US embassy cable - 05AMMAN9036

C O N F I D E N T I A L AMMAN 009036 
 
SIPDIS 
 
E.O. 12958: DECL: 11/20/2020 
TAGS: EFIN, JO 
SUBJECT: JORDAN PREPARES A TOUGH BUDGET FOR 2006 
 
 
Classified By: Ambassador David Hale, Reasons 1.4 (a), (b) and (d) 
 
1.  (C)  SUMMARY: Jordan's revised 2006 budget goes a long 
way to getting the country's fiscal house in order.  The GOJ 
will continue to cut fuel subsidies, will base its budget on 
an estimate of $60/barrel oil, and will assume only 
guaranteed foreign assistance.  The budget of Finance 
Minister Adel Kodah will bring down the deficit from 16.1% of 
GDP in 2005 to 7.5% in 2006.  Despite the bombings of 
November 9, Kodah is determined to go ahead with this tight 
budget.  It may well be time to lobby again reluctant Paris 
Club members regarding Jordan's request to raise its debt 
swap ceiling and to urge Gulf states to renew their support 
to Jordan.  END SUMMARY. 
 
2.  (C)  On November 7, Jordan's Finance Minister Adel Kodah 
provided the Ambassador with details of a revised budget for 
2006.  The budget directly addresses many of the fiscal 
challenges the GOJ must overcome to restore its fiscal 
stability.  First, the government will base the 2006 budget 
on an estimated price of $60/barrel of oil, up from 
$42/barrel in the 2005 budget.  It projects slower growth in 
real GDP of 5-6% for 2006, down from what should be real GDP 
growth of over 7% in 2005. 
 
3.  (C)  Under the terms of the revised 2006 budget, the 
government will make difficult choices to hold the line on 
spending.  There will be no increases in government salaries 
and pensions for civil servants and the military.  The 
government will continue its politically-difficult cuts to 
fuel product subsidies, raising product prices in March 2006, 
September 2006 and, in March 2007, removing the last of the 
subsidies.  (NOTE:  These fuel subsidies will cost the 
government 310 million Jordanian dinars ($434 million) in 
2005; that figure will fall to JD 124 million ($173.6 
million) in 2006.  END NOTE).  The government will then fully 
liberalize the fuel market in 2008.  In addition, subsidies 
for commodities (largely foodstuffs) and independent GOJ 
agencies (those with their own sources of revenue such as the 
Jordan Investment Board) will be cut by 10%. 
 
4.  (C)  In 2005, the government included expected foreign 
aid in its budget, relying on what it hoped it would be 
getting from several Gulf countries.  When much of this 
assistance did not materialize, the 2005 budget, already 
struggling under soaring oil prices, was hit hard.  The 2006 
budget, by contrast, will include only foreign aid of which 
the government is reasonably confident, largely from the 
U.S., European Union and Japan. 
 
5.  (C)  According to Kodah, all of these steps will bring 
down the projected deficit substantially.  The government 
will register a deficit, before including foreign aid, of 
16.1% of GDP in 2005.  The revised budget for 2006 will bring 
this down to a deficit of 7.5% of GDP for 2006.  When aid is 
included, this revised budget reduces the deficit for 2006 
down from 5.6% to 5.1% of GDP. 
 
6.  (C)   COMMENT:  The revised 2006 budget is another in the 
series of the GOJ's politically difficult steps in restoring 
its fiscal health.  Further lowering the fuel product 
subsidies and freezing government and military salaries and 
pensions will not be popular.  The events of November 9 will 
undoubtedly add to government costs in enhancing security 
throughout the country and particularly at the borders.  From 
post's perspective, it may well be time to support Jordan's 
request to raise its debt swap ceiling under the Paris Club 
once again and to lobby the members who have resisted the 
request.  It is also time to renew our earlier messages to 
Saudi Arabia, Kuwait and the UAE calling for them to 
reconsider their aid programs to Jordan (now only Saudi 
Arabia provides a reduced level of assistance).  Our 
understanding is that Gulf States were waiting for Jordan to 
make difficult fiscal choices, including cutting fuel 
subsidies.  Jordan has now done that.  It is now time to 
remind these countries of the importance a stable Jordan 
brings to this region, especially against the backdrop of the 
November 9 attacks. 
HALE