Gov’t ready with measures to raise revenues, cut expenses as deal with IMF reached

AMMAN — The government on Monday said it had reached an agreement with the International Monetary Fund (IMF) over the Extended Fund Facility (EFF) and announced a set of immediate fiscal measures to raise revenues and cut spending this year. 

Upon IMF's announcement of the agreement, the team to Jordan, led by Martin Cerisola, issued a statement saying it reached a staff–level agreement with Jordan on a request for a 36-month Extended Fund Facility for 2016-2019. 

The IMF said that the proposed access to the fund's credit under the arrangement will be determined in the coming weeks. 

As the agreement regarding prior actions and the approval of the fund’s executive board is subject to completion, Jordan’s request is expected to be considered in July. 

The approval of the EFF is expected to help catalyse loans and grants from multilateral and bilateral sources during the programme period. In support of Jordan’s Compact and agreed upon during the London conference in February of 2016, donors pledged considerable financial support for Jordan to address the impact of Syrian refugees. 

In August 2015, Jordan completed a three-year Stand-By Arrangement with the IMF in the amount of nearly $2 billion. 

Immediate measures include raising prices, taxes 

The announcement of the immediate measures, via which the government expects to generate revenues worth JD154 million by the end of this year, was made at a meeting with chief editors of daily newspapers and columnists at the Prime Ministry on Monday. 

The meeting was headed by Deputy Prime Minister for Economic Affairs and Minister of Industry, Trade and Supply Jawad Anani and attended by ministers who are members in the government’s economic team. 

Finance Minister Omar Malhas said the decisions include raising the price of cigarettes by 50 fils a packet and 100 fils a packet in Aqaba, which is a duty-free zone. 

The government also decided to cancel a Cabinet decision made in August of last year by the government of Abdullah Ensour under which sales tax on clothes, bags, watches, perfume, jewellery, toys and cosmetics was reduced from 16 to 8 per cent, while the customs duties on these items were lowered by between 5 and 30 per cent.

The government also decided to raise special tax on liquors and wine from JD3.75 a litre to JD5.5 a litre; add a fixed charge of 25 fils on each litre of gasoline, diesel and kerosene, increase ownership transfer fees of private cars; and to reduce tax exemptions on imported used cars. 

The decisions went into effect as of Monday except for the one related to sales tax and customs duties on clothes and other accessories as it would go into effect after Eid Al Fitr, in the first week of July. 

Under the new instructions, a car with an engine size of no more than 1,500cc will be subject to an increase in ownership transfer fees of JD50; sizes between 1,501-2,000cc, to JD100;  between 2,001-3,000cc, to JD400; and 3,001cc-4,000cc, to JD550; while a transaction involving a car of an engine larger than 4,000cc will cost JD700 in ownership transfer fees. 

Measures to lower spending 

Malhas also announced that the government will control current operational spending for ministries and departments in addition to independent public entities by nearly JD69 million, adding it would also lower capital spending for projects that are not funded by grants by around JD95 million. 

All measures designed to raise revenues and cut spending, Malhas said, would save JD318 million by the end of this year. 

The minister said that the government and the IMF agreed to reduce public debt by JD112 million this year through surpluses achieved by some government agencies. 

What does Jordan have to do? 

Malhas said the government and the IMF mission agreed on the six conditions that aim at reducing public debt to safe levels and to stimulate the economy. 

The IMF requested that  the government to keep the debt ratio by the end of 2016 the same as that registered by the end of 2015. Public debt registered by the end of last year was nearly JD24.9 billion or 93 per cent of the gross domestic product. 

The IMF also demanded the government to reduce public debt ratio to the GDP to 77 per cent by 2021. To achieve the agreed upon level of public debt, Malhas said the government will have to take some measures to generate revenues and cut spending of around JD1.5 billion between 2017 and 2019.   

The official said the agreement entails establishing a public investment unit to review the government’s priority capital projects. It will be based at the Ministry of Planning and International Cooperation.

The third request both parties agreed on is publishing all final accounts of the central government and the independent public agencies by the Finance Ministry, while the fourth is about establishing a macro-fiscal unit to be like a data bank for all information the IMF and the government would need access to. 

The unit is expected to provide reliable and relevant analysis on fiscal and macroeconomic issues, the minister said.

The fifth point in the agreement is that the government has to draft a quarterly plan for financing needs of the government in coordination with the state -owned National Electric Power Company (NEPCO) and the Water Authority of Jordan. 

The sixth condition the government complied with was the most important issue seen by economists attending the meeting Monday as it entails controlling the losses of NEPCO by achieving operational balance.

The government will have to prepare by mid December of this year a mechanism to adjust power tariffs by linking them to international oil prices. The mechanism will be implemented at the beginning of 2017. 

Anani said linking power tariffs with international oil prices does not necessarily mean prices of electricity will go up, indicating that if oil prices remain below $55 a barrel, which is the break even cost of power generation, no hikes will be levied. 

The government will have to provide periodic reports on the progress of the programme and will also have to present a new income tax bill to the coming parliament. 

Gov’t says the package ‘best possible’

Anani described the package as the best possible, adding that “Jordan’s economy has only one choice, which is to grow.”

Governor of the Central Bank of Jordan (CBJ) Ziad Fariz, who also attended the meeting along with members of the government’s economic team, said economic growth and investments cannot be achieved without financial stability. 

“We cannot leave the current situation of the state budget and the public debt as it is. If we don’t take measures, that would be a crime,” Fariz said, adding authorities are determined to address the bloating debt and stimulate growth.

Minister of Planning and International Cooperation Imad Fakhoury said the new IMF-sponsored programme is part of the government’s executive plan, adding that most of the measures are listed in the Jordan 2025 Vision.

Fakhoury said the programme divides financial burdens Jordan has been going through on donor community, the government and the people. 

Malhas said the donor countries that pledged financial support to the Kingdom at London conference on the Syrian crisis, held in February of this year, set a condition on Jordan to reach the EFF agreement with the IMF in order to be able to receive grants and concessionary loans.