The government's desire to keep a tight rein on spending in 2011-12, in an effort to bring the fiscal deficit down, will be challenged by new spending commitments made during the January protests. The government introduced a reduced budget for 2010 but the 2011 budget included an increase of over 6% on the previous year, with a 22% rise in the capital allocation, signalling a considerable easing of fiscal policy. Reducing the deficit will remain a significant hurdle in 2011-12; we expect the government to rein in spending in 2012, although it will make some small, incremental increases in capital and defence outlays. Fiscal revenue (including grants) rose by an estimated 4.9% in 2010, following a large dip in growth in 2009, and will increase by an average of 6% in 2011-12.

With signs that the government is willing to maintain tight control of recurrent spending, which as a proportion of GDP fell by 0.5 percentage points in 2009, we expect the deficit (excluding grants) to narrow from an estimated average of 10.4% of GDP (JD1.6bn; US$2.3bn) in 2009-10 to an average of 8.3% of GDP in 2011-12. This is larger than we previously forecast owing to the government's recent spending pledges. The deficit including grants will be lower, averaging around 6.3% of GDP. With improving revenue growth in the second half of the forecast period, we expect the government to increase expenditure, but the fiscal deficit will narrow further, averaging around 6.9% of GDP (excluding grants) in 2013-15. Jordan will remain heavily reliant on foreign largesse to cover its deficits. In 2008 the government was successful in securing assistance (mostly from the US and Saudi Arabia), with foreign grants more than doubling to JD718m (US$1bn). However, the weak global economic climate meant that such grants plummeted in 2009, though they have since improved. The Egypt crisis could prompt a further increase in grants from the US and Saudi Arabia. Elsewhere, the government will continue to rely heavily on the domestic banks to secure debt finance, although it has recently successfully issued a US$750m bond, its first on the international market, which was heavily oversubscribed.