Jordan's Budget deficit likely to exceed JD800 million - experts  

(MENAFN - Jordan Times) AMMAN - Rising international oil prices are likely to widen the state budget deficit, which analysts expect to reach JD800-JD900 million.

The crude oil prices have hit a record level above $90 per barrel. As a result, the budget deficit would increase by JD4 million each day until the end of the year, economist Fahed Fanek said yesterday.

When the JD4.3 billion 2007 budget was endorsed at the beginning of the year, the deficit was forecast at JD385 million, or 3.4 per cent of GDP, compared to JD450 million, or 4.5 per cent of GDP in 2006. However, with crude oil prices in the international market jumping to over $70 per barrel, the deficit was expected to rise to JD710 million, or 9 per cent of GDP, by the end of the year.

Fanek described the emerging situation as "disastrous" to the national economy unless the government takes the painful measure of lifting the remaining subsidy on fuel derivatives, a decision it has announced would not be on its agenda for the current year.

"If the government insists on keeping oil derivative prices at current levels, the budget will suffer the widest deficit ever," he said.

The government was, accordingly, prompted to issue a JD500 million budget supplement. It appropriated JD200 million for the oil derivative subsidy until the end of the year, but "it seems this amount will not be enough now", Fanek noted. Finance Minister Hamad Khasasbeh has said the figure was calculated on an average oil price of $68 per barrel, but Fanek said after last week's hike on the international market prices, the new average for the rest of the year increased to $88 a barrel.

The international oil price would keep its upward trend in the coming few months, as the supply of oil would face difficulties during the coming winter peak season, in addition to the fresh geopolitical tensions, another analyst added.

Such facts have helped push prices higher, Yusuf Mansur indicated.

"The magic $100 a barrel is now only $10 away as crude oil prices show no sign of slowing down," he said.

In September, the government announced that the fuel subsidy will be lifted next year. "No oil subsidy will be included in the 2008 state budget, as a decision to liberalise the prices of oil dreivatives has been already taken," a senior official said then.

Meanwhile, the government cannot rely on the "symbolic" Iraq oil shipment which arrived after a long waiting period, analysts said.

Jordan and Iraq signed a deal in 2006 during Prime Minister Marouf Bakhit's visit to Baghdad. Under the agreement, Iraq agreed to supply Jordan with 10-30 per cent of its daily needs of around 100,000 barrels at a price $18 below the international market price.

But since the arrival of first shipment from Karkuk last month, only 43 trucks deliverd around 6,450 barrels of oil to Jordan.

The total quantity was expected to reach 9,900 barrels by the beginning of this week, according to officials.

The oil purchased from Iraq was expected to partially relieve the Kingdom's energy burden, but last month the premier was quoted by the Jordan News Agency, Petra, as saying that "the objective of this transaction is not [to lower] prices in particular. Rather, it is a move to verify the deal which is to cover part of the Kingdom's oil needs. Our more important objective is to show that Iraq is recovering and is exporting its oil despite the difficult circumstances".

However, international efforts to slow down the hike in oil prices have already started with the Organisation of the Petroleum Exporting Countries suggesting this week that it might use its head of states meeting in November in Riyadh to discuss a production increase.