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Ammon News - AMMONNEWS - Greater Amman Municipality (GAM) recently asked the cabinet to grant it permission to obtain a JD 42 million loan to repay interest fees on existing loans.

According to its 2011 general budget, GAM has debts totaling JD 430 million, and needs to take another loan to repay the accumulating interest fees listed in the general budget.

The overwhelming deficit in the Jordanian government's budget stipulates that the government cannot guarantee loans taken by public companies and institutions.

It is noted that GAM's previous council approved the 2011 budget totaling JD 406,556,000, with a JD 11 million deficit.

The new budget had a 10% increase in expenses, with a raise in financial expenses from JD 153 million in 2010 to JD 169 million in the 2011 budget.

GAM's request for government approval to obtain a loan comes less than a month after the government announced suspending guarantees on public institution's loans, as the public debt is approaching the maximum limit that allows the government to guarantee loans.

The public debt in 2011 reached 57 percent, approaching the maximum limit allowed by the Public Debt Management Law of 2001, which is set at 60 percent of the Gross Domestic Product (GDP).

The majority of lending institutions that provide loans to public institutions stipulate government guarantees in case the borrower defaults in loan repayment.

Will GAM be able to pay the principal of the new loans if it cannot pay the interest fees on existing loans?

Financial expert Dr. Emad Nawayseh said that government agencies and companies prepare their financial policies to balance between revenues and expenses, and hence, can determine its ability to repay its debts.

Such financial reviews take into consideration the loan repayment time frame and the interest rates, Nawayseh noted, adding, "I expect that GAM recognizes these factors and that it prepared its financial budgeting accordingly."

"If any of those factors are ignored, the agency will face severe financial disruption, which would require scrambling to find alternative quick solutions to increase its revenue sources," he warned.

For a services' agency, alternative revenue sources would mean raising fees, taxes, and violation tickets from residents and local companies, amidst increasing inflation and skyrocketing prices.

It is noted that GAM, in 2010, adopted a financial policy aiming at reducing the budget deficit to JD 5 million through controlling capital expenditure, maximizing revenues, and best utilizing of human resources. GAM also rescheduled debts, and replaced them with less interest rates ones, which helped secure liquidity and financial "abundance."