Oil price poses threat to Jordan's stability
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05/04/2008
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Financial Times (London)
The sharp rise in oil prices over the past year has provided a massive economic boost for many Arab states. In Jordan, however, it has forced the government into a delicate balancing act in order to preserve political and fiscal stability. Unlike most of its neighbours, Jordan does not sit on vast oil and gas riches. All the same, the kingdom has for many years offered citizens generous subsidies to purchase cheap petrol and heating fuel. Yet with oil climbing towards - and recently topping - the $100 a barrel mark, the cabinet has been forced to reduce subsidies steadily to prevent soaring deficits. In February this year, they were eliminated entirely. Hamad Kasasbeh, finance minister, told the Financial Times: "The government recently undertook bold measures to minimise the effect of the huge increase in international oil prices on the general budget and to sustain fiscal stability in the kingdom. These measures included lifting oil subsidies from the budget and liberalising domestic oil prices." The country's struggle with rising oil and commodity prices is mirrored in many parts of the world, especially in countries that provide fuel and food subsidies. Egypt, for example, announced plans last year to curb oil and electricity subsidies. Though Jordan has been among the most ambitious cutters, the reductions came at the price of higher social spending. Eager to head off protests against rising fuel bills, the government agreed to boost welfare spending through a new programme called the Social Safety Net. Critics point out that the bulk of the programme's spending is going to pensioners and workers in Jordan's bloated public sector. Some economic commentators have also voiced concern over a decision to increase the programme from JD301m ($425m,