Saudi Arabia coming to Jordan's aid

Aiding the budget

With the inclusion of aid contributions, Jordan is set to reduce its budget deficit this year to $540 million, or 3.4 per cent of its GDP, according to figures cited by the Jordan Times. This compares to a shortfall of nearly $640 million, or 4.5 per cent of GDP, last year. But the concern for Jordan is that, if you strip away the hefty aid contributions, the budget deficit actually accounts for 8.4 per cent of GDP, which would be a rise on 2006's level of 7.6 per cent and well above the IMF's recommended limit of 3 per cent of GDP.

Jordan has long depended on foreign assistance to support its economic development and, over many years, the US has been a significant provider of funds, with its overall contributions now totalling several billion dollars. Indeed, in 2005, the US provided the equivalent of $70 of aid for every Jordanian citizen, according to the Centre for Global Development.

But this year, Saudi Arabia is to eclipse the quantity of aid provided by the US and it will offer more than four times as much, the figure amounting to $565 million according to the draft budget. By comparison, the US will give $131 million.

Getting neighbourly

Saudi's position at the head of the list shouldn't come as a huge surprise given the current political climate in the Middle East. Since the fall of Saddam Hussein and the subsequent empowerment of the Shia majority in Iraq, alongside the ongoing geopolitical tensions created by Iran's uranium enrichment programme, Saudi Arabia has grown closer to its fellow Sunni majority neighbour.

In fact, the latest set of figures released by Jordan's Ministry of Tourism would seem to bear this out too. In the first nine months of 2006, Saudi accounted for 20 per cent of Jordan's tourists, with very nearly one million visitors making the journey across the border, a rise of 21.1 per cent over the same period last year. But the number of tourists from some Gulf states has actually started to fall, with a slump of 24.7 per cent in the total of Kuwaiti visitors up until the end of September.

Fuelling relations

One area, however, where Jordan would certainly appreciate some extra generosity and neighbourliness from Saudi is in the supply of oil. Before the US led invasion of 2003, Jordan received more than 5 million tonnes of oil per year from Iraq at seriously knocked-down prices of less than $10 a barrel, on average. The arrangement saved Amman at least $500 million a year but this supply dried up once Saddam was overthrown. Saudi and various other Gulf states did step in and offer cheap oil but only temporarily.

Jordan has recently negotiated a deal with Iraq's new government for discounted oil at a rate thought to be about $18 a barrel below market prices. Iraq will provide up to one third of the kingdom's needs of 100 million barrels per day. But there is no question that one way Jordan could make substantial progress at bringing down its budget deficit and easing its continued reliance on foreign aid is if it could strike a preferential oil price deal with its oil rich neighbour.