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Press Release: IMF Mission Reaches Staff-Level Agreement with Jordan on the Seventh and Final Review under the SBA

Press Release No.15/296 June 24, 2015

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

An International Monetary Fund (IMF) team visited Amman from June 9–24, 2015 to review 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).

Ms. Kristina Kostial, IMF Mission Chief for Jordan, issued the following statement today:

“We welcome the authorities’ commitment and progress in implementing their economic program despite a difficult regional environment, stemming from the conflicts in Syria and Iraq. Building on strong program performance through end-April this year, we reached a staff–level agreement on the seventh and final review under the SBA. This agreement is subject to approval of the IMF’s Executive Board, which is scheduled to consider the review at the end of July. Board approval would make available to Jordan SDR 284.167 million (about $400 million).

“Since the program started three years ago, the authorities have implemented macroeconomic policies that have contributed to stabilizing the economy and help it weather a series of severe external shocks. Growth is gradually picking up, inflation is contained, and the current account deficit is narrowing. Budgetary measures—including a bold fuel subsidy reform—as well as energy and water sector reforms, contributed to a substantial decline in fiscal imbalances, ensuring that public debt will stabilize this year and start declining in 2016. Monetary policy complemented these efforts, helping to restore confidence and rebuild international reserves to an adequate level, which in turn has helped the central bank to reduce interest rates to stimulate growth.

“This year, intensified regional conflicts have affected exports, tourism, and investor sentiment and could slow economic growth. Headline inflation remains low, while core inflation has continued its gradual descent. The current account deficit continues to narrow, reflecting primarily a decline in oil imports. The banking sector remains robust, and financial markets are stable.

“Program performance has been strong. All end-April performance criteria were met by comfortable margins and policies are also on track to meet their 2015 targets. The central government deficit was in line with projections from January-April and, aided by lower oil prices, the electricity company NEPCO significantly reduced its losses. International reserves continued to over-perform. The combined public deficit is projected at 3.5 percent of GDP for 2015, the current account (including grants) at 7.6 percent of GDP, and reserves at 7 months of imports. Fiscal structural reform is moving forward with the government improving its budget preparation and execution.

“The economy is expected to further strengthen over the medium term, but there are downside risks. Growth is projected to increase to about 3.5 percent in 2015 as confidence gradually returns, and to 4.5 percent over the medium term. Inflation would stay low at about 2 percent. The current account deficit (excluding grants) would continue to decline, to about 11 percent of GDP in 2015 and about 9 percent of GDP by 2020, on the back of fiscal consolidation, further savings from the energy import bill, and a pickup in tourism and exports. Reserves would remain at adequate levels. That said, uncertainties to this outlook remain considerable, mostly related to the Syria and Iraq conflicts, which could adversely affect growth and the current account. In particular, growth could be closer to 3 percent this year if the recovery in confidence and tourism takes more time than anticipated.

“Discussions focused on sustaining the program’s achievements. Fiscal and monetary policies are on track to meet the 2015 objectives. Looking beyond 2015, the authorities reiterated their commitment to gradual fiscal consolidation. They aim at reducing debt to about 70 percent of GDP by 2020, a level that would markedly reduce vulnerability to shocks. To this end, continued implementation of the energy strategy—to return the electricity company to cost recovery at the latest by 2018—will be critical. It will also be important for the central government to further improve its balance, and the focus should be on measures which distribute the adjustment burden equitably, including further progress with income tax reform.

“There is a need to accelerate structural reforms to strengthen growth and address chronically high unemployment and low labor force participation. Of particular importance are policy changes to: help the young and unemployed to acquire skills that match the private sector’s needs; increase the participation of women in the labor force; re-examine public sector hiring and compensation; improve the business environment; and strengthen public institutions, including through better tax administration and public financial management. Vision 2025—the recently adopted 10-year plan for economic and social policies—provides a roadmap for such reforms but needs to be anchored in a medium-term macroeconomic and fiscal framework. Strong implementation of Vision 2025 could build the basis for high, sustained, and inclusive growth and eventually reduce the need for donor support. In the meantime, Jordan needs continued assistance from donors, in particular to help cover the cost of hosting Syrian refugees.

“The mission would like to thank the authorities and technical staff for their open discussions and cooperation during this review and over the course of the IMF-supported program.”