Fuel prices set to rise
Jordan Times FORMER PRIME MINISTER Abdur-Ra'uf S. Rawabdeh was not aware that he was about to be removed from office when he made a solemn commitment to Parliament not to raise taxes or the price of fuel and other commodities in 2000.
This commitment placed new Premier Ali Abul Ragheb in a difficult position. Should he honour the promise of his predecessor, or make use of the summer to raise prices on fuel derivatives to cover part of the expected budget deficit resulting from higher prices on Iraqi crude oil this year.
Still, it is not known what the other options of the government are to achieve a budget deficit reduction according to the objectives of the adjustment programme agreed upon with the International Monetary Fund. The government has to take into account the present economic slowdown, the general decline of regular revenues, and the higher cost of crude oil, let alone the promises to implement several large and medium size economic projects as announced by the minister of information, which will obviously entail higher public expenditures and worsen the fiscal deficit.
We are not, at this juncture, in the business of recommending ways and means to the government in its endeavour to find a way out of this dilemma. However, we would like to highlight some relevant facts.
The arrangement made with Iraq to furnish Jordan with all its needs of crude oil is still very favourable to Jordan. The agreed price for 2000 was still lower than the international price by $10 per barrel. In addition there is a general rebate of $350 million as a grant. Yet the cost of crude oil, which is paid by barter in goods and services through the commercial protocol, will this year be JD90 million higher than last year. The question now is whether this fact is a good justification for raising the prices payable by the consumers to make up the difference which was not accounted for in the 2000 budget, or will the government have to search for other means and sources to raise the amount. In the latter case the question arises again on what could be these means and sources that the government can safely tap.
The prices currently paid by the consumers for fuel items are sufficient to cover the cost of raw material and refinery when the price of crude oil is in the order of $24 per barrel. The present price, even after the recent rise, is still around 20 per cent below that benchmark, which means that the treasury is still making a decent profit, but this profit is lower than that achieved in the previous year and assumed by the budget of this year. In other words we are not talking about losses sustained by the treasury, rather we are talking about a reduction of the profits.
The commitment made by the former prime minister not to raise prices this year meant, indirectly, that hiking the prices of fuel and perhaps electricity was already taken but the implementation was deferred to next year, unless by some sort of miracle, international oil prices drop substantially, something that seems to be very unlikely to happen.
Raising the prices of fuel is not a pure economic decision, it is also a political move which any government would hesitate to make. It is hardly possible for any government to raise the prices of fuel and survive in office, but some difficult decisions have to be made.
Perhaps the government would like to make its intentions in this respect known while it is still within its 100 days grace period.
Dr. Fahed Fanek
© 2000 Mena Report (www.menareport.com)