VZCZCXYZ0006
RR RUEHWEB

DE RUEHAM #1903/01 1810719
ZNR UUUUU ZZH
R 290719Z JUN 08
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 2955
INFO RUEHGB/AMEMBASSY BAGHDAD 6016
RUEHLB/AMEMBASSY BEIRUT 2873
RUEHDM/AMEMBASSY DAMASCUS 3918
RUEHJM/AMCONSUL JERUSALEM 5073
RUEHRH/AMEMBASSY RIYADH 1976
RUEHTV/AMEMBASSY TEL AVIV 1236
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS AMMAN 001903 
 
SIPDIS 
 
STATE FOR NEA/ELA AND EEB 
TREASURY FOR S. BLEIWEIS AND C. REYNOLDS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ENRG PGOV EAID JO
SUBJECT: LOWER HOUSE OF PARLIAMENT PASSES SUPPLEMENTAL BUDGET TO 
COVER HIGHER FUEL, GRAIN, AND SALARY COSTS 
 
REFS:  A) AMMAN 1754 
        B) AMMAN 1616 
        C) AMMAN 296 
        D) 07 AMMAN 4338 
        E) 07 AMMAN 1410 
 
¶1.  (SBU) Summary: The Jordanian Lower House of Parliament passed a 
500 million JD ($705 million) supplemental budget for 2008 in early 
June.  The supplement includes funds for fuel subsidies provided in 
January and February, wheat and fodder subsidies, increased civil 
servant salaries, and some capital expenditures.  The supplement 
will be partially funded by projected increases in tax revenue and 
supplemental foreign assistance expected from the U.S. and a 213 
million JD ($301)grant from Saudi Arabia.  Jordan's budget 
supplement will increase the total 2008 budget deficit to 826 
million JD ($1.17 billion), or 6.4% of GDP, including foreign grant 
payments.  Preliminary work on the 2009 budget has begun, and a 
draft will be submitted to the cabinet in August.  End Summary. 
 
Supplemental Budget Expenses 
---------------------------- 
 
¶2. (SBU) Director General of the Budget, Dr. Ismail Zaghloul, told 
EconOffs that the Lower House of Parliament had recently passed a 
500 million JD ($706 million) supplemental budget with 466 million 
JD ($658 million) in current expenditures and 34 million ($48 
million) in capital expenditures.  The largest current expenditure 
is an additional 210 million JD ($297 million) for wheat, barley, 
and fodder subsidies.  These grain subsidies were originally 
budgeted at 165 million JD ($233 million), but skyrocketing world 
grain prices necessitated an increase (ref B).  Zaghloul was hopeful 
that no additional funds would be necessary for grain subsidies this 
year, noting that wheat prices have been falling recently.  COMMENT: 
 The Government of Jordan (GOJ) subsidizes bread prices, however, 
rising fuel prices and Jordan's reliance on imported wheat may 
further increase costs associated with bread subsidies.  END 
COMMENT.  An additional 6 million JD ($9 million) was included in 
the supplemental budget for costs associated with hedging the price 
of wheat. 
 
¶3. (SBU) The second largest expense category in the supplemental 
budget is 160 million JD ($226 million) for fuel subsidies.  While 
Jordan ended most fuel subsidies in February, 38 days of subsidized 
fuel at the beginning of the year cost the GOJ 75 million JD ($106 
million), based on an estimated world fuel price for the period at 
$85 - $87 per barrel (ref C).  The GOJ also decided to maintain the 
subsidy of Liquefied Petroleum Gas used for home heating at a cost 
of 85 million JD ($120 million) (ref A). 
 
¶4. (U) An additional 90 million JD ($127 million) has been 
identified for Jordan's social safety net.  While the safety net was 
included in the 2008 budget at 301 million JD ($425 million), 
Parliament requested and received higher than budgeted civil servant 
salary increases (ref C).  The safety net package includes salary 
increases, pension increases, financial support for fuel for poor 
Jordanians, and National Aid increases that were offered to offset 
growing inflation, especially in light of the end of most fuel 
subsidies (ref C). 
 
¶5. (SBU) Zaghloul said that 34 million JD ($48 million) was also 
added to the capital expenditures budget, which will increase total 
budgeted capital expenditures to 1.16 billion JD ($1.6 billion).  He 
noted that historically Jordan has only been able to spend 85 - 90% 
of its budgeted capital expenditures.  He further predicted that the 
10-15% of unspent capital expenditures will partially offset the 
large budget deficit.  Zaghloul also explained that 30 million ($42 
million) of the supplemental has been reserved for government 
purchase of expropriated land throughout Jordan's twelve 
governorates for road construction and other public works projects. 
An additional 4 million JD ($6 million) has been budgeted for the 
Ministry of Municipal Affairs for poverty alleviation programs 
within the municipalities to meet the requirements of a European 
Union grant. 
 
Revenues Also Grow 
------------------ 
 
¶6. (SBU) Zaghloul explained that revenues are projected to grow an 
additional 398 million JD ($562 million) over the original 4.5 
billion JD ($6.4 billion) estimate.  143 million JD ($202 million) 
 
 
will come from increased domestic revenues.  Domestic revenue growth 
is split between 114 million JD ($161 million) in tax revenue 
increases and 29 million JD ($41 million) in non-tax revenues, which 
are assorted government fees.  Tax projections have been raised 
because of higher than expected corporate profitability and because 
of inflation that has increased sales tax receipts.  In addition, 
the GOJ has continued to receive revenues from the sale of gasoline 
(ref E).  Zaghoul explained that when the government sets gasoline 
prices each month according to international prices, it factors in a 
sort of sales tax set at 4% for 90 octane and 16% for 95 octane. 
 
¶7. (SBU) Jordan is also projecting 255 million JD ($360 million) in 
additional foreign grants, and is extremely hopeful that a 
supplemental recently approved by the U.S. House, but not yet the 
Senate, will include ample funds for budgetary support.  Jordan 
further expects 213 million JD ($301 million) from Saudi Arabia. 
While Zaghloul acknowledged that Saudi Arabia has not paid 
previously promised monthly grants of $21.9 million since late 2006, 
he was optimistic that these Saudi grants would come to fruition 
(ref D).  NOTE:  The Saudi grant is listed in the budget as "other 
foreign grants" to honor a Saudi request not to publish its name. 
END NOTE.  Emirati newspaper Al-Khaleej reported June 24 that 
Jordanian Finance Minister Hamed al-Kasasbeh announced publicly the 
Saudi grant. 
 
Budget Deficit Grows 
-------------------- 
 
¶8. (U) The supplemental budget of 500 million JD with 398 million in 
additional revenue will increase Jordan's budget deficit by 102 
million JD ($144 million) to 826 million JD ($1.17 billion) after 
foreign grants.  Zaghloul said that the original budget resulted in 
a deficit that equaled 5.4% of GDP and this new budget raises that 
amount to 6.4%.  Excluding foreign grants, the budget deficit will 
be more than 1.5 billion JD ($2.1 billion). 
 
Next Steps: Work on the 2009 Budget Begins 
------------------------------------------ 
 
¶9. (U) The 2008 supplemental budget will next be reviewed by the 
Senate and then endorsed by King Abdullah II.  Historically this 
review and endorsement has occurred without changes.  Although the 
GOJ's fiscal management framework requires that the government not 
spend any amounts beyond the budget, the supplemental budget is in 
fact legitimizing expenditures already made on fuel subsidies and 
salary increases.  The Lower House also continues to review the 2008 
budgets of Jordan's financially independent government institutions. 
 The budgets of these institutions are not part of the central 
budget, except for their direct allotments outlined in the original 
2008 budget.  These budgets were also not part of the supplement. 
 
¶10. (SBU) Zaghloul noted that his department has begun work on the 
2009 budget and a draft should be sent to the cabinet in August. 
2008 marked the beginning of Jordan's use of three-year 
results-oriented budgeting (ROB) and three-year medium term forward 
forecasting (MTFF), which are both part of the USAID-funded Fiscal 
Reform Project.  Zaghloul was hopeful that there would be no fuel 
subsidies in the 2009 budget, but he said that fodder discussions 
were still underway and these politically-sensitive subsidies could 
remain. 
 
Visit Amman's Classified Website at 
http://www.state.sgov.gov/p/nea/amman 
 
HALE