IMF takes note of Jordan’s improved business climate

AMMAN — The International Monetary Fund (IMF) has completed its 2019 Article IV mission to Jordan, recommending that the Kingdom focus on maintaining economic stability, reducing fiscal imbalances, boosting growth, creating jobs and strengthening social protection in the coming years.

Jordanian authorities have taken important steps to improve the business climate, placing the Kingdom as one of the world’s top three improvers, according to the World Bank’s Doing Business Indicators, the IMF said on Monday in its end-of-mission statement.

The mission, led by Chris Jarvis, visited Amman from November 11-20 to conduct the 2019 Article IV Consultation, and review progress under Jordan’s extended arrangement under the Extended Fund Facility.

“The mission had productive discussions with the Jordanian authorities. They covered recent economic developments, the economic outlook and risks to the economy,” Jarvis was quoted in the statement as saying.

The fund said that Jordan’s priorities for the coming years are to maintain economic stability, reduce fiscal imbalances, boost growth, create jobs and strengthen social protection.

As these goals cannot be achieved fully in the space of the few remaining months of the current IMF-supported programme, discussions have begun on a new three-year programme that could be supported by the IMF, he said.

Jarvis added that the mission expects to return to Amman in late January to continue discussions and agree on specific policies.

“The Jordanian government emphasised its commitment and determination to continue the reform process and to overcome current obstacles to growth. The authorities have made important progress in maintaining economic and financial stability in recent years,” the mission head said.

He noted that inflation is low, the balance of payments has improved and international reserves have recently rebounded. 

Moreover, the financial system remains stable and the authorities have taken important steps to improve the business climate, he said in the statement.

“Monetary and exchange-rate policies remain appropriate and foreign reserves are comfortable. The authorities should continue to adjust interest rates as needed to maintain continued stability and confidence in the currency,” he urged.

Jarvis noted that challenges still remain, including real GDP growth averaging only 2-2.5 per cent since 2010, and high unemployment for youth and women. 

Fiscal consolidation has been slower than envisioned. Yields from efforts to broaden the tax base and mobilise revenues to support Jordan’s fiscal and development needs have “fallen short of expectations”, and weaker revenues have in turn led the authorities to cut back on public investment, he said in the statement.

Slippages in 2019 were especially pronounced, and public debt remains very high. In this regard, fiscal space will be limited, he said, suggesting that further international assistance will be “critical” in allowing for continued growth-enhancing reform.

“We recommend a combination of deep structural reforms with steady and gradual fiscal consolidation that credibly places public debt on a downward path over the medium term, while also improving social protection measures,” the mission head said in the statement.

“The fiscal strategy should be supported by continued efforts to strengthen tax and customs administration, as well as measures to enhance public financial management, fiscal transparency and governance,” he continued. 

He highlighted that electricity sector reforms are “vital”, adding that the energy sector roadmap is an essential first step in placing NEPCO’s finances on a firmer footing; but should be complemented by further efforts to eliminate losses, while also reducing tariffs for commercial consumers, which are undermining the competitiveness of Jordan’s businesses.

“We encourage the authorities to continue to enhance broader private-sector growth. With the assistance of the World Bank and other partners, the authorities have outlined a concrete matrix of reforms that should, if implemented swiftly, go a long way towards improving the business climate and boosting competitiveness,” he said.

In addition, pro-employment reforms will be critical for inclusive growth and stability, he pointed out.

“Recent amendments to the social security law are welcome. On the new package of employment-based cash incentives, which are designed to boost job creation and growth, it is important that such measures be implemented transparently, and that they take into account Jordan’s pressing fiscal constraints. 

“Measures to support financial-sector development are also key in supporting inclusive growth, and continued implementation of the authorities’ financial inclusion strategy will help broaden financial access, especially for women, the poor and small and medium enterprises,” he said.

Jordan can continue to maintain economic stability and enhance growth with a “well-crafted and credible strategy”, and with support from the international community, he noted.

“The fund remains committed to continue to support the authorities as they work to deliver stronger and more sustainable growth, reduce fiscal imbalances, strengthen the business environment, increase transparency, improve living standards and ensure that Jordan’s most vulnerable people are protected,” Jarvis said. 

During the visit, the mission met with a broad range of authoroties, including Prime Minister Omar Razazz, Minister of Finance Mohamad Al-Ississ, Central Bank of Jordan Governor Ziad Fariz, Cabinet ministers, members of Parliament and representatives from the private sector, civil society and the international community.

“We are grateful for a most constructive and candid set of talks, and for the authorities’ continued cooperation and warm hospitality,” Jarvis concluded.