As Jordan continues to struggle with a rising budget deficit, officials hope a second grant from Saudi Arabia will help overcome a financial crisis.
On Monday (July 25th) Saudi Arabia provided Jordan a grant of $1 billion, in addition to a $400 million grant it provided earlier this year. Jordan's economy is strained because of high oil prices, the increased cost of fuel subsidies and the interruption of Egyptian natural gas supplies.
Jordan's King Abdullah II sent a letter of appreciation to Saudi King Abdullah bin Abdul Aziz, acknowledging Saudi Arabia's assistance to Jordan during a difficult economic period.
Dr. Mohamed al Halayka, head of the international affairs committee in the Jordanian parliament, said the latest Saudi grant will help solve Jordan's financial problems at a time when the fiscal deficit has reached its highest levels.
The deficit in the first five months of 2011 reached 46 million dinars ($64 million). The figure is likely to rise with the interruption in the supply of Egyptian gas to Jordan, which is causing a loss of $5 million per day.
Fouad Krishan, a professor of economics and development at Al-Hussein Bin Talal University, said Jordan is unable to pay for any new financial deficits through borrowing because public debt has reached dangerous levels. The debt reached 12 billion dinars ($17 billion) by the end of May 2011.
Jordanian law sets a ceiling on public debt at 60% of gross domestic product, and it is now nearly 58%.
Halayka said Saudi Arabia is Jordan's largest economic partner, "which includes financial support and grants, Saudi investments and trade, and travel activity at the borders".
He said the grants will help eliminate Jordan's budget deficit, solving a problem that has been growing since the beginning of 2011.
According to data from the Jordanian Department of Statistics, the volume of Jordanian exports to Saudi Arabia reached 172 million dinars ($242 million). Imports from Riyadh were valued at 1,253 billion dinars ($1.766 billion) as of May 2011.
Saudi investments are at the top of the list of investors on the Amman Stock Exchange. These investments are valued at 1,234 billion dinars ($1.73 billion), constituting 6% of the total value of shares listed on the exchange.
Dr. Mohammad Abu Hammour, Jordan's Minister of Finance, said in a statement Wednesday (July 27th) that the grants will help Jordan cope with its economic difficulties. Economic stagnation in the region, combined with the repercussions of the global recession, contributed to a decline in tourism revenue and lower remittances from Jordanians working abroad. The kingdom is also reeling from a reduction in its reserves of foreign currencies, higher unemployment, higher costs for oil imports, and increased public debt.
He added that the interruption of Egyptian gas and the transition to heavy fuel oil and diesel fuel to generate electricity also led to heavy losses for electricity companies.
Thabet Alwor, an economic expert, said the grants are "an antidote to the deepening financial crisis that struck Jordan's budget since the beginning of 2011. It led to a reduction in capital projects, an increase in the cost of subsidising oil derivatives, commodities and electricity, a slowdown in new investments, and a decline in tourism revenues".
Regarding relations between Jordan and Saudi Arabia, Salim Gedeon, former head of the association of transport companies, said, "Riyadh is the most prominent strategic trade partner in terms of the volume of goods cleared in transit." He noted that Saudi Arabia is the gateway for Jordan to the Gulf countries, and the movement of goods between the two sides is very efficient.
Saudi Arabia is supporting Jordan's candidacy for membership in the Gulf Co-operation Council. Nasser Judeh, Jordan's foreign minister, announced he would begin talks next week on the issue in Riyadh.