Is there another way for Jordan instead of subsidy cuts?

Published November 15th, 2012 - 08:23 GMT
After two days of rioting over the cost fo fuel, is there another way?
After two days of rioting over the cost fo fuel, is there another way?

Economists on Wednesday agreed that allowing the private sector to import refined petroleum products into the domestic market is a proper alternative for authorities to cut the cost of fuel subsidies.

In remarks to The Jordan Times to comment on Tuesday’s government decision that raised the prices of four fuel products, the pundits said they believed that liberalising the market of oil derivatives cannot only save the budget hundreds of millions of dinars but would also generate revenues to the Treasury.

They also suggested some options authorities could have adopted to help raise more public revenues, but they stressed that the difficult economic and financial situation in Jordan pushed decision makers to take such a measure to lift subsidies.

Under the government’s policy to remove fuel subsidies, the price of 90-octane gasoline went up by 15 per cent from JD0.70 a litre to JD0.80 a litre.

Diesel and kerosene prices increased to JD0.685 per litre instead of JD0.515 a litre, a 33 per cent rise.

Cooking gas saw the highest increase as the price of a gas cylinder went up from JD6.5 to JD10, with a record 53 per cent hike.

Economists Yusuf Mansur said political and economic analysts have warned many times that lifting fuel subsidies at this critical period the country is going through due to the Arab Spring would bring dangerous consequences.

Saying the government had failed to convince the public of the need to lift subsidies, Mansur noted that the decision could have been postponed until after parliamentary elections, slated for January 23 next year.

He indicated that security agencies have reportedly advised policy makers not to raise fuel prices at this period.

In order to convince the public, the expert said the government should have started with austerity measures within government bodies by cutting the “high” salaries given to some senior employees at independent public institutions, adding that many of these agencies should be scrapped or merged with other organisations.

“Merging four agencies could save the Treasury around JD80 million a year,” he claimed.

On allowing the private sector to import oil derivatives, Mansur cited Lebanon as an example where there is no refinery because private firms bring cheaper and higher quality petrol products into its market.

Officials told The Jordan Times that facilities at the Jordan Petroleum Refinery Company have not been renovated since 1979 and are inefficient, leading to around 30 per cent production waste, a sum that consumers have to eventually shoulder.

Qassem Hammouri, a professor of economics at Yarmouk University, agreed with Mansur that Jordan no longer needs a refinery, stressing the need to open the oil market to the private sector.

Emphasising that what the government is going to save by the decision to remove subsidies will not close the country’s financial gaps, Hammouri said the government should have focused on combating tax evasion, estimated at JD800 million a year, and reducing the number of independent agencies, whose budget is around JD2 billion this year.

He mentioned that the compensation to be given to low- and medium-income households is not enough to mitigate the expected rise in the prices of many basic commodities.

On Tuesday, Prime Minister Abdullah Ensour said the new subsidy regime would deliver direct cash support to low- and medium-income Jordanians as each individual of a household that consists of six members or less and whose income is less than JD800 a month or JD10,000 a year will receive JD70 in compensation for the hike in prices.

Hammouri agreed with delaying the decision until there is a parliamentary government as the government of Ensour came to office with the task to hold elections.

But economist Mefleh Aqel disagreed with Mansur and Hammouri, arguing that the decision could not be delayed.

“Raising fuel prices was inevitable and could not wait,” Aqel said, saying the Kingdom’s financial and monetary situation is “critical”.

Referring to the premier’s interview with Jordan Television on Tuesday to talk about the economy and the need to remove subsidies, the former banker said Ensour made a good argument and was “very candid with the public”.

However, he noted that the prime minister missed some points in regards to those who are going to benefit from the direct cash payments, as raising the prices of fuel would push the prices of many products up.

“Ensour should have told the public that unjustified and unfeasible public spending would be revisited in next year’s budget,” Aqel noted, urging authorities to lead by example through adopting stricter austerity measures.

Commenting on protests sparked by the decision, Aqel said protesters may be affected by the government’s move but the damage would be greater if the decision to lift subsidies was put off.

The expert agreed with his peers that allowing private companies to bring refined petrol to the market should be a government priority, urging more transparency in the mechanism of pricing fuel products. 

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