As part of efforts to reduce the country's budget deficit, the Jordanian government on Saturday (May 26th) approved a 25% price increase on premium gasoline and a hike on electricity tariffs for certain industries.
The price of premium unleaded gasoline increased from 0.795 Jordanian dinars ($1.1) to one dinar ($1.4) per litre. Unspecified price increases will also be applied to propane, fuel oil, diesel for ships and other oil derivatives.
Increases in electricity costs, based on recommendations from the Electricity Regulatory Authority, will be applied to banks, communications companies, water plants, hotels, the ports authority, and major industries such as mining.
Financial analyst Abdul Munim al-Zubi said he believes the government resorted to a fast and easy way to reduce the budget deficit.
"The expected fiscal deficit for 2012 will reach two billion dinars ($2.8 billion) in light of rising world oil prices, a rising fuel bill and a disruption in the supply of Egyptian natural gas, which is a main source for generating electricity," he told Al-Shorfa.
Al-Zubi said the government's latest austerity measures -- including last week's decision to cut the salaries of certain high-ranking officials by 20% -- revealed the severity of the kingdom's economic situation.
He said the new government measures would result in a decrease in fuel subsidies by 200 million dinars ($281.7 million) annually.
"This will not eliminate subsidisation of prices for major oil products such as diesel, regular unleaded gasoline and kerosene. Private residences have not yet been hit by the price increase," he said.
The Ministry of Finance reported that subsidies for fuel and food cost the state 206 million dinars during the first four months of 2012, a 100% increase from the same period during 2011.
Economist Mohammed al-Tel said the government needed to introduce legislation that would reduce public spending and energy consumption. He said he expects the cost of energy consumption in Jordan during 2012 to reach four billion dinars ($5.6 billion).
He said it is important to reduce energy consumption among household and business users. He also suggested making it easier to use motorcycles while raising taxes on luxury cars with higher fuel consumption, and encouraging investment in renewable energy sources.
"The government plan does not stop at raising the price of some types of fuel and electricity provided to some sectors, but also seeks to gradually reduce the subsidisation of oil products," said economist Amer al-Muasher. "There will also be amendments to the income tax law so that corporate taxes, as with, individual income taxes, become incremental."
He said government hiring will be frozen and purchases will be reduced substantially in addition to an imposition of a tax on luxury goods.
Al-Muasher estimated these procedures will reduce the budget deficit from 2 to 1.2 billion dinars ($1.7 billion). He said he supported these measures as long as they do not increase prices among the poor and the middle class.