IMF commends Jordan’s progress towards reforms

AMMAN — An International Monetary Fund (IMF) team led by S. Ali Abbas, concluded virtual discussions with Jordanian authorities and reached a staff-level agreement on the second review of the authorities’ economic reform programme supported by $1.3 billion Extended Fund Facility (EFF) arrangement.

The agreement is subject to approval of the IMF’s Executive Board, according to an IMF statement obtained by The Jordan Times. 

The Kingdom’s four-year EFF of SDR 926.37 million (about $1.3 billion, equivalent to 270 per cent of Jordan’s quota in the IMF), was approved by the IMF’s board on March 25, 2020.

“The COVID-19 pandemic continues to pose significant challenges for Jordan. Output contraction in 2020 is estimated to have been limited at 2 per cent, including due to the authorities’ timely and effective fiscal and monetary support. However, successive COVID waves since October have sharply hit businesses and households, with unemployment rising to a record high of 24.7 per cent in the fourth quarter of 2020,” Abbas said in the statement at the conclusion of discussions.

Abbas added that in view of the higher financing needs for Jordan, IMF staff supports the Jordanian authorities’ request for an augmentation of access under the EFF by $200 million. Total IMF disbursements, including the amount drawn under the Rapid Financing Instrument, over 2020-24 are expected to amount to SDR 1,362.11 million (or around $1.95 billion).

Highlighting that 2021 is expected to see a recovery of 2 per cent, with nominal gross domestic product expected to expand by 3.6 per cent, Abbas said the projection incorporates “the likely implications of a slower-than-anticipated rollout of the vaccination globally and the attendant delay in the return of tourism to pre-pandemic levels, as well as stronger external demand conditions, and continued domestic policy support”.

In the statement, Abbas indicated that Jordan’s immediate policy priority is to deal with the ongoing serious pandemic wave and mitigate its human and economic impact.

“To this end, fiscal targets for 2021 aim to accommodate higher social spending, including on job retention in affected sectors and youth programmes; and a credit support scheme targeted at small and medium enterprises (SMEs) — which account for the bulk of employment — has been expanded,” Abbas said.

“Fiscal policy thus far has ensured the preservation of macroeconomic stability and sought to cushion the impact of the crisis on growth. Going forward, the fiscal strategy remains anchored in equitable tax reforms, aimed at tackling evasion, closing loopholes and broadening the tax base,” Abbas added.

Abba, who said that recent months have seen major legislative reforms in this area, stressed that robust implementation of these reforms, including through continued tax administration reforms and modernisation, should help raise significant revenue over the medium-term.

The Jordanian authorities aim to enhance the efficiency of public spending; fully implement the new public-private partnerships (PPP) law to ensure effective selection and execution of viable projects in line with national priorities, and closely monitor contingent liabilities, which will strengthen debt sustainability, he said.

“Monetary policy has been appropriately accommodative with a sisable and timely stimulus supporting credit to the economy and jobs. Moving forward, policy needs to remain flexible and data driven, balancing the need to entrench the recovery and maintain monetary and financial stability,” according to Abbas.

International reserves are projected to remain “comfortable” over the medium term and Jordan’s banking system remains “well-capitalised and liquid”, he said, adding that while non-performing loans have risen slightly last year they remain at “low levels”.

In the statement, Abbas said: “Steady progress on structural reforms remains critical, notably in the electricity sector, where efforts are ongoing to reduce production costs and lower high tariffs on businesses, which impede growth, while continuing to effectively protect lower-income households.”

Reforms aimed at supporting female labour force participation, more flexible labour markets, and reducing the costs of doing business, remain key to boosting competitiveness and inclusive growth, he said, indicating that continued progress on governance reforms is important to strengthening public trust.

Robust concessional support from donors, including through provision of vaccines, remains crucial, especially given the longer tail of the pandemic, Abbas said.

“Jordan continues to bear a disproportionate burden in supporting and hosting 1.3 million Syrian refugees, including providing all residents equal access to vaccination,” he added.