• Global : Jordan 2008 budget deficit to increase by 7.1%
Global Investment House – Kuwait – Jordan Economic & Strategic Report- Public Finance- The general budget of the central government of Jordan has been pressured in the last few years from the increases in international oil prices resulting in higher oil subsidies, as well as the continual drop in foreign grants. As a result the government budget continued to witness increasing deficits since 2003 and up to the end of 2007.
As for the year 2007, preliminary figures revealed that it was the seventh year in a row to witness budget deficit, reaching a new record of JD568.0mn. Such level translates into 45.1% increase in deficit over 2006 reported deficit. The increased deficit is traced back to expenditures increasing more rapidly at 17.2% as compared with 14.5% increase in revenues.
On another front, the ongoing decline in foreign grants over the years has contributed a lot to the increased deficit. On CAGR basis foreign grants reported a decline of 6.9% over the period 2002-07. As a result, foreign grants declined from a record level of JD937.4mn during 2003 to JD343.4mn by the end of 2007. Finally, this was reflected on foreign grants contribution in total revenues that declined form 35.9% during 2003 to account for merely 8.7% in 2007. However, the decline in foreign grants was offset by the ongoing increase in tax revenues that recorded a new high of JD2.5bn in 2007. Such level is translated in 15.9% growth by the end of 2007 that came on top of 20.8% growth reported during 2006.
Summary of Central Government Budget
(JD mn) 2002 2003 2004 2005 2006* Budget
2007 2007* Budget
2008 Up to
Feb-08 CAGR
02-07
Total Revenues and Grants 2,136.0 2,613.0 2,958.5 3,062.1 3,469.0 4,074.0 3,971.5 4,500.7 792.8 13.2%
Domestic Revenues 1,644.1 1,675.6 2,147.2 2,561.8 3,164.4 3,500.0 3,628.1 4,060.7 792.8 17.2%
Tax Revenues 1,000.3 1,083.2 1,428.8 1,765.8 2,133.5 2,429.0 2,472.1 2,850.0 639.0 19.8%
Non-Tax Revenues 570.5 548.4 658.7 756.3 987.0 1,038.0 1,104.6 1,168.7 150.6 14.1%
Repayment 73.3 44.0 59.7 39.7 43.9 33.0 51.4 42.0 3.2 -6.9%
Foreign Grants: 491.9 937.4 811.3 500.3 304.6 574.0 343.4 440.0 - -6.9%
PSET Grants 73.2 160.9 144.2 54.6 54.2 - - - -100.0%
Total Expenditures 2,396.2 2,809.8 3,180.5 3,538.9 3,912.2 4,842.3 4,586.0 5,225.0 623.7 13.9%
Current Expenditures: 1,899.9 2,163.7 2,377.8 2,908.0 3,118.1 3,839.1 3,744.2 4,100.8 572.4 14.5%
Interest Payments 251.4 270.3 229.0 267.1 317.8 393.0 367.3 388.0 44.4 7.9%
Capital Expenditures**: 496.3 646.1 802.7 630.9 794.1 1,003.2 841.8 1,124.2 51.3 11.2%
PSET Expenditures 57.5 179.1 181.6 86.7 61.8 - - - -100.0%
Overall Deficit / Surplus (Commitment Basis) (260.2) (196.8) (222.0) (476.8) (443.2) (768.3) (614.5) (724.3) 169.1 18.8%
Rescheduled Interest 74.8 99.6 67.9 60.0 51.8 92.2 46.5 - - -9.1%
Overall Deficit / Surplus (Cash Basis) (185.4) (97.2) (154.1) (416.8) (391.4) (676.1) (568.0) (724.3) 169.1 25.1%
* Preliminary** Data have been adjusted to include revenue and expenditure of Program of Social Economic Transformation (PSET)
Source: Central Bank of Jordan and Ministry of Finance
On the revenues side, Jordan government budget is mainly divided among tax revenues, non-tax revenues and repayments. Over the years tax revenues constituted the main bulk of total domestic revenues, and its share of total revenues has been increasing. Tax revenues constituted 46.8% of the government revenues and grants in 2002, which increased to 62.3% in 2007.
Non-tax revenues on the other hand, maintained a sustainable increasing trend since 2004. By the end of 2007, non tax revenues bulged to a new landmark of JD1.1bn, or 11.9% of growth on top of 30.5% of growth reported in 2006. As for contribution in total revenues, it almost maintained the same share over years at around 31%.
On the expenditures side, current expenditures formed 81.6% of total expenditures in 2007, while capital expenditures formed the remaining 18.4%. On a Y-o-Y basis, current expenditures increased by 20.1% to a new landmark of JD3.8bn in 2007, while capital expenditures rose by 6.0% to another record level of JD841.8mn.
Going forward the year 2008 draft budget revealed another year of deficit that is estimated to increase to a new record of JD724.3mn, or 7.1% growth over 2007 budgeted deficit. Compared to 2007 budgeted figures; total revenues are estimated to increase by 10.5%, reaching JD4.5bn while expenditures are estimated to increase by 7.9%, reaching JD5.2bn.
On the debt front, the government of Jordan has been attempting to limit its reliance on external debt and rely more heavily on domestic sources instead in order to hedge against the appreciation of foreign currencies in which the Kingdom’s external debt is denominated. In addition, the public debt law for the year 2001 limited the outstanding balances of external and domestic public debt to GDP at current market prices to no more than 60% each and to no more than 80% collectively. These limits were applied in 2006. The law also limited domestic borrowings to government bonds and bills, and prohibited direct internal borrowing from banks and other institutions.
Debt as a percentage of Nominal GDP
Source: Central Bank of Jordan
The ratio of net domestic debt to GDP increased from 19.6% in 2002 to 26.3% in 2007, while the ratio of external debt to GDP decreased from 75.4% in 2002 to 46.8% in 2007. The ratio of total debt to GDP declined from 95.1% in 2002 to 73.1% in 2007, below the 80% ceiling assigned by the government.
Generally, the main component of domestic debt is treasury bills and bonds whose percentage of gross domestic debt have been increasing since 2002 from 59.7% to 86.4% in 2007 in order to comply with the Public Debt Law of 2001 which limited domestic borrowings to government bonds and treasury bills. On a Y-o-Y basis, treasury bills and bonds increased by 27.7% to reach JD3.2bn in 2007. Gross domestic debt rose by 24.8%, reaching a new record of JD3.7bn in 2007, while net domestic debt increased by 36.2% reaching a new record level of JD2.9bn.
