broken out after steep petrol and bread price increases.
The government forecasts inflation to almost double this year to around 9 percent from an estimated 5 percent last year due to rise in energy prices, imported food and other imports. Another official said the IMF mission accepted grudgingly the government's latest costly measures to get "public acceptance of the lifting of subsidies" through hefty public sector salary hikes and expanding a social safety net.
The IMF team recommended a cap on growth in civil service salaries and pensions to 3 percent in real terms if the budget deficit was to return to comfortable 2 percent of GDP by 2013. The team expressed worry at the high level of government spending relative to the size of the economy saying it accounted for over 40 percent of the country's gross domestic product.
Independent politicians and economists say the government has cut subsidies that hurt the poor but public spending is spiralling to appease a politically powerful constituency of civil servants appointed by patronage.
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