Press Release No. 20/107

IMF Executive Board Approves US$1.3 billion Extended Arrangement Under the Extended Fund Facility for Jordan

March 26, 2020

• Jordan’s IMF-supported economic reform program is anchored on structural reforms designed to spur growth by creating jobs—especially for women and young people—and reduce poverty.
• Although understandings were reached on Jordan’s IMF-supported economic reform program before the COVID-19 outbreak reached Jordan, it is designed to support spending to contain and treat the virus; if needed, it may be adapted further to the changed circumstances to ensure sufficient support for the people.
• Continued support from donors, particularly through concessional loans and budget grants, will be critical to help Jordan cope with humanitarian and economic needs.

Washington, DC – The Executive Board of the International Monetary Fund (IMF) today approved a 48-month arrangement under the Extended Fund Facility (EFF) with Jordan for an amount equivalent to SDR 926.37 million (about US$ 1.3 billion or 270 percent of Jordan’s quota) to support the country’s economic and financial reform program. It also provides for spending to contain and treat COVID-19. This program is anchored by critical structural reforms designed to lower electricity costs for businesses and create incentives for them to hire more young people. The aim is to support stronger and more inclusive growth, create jobs, especially for women and young people, and reduce poverty. Improving the fiscal situation is also needed to stabilize and bring public debt towards more sustainable levels. Continued support from donors, particularly through concessional loans and budget grants, will be critical to program success and help Jordan cope with humanitarian and economic needs.

Although the program was designed before the COVID-19 outbreak, changes were made to the program to support unbudgeted spending covering emergency outlays and medical supplies and equipment. If the impact of the outbreak is deep enough to put at risk program objectives, the program will be adapted further to the changed circumstances, upon reaching understandings with the authorities.

Following the Board’s decision, an amount equivalent to SDR 102.93 million (about US$139.23 million) is available for immediate disbursement; the remaining amount will be phased out over the duration of the Fund-supported program, subject to eight program reviews.

Following the Executive Board discussion on Jordan, Mr. Mitsuhiro Furusawa, Deputy Managing Director, and Acting Chair, said:

“The Jordanian economy has continued facing significant challenges. Macroeconomic stability and external buffers have been preserved, but fiscal vulnerabilities remain. Structural reforms and continued fiscal consolidation efforts are critical to lift growth, reduce unemployment and bring debt on a downward path.

“The COVID-19 outbreak poses significant risks to the program implementation. The authorities have implemented measures to help contain the impact of the pandemic, but adjustments to the program modalities might be necessary in light of the rapidly changing circumstances. Donor support through budget grants and concessional financing will be critical to help Jordan cope with the effects of the COVID-19 outbreak and the Syrian refugee crisis and to support program objectives.

“Continued fiscal consolidation efforts are needed to bring public debt toward more sustainable levels. The government’s strategy should focus on broadening the tax base and reducing business tax exemptions through an overhaul of the investment incentives framework and revamping tax and customs administrations. These reforms will need to be complemented by efforts to contain spending, limit losses in the energy and water sectors, and improve the targeting of Jordan’s social safety net.

“Monetary policy should continue focusing on supporting the peg and the economy. While the financial sector is generally sound, continued efforts are needed to promote its stability and financial inclusion.

“An ambitious structural agenda should be implemented to improve the business environment, enhance competitiveness and support growth. The authorities need to reduce high electricity costs faced by businesses; implement measures to create jobs, particularly for women and young people; and simplify procedures to attract foreign investment. Governance reforms will be necessary to strengthen public-sector transparency and accountability.”

ANNEX

Recent Economic Developments

Jordan has made progress in reforming its economy, but pressing challenges remain. The impact of the ongoing COVID-19 outbreak, regional conflicts, and the hosting of Syrian refugees weigh on social conditions, public finances, investment, and the external accounts. Macroeconomic stability has been preserved, external imbalances have improved markedly, reserve buffers have remained adequate, and the financial system is sound. However, growth has remained weak (about 2 percent) and unemployment high (at 19 percent of the labor force), especially for youth and women. Fiscal consolidation also proved difficult to maintain and public debt remained elevated.

To tackle these challenges, the authorities’ program is centered on critical reforms to remove the most important remaining impediments to growth, while continuing to bring down the budget deficit. These efforts build on the Jordan Economic Growth Plan 2018–22 and are anchored by the five-year reform matrix launched at the 2019 London Initiative. The authorities’ program includes measures in the areas of reducing business costs and enhancing competitiveness, labor market reforms, governance, improved tax collection, and enhanced access to credit.

Program Summary

Building on the 2016 extended arrangement under the EFF, the new program aims at achieving stronger and more inclusive growth and create jobs, with implementation centered around growth‑enhancing structural reforms and gradual reduction in the budget deficit. The needed adjustment is spread over a longer period to support the growth recovery. The exchange rate peg continues to serve as an appropriate nominal anchor, which has helped preserve stability in the face of repeated external shocks.

Structural policies to support growth and job creation . Structural reforms are centered on the most important remaining impediments to growth. Key efforts include: (i) reducing high electricity costs faced by businesses to enhance competitiveness and support job creation, while directing electricity subsidies only to those who need them most; (ii) a temporary reduction in social security contributions, among other labor market reforms, to promote greater employment opportunities, particularly for women and young people; and (iii) the swift implementation of the authorities’ five-year matrix, launched in the 2019 London Initiative, to improve the business climate, boost competitiveness, and attract foreign investment. These efforts are supported by governance reforms to strengthen public-sector transparency and accountability.

Continued reduction in the budget deficit to bring public debt towards more sustainable levels. The program’s fiscal strategy relies on broadening the tax base and reducing tax exemptions for businesses, particularly through an overhaul of the investment incentives framework and revamping of tax and customs administrations. These reforms will be complemented by efforts to rationalize current expenditures while protecting critical social, health and education spending; contain losses and contingent liabilities in the energy and water sectors; and improve the targeting of Jordan’s social safety net.

Preserving monetary and financial stability. Monetary policy will remain focused at supporting the peg by maintaining an adequate reserve buffer, while also considering domestic economic conditions. The authorities plan to continue strengthening the legislative and regulatory framework for Jordan’s banking and financial sectors, including further enhancing the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime.

Continued support from donors, particularly in concessional financing and budget grants. This will be critical to program success and help Jordan cope with needs arising from the COVID-19 outbreak and the Syrian refugee crisis.