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Why fuel subsidies are a way of life in Jordan

Egyptian imports have been disrupted, Jordanian administration running short of cash

Gulf News

Amman: Jordanian demonstrators looted, torched and opened fire on government and private institutions to protest the removal of subsidies on cooking gas and other fuels. Fourteen people were injured in the unrest, police said.

Demonstrators closed roads in the kingdom, including those leading to the Dead Sea, with burning tyres and stones, according to a police statement carried by state-run Petra news agency today. It said some of the protesters opened fire at police stations as they tried to storm them.

Calm was restored after the overnight demonstrations that followed a government announcement that the subsidies will be lifted, Petra said. That will help offset an estimated 3.5 billion-dinar ($4.9 billion) budget deficit.

“Lifting fuel subsidies should have happened two years ago, but the government didn’t do that because of the political circumstances,” Prime Minister Abdullah Ensour told Jordanian state-run television late on Wednesday. “There are two fuel ships in the Aqaba port, and we don’t have the cash to pay for that.”

Protests broke out in September after the government raised the prices of 90-octane gasoline by 10 per cent and diesel by 6.8 per cent. The demonstrations prompted Jordan’s King Abdullah to freeze that decision.

The government, which has diesel reserves to last a week, doesn’t have cash to buy more and has lost at least $4 billion since regional political upheaval disrupted energy supplies, particularly natural gas from Egypt, Ensour said.

“The measures that authorities are taking are, from an economic and fiscal standpoint, necessary,” Nassib Ghobril, chief economist at Beirut-based Byblos Bank SAL, said by phone. “When implementing a reform, at any stage, it’s going to not please a certain segment of society. Some of the reforms are unpleasant.”

Jordan, one of the smallest economies in the Middle East, imports more than 90 per cent of its oil and relies on foreign investment and grants to support public finances. It received 25.8 million dinars in grants during the first nine months of 2012 compared with 1.05 billion dinars a year earlier, Finance Ministry Secretary-General Omar Zoubi said in a statement earlier this month. Not a single dinar of this year’s total came from Arab states, Ensour said.

Supply disruption

Repeated bomb attacks against a gas export pipeline in Egypt have cost Jordan about $4 billion, increasing the nation’s debt and budget deficit, King Abdullah said October 23. Saudi Arabia’s support last year “barely covered the additional deficit resulting from the disruption in Egyptian gas supply in 2011,” Abdullah said.

Until 2003, Jordan used to receive oil from Iraq at subsidised prices of less than $30 a barrel, according to the king. Today, Jordan buys crude at more than $100 a barrel, he said.

The government secured a $2 billion loan accord from the International Monetary Fund in August. Officials must decide on “trade-offs” to meet the objectives of an economic programme supported by the IMF, the fund’s director for Middle East and Central Asia, Masood Ahmed, said in September.

Ensour, the prime minister, said the kingdom’s foreign currency reserves, which reached $14 billion in 2011, now stand at $7 billion and may go down to zero in 2013. Its electricity subsidies reached 1.7 billion dinars this year, he said.

The government increased energy subsidies last year, adding to the strain on public finances, as part of its response to the popular uprisings that swept across the Middle East. While Jordan escaped the worst of the unrest, there were rallies against unemployment and rising living costs.

Families earning less than 800 dinars a month will qualify for monthly cash payments, Ensour said. “All Jordanians will buy fuel at the same prices,” he said. The government is also seeking to merge ministries to cut costs and is pushing a law to boost taxes on banks, he said.