Fiscal prudence key to Jordan growth

Jordan's revised 2011 state spending of 6.369 billion dinars ($8.98bn) to cover higher welfare costs will not jeopardise fiscal stability crucial to attract foreign capital inflows, the finance minister said on Sunday. Abu Hammour told parliament as he gave the 2011 budget speech that fiscal policy this year would aim to support medium term debt reduction targets and help rein in the budget deficit.
A new government led by Marouf al-Bakhit decided last month to draft a revised version of the 2011 budget rather than annex an estimated $650 million in extra social costs as a supplement to an earlier 2011 budget passed by its predecessor last year.
The welfare package was introduced in January after food price protests that swept across North Africa and Middle East reached the kingdom. "This budget will play a crucial role in attaining and consolidating fiscal and monetary stability. This fiscal stability is a key guarantee to preserve an attractive climate for investments," Abu Hammour said.
Abu Hammour said substantial cuts in capital spending and projections of higher aid and revenues will ensure a slight rise in the deficit estimate to 1.160 billion dinars ($1.636 billion) or 5.5 percent of gross domestic product (GDP) against an earlier 5 percent target. It hit 5.3 percent of GDP in 2010.
Abu Hammour said further fiscal consolidation was critical to ensure a robust upturn and maintain a target of cutting the budget deficit to 3 percent of gross domestic product by 2013. The economy should grow between 3.5 to 4 percent growth this year with signs of a steady rise in quarterly growth that reached 3.5 percent in Q3 2100, he added.
"Real growth has continued its upward trend and I see signs of a recovery gaining momentum," Abu Hammour said.
Foreign reserves that hit a record $12.2 billion at end of last year and covered eight months of imports were a strong indicator of confidence in the economy, Abu Hammour said. Total state revenues, including foreign aid, was forecast to increase 7.4 percent to reach 5.208 billion dinars in the new 2011 budget estimates against readjusted 2010 budget figures.
Abu Hammour said inflation was expected to reach between 5 to 5.5 percent this year from an earlier 4 percent projection with an increase in the oil import bill and commodities but should fall back to 4.5 percent next year.
The surge in global wheat prices has raised the cost of bread subsidies while higher oil prices have increased the subsidies on ordinary gasoline and cylinder gas, widely used for domestic cooking, to help cushion the country's poor.