Jordan risks instability after lifting subsidies

November 15, 2012 - 5:10:35 am

AMMAN: Facing the spectre of bankruptcy, the Jordanian government lifted fuel subsidies to avert economic collapse. But the Western-backed kingdom now risks instability after long averting the Arab Spring unrest that shook its neighbours.

The sweeping subsidies decision, which took effect yesterday after repeated delays, sparked scattered protests across the kingdom. Skirmishes broke out in the heart of the capital when anti-riot police dispersed hundreds of angry young men who occupied a major traffic intersection.

Price hikes caused by cuts in subsidies for fuel and food staples were one of the main grievances last year in the Arab Spring protests across North Africa and the Middle East.

Jordan’s government, mindful of public fury that exploded into street clashes in the depressed south of the country after price hikes in 1989 and 1996, had been reluctant to raise fuel prices.

But a higher energy bill after the disruption of cheap gas supplies from Egypt and a steep drop in foreign grants have brought the aid-dependent kingdom to the brink of economic disaster. Mounting budget deficits reached $3 billion, or 11 percent of GDP.

Saudi Arabia, which provided a last-minute $1.4bn cash handout to keep Jordan afloat last year, was unwilling to repeat the gesture, officials say, adding to pressure to act fast.

“If we the delay this further we would have faced a catastrophe and insolvency,” Prime Minister Abdullah Ensour said in a televised address to the nation. “We should have made this decision two years ago but successive governments could not do it for political reasons.”

Ensour said slashing subsidies and instead channelling money to poor households was crucial to winning donor support and International Monetary Fund financing. He did not give figures on how much the decision would save Reuters