US embassy cable - 04AMMAN10173

UNCLAS SECTION 01 OF 03 AMMAN 010173 
 
SIPDIS 
 
STATE FOR NEA/LEA - D. BARON 
STATE ALSO FOR E STAFF - D. CADE 
TREASURY FOR OASIA - LOEVINGER/MILLS/DEMOPOULOS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, JO 
SUBJECT:  Finance Minister Presents Budget to Parliament 
 
 
1.  SUMMARY:  Minister of Finance Mohammad Abu Hammour 
presented the 2005 Budget to parliament December 22. The 
budget projects expenditures at USD 4.7 billion, foreign aid 
at USD 1.5 billion, and a deficit of USD 234 million.  The 
budget estimates real growth next year at 5 percent and 
inflation at 2.5 percent. It is the first budget after the 
conclusion of 15 years of IMF-guided economic reforms. As of 
2005, the budget will for the first time reflect oil grants 
at world market prices and current expenditures will reflect 
fuel subsidies. While the government expects a heated debate 
in parliament over some budget items, the budget law is 
expected to pass.  Post's analysis of the budget will follow 
septel.  END SUMMARY. 
 
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Budget Highlights 
----------------- 
 
2.  Abu-Hammour presented the 2005 Budget Draft Law to the 
parliament's lower house. Noting that this is the first 
budget after the conclusion of 15 years of IMF-guided 
economic reforms, he emphasized that the government is 
committed to continue the corrective measures started under 
the IMF program. Jordan's Cabinet had adopted the budget on 
Nov 30. 
 
3.  Main budget numbers: 
 
--- The budget sets total revenues at JD3.06 billion (USD 
4.32 billion), this is JD 331 million (USD 468 million) or 
12.1 percent above the currently re-estimated 2004 actual 
budget. 
 
---- Revenues include foreign grants at JD 1.06 billion (USD 
1.5 billion). 
 
---- The budget sets expenditures at JD 3.33 billion (USD 
4.7 billion), which represents a 10.7 percent increase over 
the 2004 actual budget. Current expenditures are JD2.54 
billion (USD 3.6 billion), which represents a JD235 million 
(USD 332 million) increase over the 2004 actual budget (10.2 
percent higher). 
 
---- Fuel subsidies amount to JD 310 million (USD 437 
million) in the 2005 draft budget compared to JD 250 million 
(USD 353 million) in the 2004 actual budget. 
 
---- Capital expenditures estimates are at JD785 million 
(USD 1.1 billion), JD 88 million (USD 124 million) or 12.6 
percent higher than in 2004. 
 
---- External debt reached JD5.28 billion by the end of 
October 2004 or 68.9 per cent of estimated GDP for the same 
year, in comparison to JD5.39 billion at the end of 2003 or 
76.4 per cent of GDP. 
 
--- Budget summary: 
 
                             JD (million)        USD 
(million) 
Domestic Revenues               2,000                2,824 
     Taxes                      1,368                1,932 
     Others                       622                  878 
      loan receipts                10                   14 
 
Foreign Grants                  1,060                1,497 
      of which SETP                56                   80 
 
Total Revenues                  3,060                4,322 
 
Current Expenditures            2,545                3,594 
       Civil                      673                  951 
       Military                   691                  976 
       Others                   1,180                1,667 
         of which 
           fuel subsidies         310                437 
           pensions               414                  584 
           interest /foreign debt 185                  261 
 
Capital Expenditures              785                1,108 
        of which SETP*            161                  227 
 
Total Expenditures              3,330                4,703 
 
Deficit 
        Including SETP*           270                  381 
        Excluding SETP*           165                  234 
 
* SETP is the Socio-Economic Transformation Plan 
 
4.  The Minister highlighted the following statistics: 
 
--- Jordan achieved annual real GDP growth of 7.4 percent in 
the first three quarters of the year, while inflation was at 
3.3 per cent during the first 11 months of the year, amongst 
the lowest in the region. 
 
---- Projected real growth rate for 2005 is 5 percent, which 
he noted is double the population growth rate. Projected GDP 
per capita is JD 1,500 (USD 2,120). 
 
--- Foreign currency reserves now stand at JD4.8 billion, or 
eight months worth of imports. 
 
--- The 2005 budget forecasts a 2.5 per cent inflation rate, 
10 per cent growth in imports and exports, and a decrease in 
external debt by 5 percent of the GDP. 
 
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Deficit 
------- 
 
5.  The budget projects overall deficit at JD 270 million 
(USD $381 million), which represents 3.3 percent of GDP. The 
deficit last year was JD 293 million (USD 414 million) or 
3.9 per cent of GDP. When excluding the Socio-Economic 
Transformation Program (SETP), the deficit stands at JD 165 
million (USD 234 million). 
 
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Changes in the Budget structure and items 
----------------------------------------- 
 
6.  As of the 2005 Budget, the government will include the 
SETP under the relevant ministries' capital expenditures 
items. 
 
7.  The Budget will no longer include an "expenditure 
control" item whereby the savings from under-spending on 
various line items were allowed to be lumped into a single 
item in the actual, end-of-year budget, with no transparent 
accounting.  All expenditure projections (and their end-of- 
year variances) will be fully reflected in the budget. 
 
------------------------ 
Oil subsidies and prices 
------------------------ 
 
8.  The budget assumes oil prices averaging USD 42 per 
barrel (the GOJ's estimate of the 2005 annual average 
international price); the 2004 budget estimated oil prices 
at USD 26 per barrel. 
 
9.  As of the 2005 Budget, oil grant projections will 
reflect world market prices. In previous years, the 
government factored oil prices at the concessional rates 
awarded to the Jordan Petroleum Refinery. Also, current 
expenditures projections will include fuel subsidies. 
 
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No new taxes, better collection methods 
--------------------------------------- 
 
10.  The 2005 Budget does not include new taxes. The 
Government will focus on better collection methods already 
started in 2004, which have proved effective. One 
significant feature of improved tax collection was the 
merger in 2004 of the Income Tax and the General Sales Tax 
departments. 
 
--------------------------------------------- ----------- 
Neutralizing the effect of currency fluctuations on debt 
--------------------------------------------- ----------- 
 
11.  The government will soon put in place a strategy to 
neutralize the effects of the fluctuation of the foreign 
currencies on the Kingdom's external debt -- more than half 
of which is the pound sterling, yen and euro. 
 
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Next Step 
--------- 
 
12.  Parliament referred the Budget draft law to the House 
Finance and Economic Committee for review.  The Committee's 
Chair, Hashem Dabas, stated to the local press that he will 
not pass the draft budget law unless the government answers 
the 36 recommendations the committee gave on the 2004 
budget.  In the budget speech, Minister Abu-Hammour stated 
that the government drafted the budget with these 
recommendations in mind. 
 
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Comment 
------- 
 
13.  Although the government may face a heated debate in 
parliament over some budget items (e.g. over government 
salaries), the budget law is expected to pass unchanged. 
The constitution allows parliament to either accept or 
reject the draft budget law, but does not allow for 
substantial modifications in the budget, including 
identifying additional revenue sources.  Post will provide 
septel an analysis of the budget and of its political 
implications. 
HALE