IMF’s outlook for Kingdom’s economy sees ‘renewed momentum’

AMMAN — The International Monetary Fund (IMF) has completed its second review of Jordan's economy, concluding that its outlook “brings renewed momentum despite persistent challenges”.

The IMF mission to the Kingdom, led by Martin Cerisola, was in Amman from January 27 to February 7, during which it discussed the country’s recent economic developments, as well as the government’s economic policies under Jordan’s reform programme, supported by a three-year IMF Extended Fund Facility (EFF) arrangement.

At the conclusion of the visit, Cerisola issued a statement, attributing the IMF’s outlook for the country’s economy to the recent reopening of the border with Iraq and associated trade and investment agreements, the extension and broadening of the agreement with the EU for relaxed rules of origin for Jordanian products, as well as other efforts to lower the cost of generating energy.

These measures “bode well for a steady recovery in investment, exports, competitiveness and growth”, according to Cerisola.

However, challenges still remain, particularly from tighter and more volatile global financing conditions and elevated vulnerabilities, the IMF statement noted.

“External financing conditions were less favourable, most notably with a significant slowdown in foreign direct investment inflows and some capital outflows,” the mission chief said, adding that, nonetheless, economic growth remained at about 2 per cent and inflation remained relatively steady, falling below 4 per cent by year-end. 

“Weak growth and investment remain insufficient to generate more jobs, with unemployment at around 18 per cent, presenting difficult conditions for the population,” according to the statement. 

In another positive indicator, the global lending body pointed toan increase in exports during 2018 and strong growth in the tourism sector, “Despite persistently challenging external conditions.”

“Since the completion of the first review of the EFF, Jordan has continued to implement policies and reforms to preserve macroeconomic stability and enhance the conditions for higher and more inclusive growth,” the statement noted.

Cerisola also announced that the IMF team has reached an agreement with the Kingdom on policies and reforms for 2019, anchored on a gradual and steady fiscal consolidation path and the continued implementation of reforms to enhance business conditions and employment prospects.

These policies and reforms need to be supported by significantly greater efforts from the international and regional donor community, the fund stressed.

The agreed fiscal policy aims to “successfully confront these challenges and improve economic performance”, and it is centred on the need to firmly return the combined public deficit to a downward path, according to the IMF.

“The sustained strong efforts to rein in the combined public deficit, from 3.8 per cent of GDP in 2016 to 2.9 per cent of GDP in 2017, proved more difficult in 2018, as the combined deficit rose to 4 per cent of GDP. To reduce the combined deficit to 2.5 per cent of GDP in 2019, the authorities have taken several measures, including the adoption of a new Income Tax Law,” the statement said.

“Critical to this goal is the steadfast and unwavering implementation of the new Income Tax Law, together with a significant strengthening of tax administration to overcome the marked revenue underperformance of 2018.”

The IMF saw the new tax legislation as an improvement to the previous system, highlighting that “it expands the tax base in an equitable manner, by protecting the middle class and most vulnerable; closes some distortions and loopholes; and helps protect specific sectors severely affected by regional conditions and by the removal of non-World Trade Organisation-compliant export subsidies”.

The law critically sets the stage for a greater and much-needed focus on reducing tax evasion in the years ahead, the fund stressed. 

“With increasing prospects for improved regional and domestic security conditions, greater efforts will also be needed to address the growth in public spending, to help partly accommodate other social needs, such as in health and education,” Cerisola pointed out.

The IMF also referred to the importance of the upcoming London conference to support Jordan’s economy and investment, which it described as “a timely opportunity for Jordan to present an ambitious and credible reform path going forward and for the donor community to unlock much needed budget grants and concessional financing to support the reforms and Jordan’s large financing needs”.

“[IMF’s] staff will continue consultations with the [Jordanian] authorities and the donor community in the coming weeks to ensure that appropriate financing assurances for budget grants and concessional loans are in place,” the fund stated, noting that these assurances are needed to present the second review to the IMF Executive Board.

Meanwhile, the fund noted that the conduct of monetary policy by the Central Bank of Jordan  has skillfully balanced the need to maintain an adequate level of reserves to support the Jordanian dinar, while also keeping a close eye on supporting domestic economic conditions. 

“Developments in 2018 suggest the need to continue to gradually rebalance the growth of loans and deposits, reduce dollarisation, and provide greater support to the balance of payments, particularly in light of tightening global and regional monetary conditions. The [IMF-supported] programme aims to keep gross usable reserves at $14 billion, about 105 per cent of the Fund’s reserve adequacy metric by end-2019,” the statement said.