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Jordan: IMF Concludes 2014 Article IV Consultation Mission and Reaches Staff-Level Agreement on Third and Fourth Reviews Under the Stand-By Arrangement

Press Release No. 14/157 April 4, 2014

An International Monetary Fund (IMF) mission led by Kristina Kostial visited Amman March 4–19 to conduct discussions for the 2014 Article IV consultation and the third and fourth reviews of Jordan’s economic program supported by a Stand-By Arrangement (SBA).

The 36-month SBA in the amount of SDR 1.364 billion (about US$2 billion, or 800 percent of Jordan’s quota at the IMF) was approved by the Executive Board on August 3, 2012 (see Press Release No. 12/288). The second review under the SBA was approved by the Board on November 8, 2013, bringing total disbursements amount to SDR 682 million or about US$1.043 billion (see Press Release No. 13/435).

Ms. Kostial issued the following statement in Washington today:

“In recent years, Jordan has had to grapple with strong headwinds. The Syrian crisis has had major macroeconomic implications for Jordan, and disruptions of energy imports from Egypt have continued to put further pressure on Jordan’s external and fiscal accounts. During our visit to Zaatari refugee camp and the neighboring city of Mafreq, the IMF team was impressed by Jordanian hospitality and support for the Syrian refugees.

“The team welcomes the authorities’ continued commitment to implementing their national economic program in this difficult environment. Building on good performance in 2013-14, we reached staff-level agreement on the third and fourth reviews under the SBA, subject to the approval of the Executive Board, which is tentatively scheduled to consider the reviews in late April. Board approval will allow for the disbursement of SDR 170.5 million (about US$264 million) for the combined fourth and fifth tranches.

“Growth increased to about 3 percent in 2013 with a strengthening in activity in financial services, telecommunication, trade, and construction. Year-on-year inflation dropped to just above 3 percent. The current account deficit is estimated to have improved by over 5 percent of GDP, to less than 10 percent of GDP, helped by lower energy imports, higher transfers, and private receipts. However, unemployment remained elevated at 12.6 percent.

“During 2013, the authorities continued to reduce external and fiscal vulnerabilities. The appropriate monetary stance, improvement in the current account, along with the confidence-driven deposit de-dollarization and the issuance of two U.S. dollar-denominated domestic bonds and a U.S.-guaranteed Eurobond, allowed the Central Bank of Jordan (CBJ) to rebuild its international reserves to a comfortable level (over 5 months of prospective imports as of end-2013). At the same time, both the central government and the public electricity company (NEPCO) finances were in line with program commitments.

“The economy is expected to strengthen over the medium term. Growth is projected to gradually increase to 3½ percent in 2014, and to 4½ percent in the medium term. Inflation is expected to decline to about 2½ percent at end-2014, and 2 percent in the medium term. The current account deficit (including grants) would gradually improve to about 4½ percent of GDP over the medium term, mostly reflecting a lower energy import bill. Risks to this outlook remain high, mostly related to the Syria conflict and further disruptions in energy imports.

“Regarding policies, it is important that the authorities continue to protect external stability and reduce vulnerabilities while improving Jordan’s labor market and social outcomes. While fiscal consolidation needs to continue, the focus should remain on achieving an equitable distribution of the burden of adjustment and protecting the most vulnerable. As benefits of low utility prices and low effective income tax rates have accrued disproportionately to the well off, utility and tax reforms are essential to a balanced consolidation effort.

“For 2014, the adoption of revenue measures and increase in electricity tariffs is expected to ensure that the 2014 budget and NEPCO’s losses are consistent with the authorities’ objective of reducing the combined primary deficit to 8.3 percent of GDP, from 9.3 percent of GDP in 2013. Beyond 2014, the medium-term energy and water strategies will gradually return the utilities to cost recovery. For the central government, tax reform, aimed at reversing some of the substantial decrease in revenue observed since 2007, should become the centerpiece of fiscal consolidation. The adoption of the draft income tax law currently at parliament together with a reduction in tax incentives would be a significant step in that direction.

“Monetary policy will continue to focus on maintaining appropriate international reserve buffers. Financial sector reform has been progressing gradually and the banking sector is stable and overall sound. The CBJ is working on making the sector more resilient, including by improving the collection of supervisory data and enhancing the regulatory framework.

“Jordan’s unemployment averaged 14 percent over the last decade and is particularly high among the young and women. Creating jobs to absorb new entrants to the labor force would require an average annual real GDP growth of 6.1 percent over 2013–20. A renewed momentum in structural reforms would be necessary to deliver this. It requires efforts to improve the business climate, including by expediting the approval of the investment, secured lending, and insolvency laws. Labor market reforms should aim at equipping new entrants with skills needed in the private sector; and addressing the constraints to female labor market participation. At the same time, more transparency would enhance the effectiveness and accountability of the public sector. To this end, it is important to strengthen tax administration and public financial management, and better prioritize public investment.”