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Jordan taps $5 billion Gulf fund to ease economic woes

Protesters from opposition parties and labor unions hold pieces of bread as they shout anti-government slogans

By Suleiman Al-Khalidi / 28 Feb 2013

Jordan has begun to tap $5 billion in grants from oil-rich Gulf states, hoping infrastructure spending will help alleviate the economic impact of the wave of Arab political unrest.

Planning and International Cooperation Minister Jafar Hassansaid more than $100 million had so far been spent from the fund, whose creation was decided by a summit of the Gulf Co-operation Council (GCC) in December 2011 to help its regional ally.

“We have actually started using funds for projects,” said Hassan, a key economic decision-maker whose ministry has spear headed efforts to utilize the grant from the country’s wealthy neighbors.

Spending on Jordan’s often decrepit infrastructure is important in the longer term if the strategically important country is to attract foreign investment.

In the shorter term, the Saudi-led GCC has an interest in Jordan’s political stability, given its desire to prevent unrest spreading to a country which lies on Saudi Arabia’s northern border.

Saudi Arabia - which rescued Jordan with a cash injection of $1.4 billion in 2011 - and other Gulf donors see project finance via the fund as a tangible way of shoring up the kingdom’s economy.

Alongside spurring sluggish growth, forecast at 3 percent in 2013 or half its levels a decade ago, over $1.5 billion so far deposited by Kuwait, the UAE and Saudi Arabia in Jordan’s central bank vaults has also beefed up the country's foreign reserves which stood at $7.7 billion in January, a 17 percent rise from the end of 2012.

Arab uprisings which have hit Jordan’s domestic demand and foreign cash flows, including remittances from expatriates in the Gulf, sent foreign reserves plummeting 37 percent in 2012.

Jordan has signed financing agreements with Kuwait, Saudi Arabia and the UAE covering $2.45 billion of projects ranging from nursery schools in impoverished areas to the country’s first LNG import terminal, Hassan said.

Project finance

Qatar was expected to send a technical team soon to decide on the projects it would want to finance, he added.

Major Saudi-financed projects that the kingdom was pressing ahead with include a $132 million water scheme, a $165 million program to reequip state hospitals and $136 million set aside for a nationwide school renovation scheme.

Kuwait, which has agreed to fund $954.96 million worth of projects, will channel $340 million to outlying rural areas worst affected by sluggish growth and $118 million towards housing schemes for the poor, Hassan said.

Abu Dhabi, which deposited $1 billion in January at the country’s central bank, has given priority to financing a $210 million oil storage project at the Red Sea port of Aqaba and a$150 million solar energy plant.

Such initiatives come as political unrest across the Arab world pushes Jordan into a big increase in spending on energy subsidies and social security.

The biggest blow to state finances came from a record energy bill, which reached more than $4 billion over the past two years after the revolution in Egypt disrupted cheap gas imports, forcing the kingdom to switch to more expensive diesel to generate electricity.

Hassan said Gulf money was crucial in helping draw private money into mega-projects, such as a $4 billion national railway network that will be jump-started with $500 million in support.

Jordan also secured a $2 billion stand-by loan from the International Monetary Fund (IMF) and has approached capital markets on a $2 billion Eurobond issue, according to finance ministry sources.

Reducing the burden of much-needed capital investments in the 7.45 billion dinar budget ($10.5 billion) would make a 2013deficit target of 5.4 percent of gross domestic product (GDP) attainable, Hassan added.

“These projects reduce the cost of spending on capital projects,”he said.

“If we had not had these grants this would have increased our debt and we would have borrowed more.”

($1=0.709 dinars)

 

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