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Middle East and Central Asia > Jordan

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Cover IMF Working Papers
An Extended Quarterly Projection Model for the Central Bank of Jordan
Adel Al-Sharkas
,
Nedal Al-Azzam
,
Sarah AlTalafha
,
Rasha Abu Shawish
,
Ahmad Shalein
,
Auday Rawwaqah
,
Amany Al-Rawashdeh
,
Daniel Baksa
,
Mr. Philippe D Karam
, and
Mr. Jan Vlcek
The Central Bank of Jordan (CBJ) has developed a Forecasting and Policy Analysis System (FPAS) to serve as a reliable analytical framework for macroeconomic analysis, forecasting and decision-making under a pegged exchange rate regime. At the heart of the FPAS is the CBJ’s extended Jordan Analysis Model (JAM2.0). The model captures the monetary transmission mechanism and provides a consistent monetary policy framework that uses the exchange rate as an effective nominal anchor. This paper outlines the structure and properties of JAM2.0 and emphasizes the enhanced interplay and tradeoffs among monetary, fiscal, and foreign exchange management policies. Simulation and forecasting exercises demonstrate JAM2.0’s ability to match key stylized facts of the Jordanian economy, produce accurate forecasts of important macroeconomic variables, and explain the critical relationships among policies.
Keywords:
forecasting exercise; policy analysis; model forecasting; FX reserve management; headline inflation; Inflation; Exchange rate arrangements; Output gap; Real exchange rates; Global
Cover IMF Working Papers
Personal Income Taxes in the Middle East and North Africa: Prospects and Possibilities
Mario Mansour
and
Eric M. Zolt
Personal income taxes (PITs) play little or no role in the Middle East and North Africa, often yielding less than 2 percent of GDP in revenue—with the exception of few North African countries. This paper examines how PITs have evolved in recent decades, and what they might look like in the next 20 years. Top marginal tax rates on labor and business income of individuals have declined substantially, a trend that mirrors reductions in advanced and developing economies. Taxation of passive capital income has changed very little, and the revenue intake from this source remains low throughout the region (less than 1 percent of GDP on average and concentrated in oil-importing non-fragile states). Social security contributions (SSC) have increased in importance in nearly all MENA countries, and some countries have introduced additional payroll taxes. The combination of reduced marginal tax rates, light taxation of income from capital and business activities, and increase of SSC, have resulted in income tax systems that create disincentives to work and incentives for informality, and contribute little to government revenue and income redistribution. Given differences in economic and political structures, demographics, and starting points, the path to PIT/SSC reforms will vary across the region. Countries with relatively mature PIT/SSC systems, where revenue performance has improved in the past two decades, will increasingly need to balance the revenue and equity objectives against effciency objectives (in particular labor market incentives and infromality). Countries with no PITs will have to weigh whether a consumption tax/SSC system that mimic a flat tax on labor income is sufficient to diversify revenue away from oil and whether to adopt PITs to address rising income and wealth inequality. Finally, fragile states, who face more political volatility and weaker fiscal institutions, will have to focus on simplicity of tax design and collection to be able to raise revenue from PITs.
Keywords:
Personal income taxes; social security contributions; payroll taxes; fragile and conflict states; Middle East and North Africa; Gulf-Cooperation Council; SSC reform; SSC system; revenue performance; PIT objective; PIT revenue; Personal income tax; Income tax systems; Income; Income and capital gains taxes; Corporate income tax; North Africa; Middle East; East Africa; Global
Cover IMF Working Papers
Digitalization and Resilience: Firm-level Evidence During the COVID-19 Pandemic
Nordine Abidi
,
Mehdi El Herradi
, and
Sahra Sakha
The COVID-19 pandemic has resulted in an unprecedented shock to firms with adverse consequences for existing productive capacities. At the same time, digitalization has increasingly been touted as a key pathway for mitigating economic losses from the pandemic, and we expect firms facing digital constraints to be less resilient to supply shocks. This paper uses firm-level data to investigate whether digitally-enabled firms have been able to mitigate economic losses arising from the pandemic better than digitally-constrained firms in the Middle East and Central Asia region using a difference-in-differences approach. Controlling for demand conditions, we find that digitally-enabled firms faced a lower decline in sales by about 4 percentage points during the pandemic compared to digitally-constrained firms, suggesting that digitalization acted as a hedge during the pandemic. Against this backdrop, our results suggest that policymakers need to close the digital gap and accelerate firms’ digital transformation. This will be essential for economies to bounce back from the pandemic, and build the foundations for future resilience.
Keywords:
COVID-19; digitalization; technology adoption; economic resilience; Middle East and Central Asia; digitally-enabled firm; digitally-constrained firm; firms in the Middle East; firm-level data; digital transformation; Digitalization; Financial inclusion; Foreign corporations; Asia and Pacific; Africa; Middle East; North Africa
Cover IMF Working Papers
Gender Equality and Inclusive Growth
Asel Isakova
and
Francesco Luna
This paper considers various dimensions and sources of gender inequality and presents policies and best practices to address these. With women accounting for fifty percent of the global population, inclusive growth can only be achieved if it promotes gender equality. Despite recent progress, gender gaps remain across all stages of life, including before birth, and negatively impact health, education, and economic outcomes for women. The roadmap to gender equality has to rely on legal framework reforms, policies to promote equal access, and efforts to tackle entrenched social norms. These need to be set in the context of arising new trends such as digitalization, climate change, as well as shocks such as pandemics.
Keywords:
gender gap; inequality; wage gap; wage segregation; gender discrimination; active labor market policies; gender budgeting; GGGI: Global Gender Gap Index; inclusive growth; WP; fiscal policy; parental leave; justice system; gender earnings gap; age-employment profile; commonwealth country; earnings gap; job portal; Women; Gender inequality; Global; South Asia; Sub-Saharan Africa; West Africa; Central Asia
Cover IMF Working Papers
Harnessing Digital Technologies to Promote SMEs in the MENAP Region
Ms. Inutu Lukonga
Policy makers in the MENAP region have been formulating policies and designing programs to develop small and medium sized enterprises (SMEs) with a view to create jobs and achieve inclusive growth. But while the programs have helped increase the number of enterprises, growth of SMEs continues to face barriers to growth. As a result, microenterprises predominate and SMEs contribution to employment remains below potential. Partial implementation of reforms explain some of the underperformance, but frictions in strategy design also played an important role. Sustaining current reforms is, therefore, not sufficient to achieve inclusive growth. Digital technologies have potential to boost SMEs productivity and growth and economies are rapidly digitalizing, thus SMEs need to embrace digital solutions to compete and survive. Therefore, for SMEs to be effective engines of inclusive growth, a rethinking of the SME development strategy is needed that makes SMEs’ digital transformation a priority.
Keywords:
WP; SME growth; MENAP country; financing SMEs; SME sector; SME support policy; SMEs in MENAP; SME lending; government service; digital economy; Small and medium enterprises; Business environment; Employment; Digitalization; Global; Middle East; North Africa; Sub-Saharan Africa; Digital Technologies; Inclusive Growth; MENAP Region; SME strategy; private equity; SME policy; SME data
Cover IMF Working Papers
Private Sector Job Creation in MENA: Prioritizing the Reform Agenda
Mr. Benedicte Baduel
,
Carolin Geginat
, and
Ms. Gaelle Pierre
This paper examines the extent to which firms in selected MENA countries reported being constrained by the business environment around the time of the Arab Spring and the extent to which these constraints affected their employment performance. The results suggest that small firms in MENA faced more structural constraints than similar firms in other regions. We also find that MENA firms’ weaker job creation can be explained in great part by the macroeconomic environment and structural constraints. Low GDP growth, falling external competitiveness, corruption, lack of access to finance and poor access to electricity are found to explain a significant part of the lack of employment growth in MENA firms compared to their peers.
Keywords:
WP; employment growth; World Bank enterprises survey; enterprise survey; firms' characteristic; credit constraint; employment performance; firm exit; firms in Mena; medium-sized firm; SMEs; MENA; Arab Countries in Transition; private sector; employment; employment creation; World Bank enterprise survey; micro firm; Job creation; Business environment; Labor productivity; Electricity; Central and Eastern Europe
Cover IMF Working Papers
FinTech in Financial Inclusion: Machine Learning Applications in Assessing Credit Risk
Majid Bazarbash
Recent advances in digital technology and big data have allowed FinTech (financial technology) lending to emerge as a potentially promising solution to reduce the cost of credit and increase financial inclusion. However, machine learning (ML) methods that lie at the heart of FinTech credit have remained largely a black box for the nontechnical audience. This paper contributes to the literature by discussing potential strengths and weaknesses of ML-based credit assessment through (1) presenting core ideas and the most common techniques in ML for the nontechnical audience; and (2) discussing the fundamental challenges in credit risk analysis. FinTech credit has the potential to enhance financial inclusion and outperform traditional credit scoring by (1) leveraging nontraditional data sources to improve the assessment of the borrower’s track record; (2) appraising collateral value; (3) forecasting income prospects; and (4) predicting changes in general conditions. However, because of the central role of data in ML-based analysis, data relevance should be ensured, especially in situations when a deep structural change occurs, when borrowers could counterfeit certain indicators, and when agency problems arising from information asymmetry could not be resolved. To avoid digital financial exclusion and redlining, variables that trigger discrimination should not be used to assess credit rating.
Keywords:
WP; ML model; bears risk; machine learning technique; ML analysis; ML evaluation; FinTech Credit; Financial Inclusion; Machine Learning; Credit Risk Assessment; ML analyst; credit risk driver; FinTech credit company; credit scoring; supervised machine learning model; capital structure; borrower default; neural network; Credit risk; Credit; Credit ratings; Loans; Global
Cover IMF Working Papers
The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area
William Arrata
,
Benoit Nguyen
,
Imene Rahmouni-Rousseau
, and
Miklos Vari
Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks’ excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we explore empirically the interactions between the PSPP and repo rates. We document different channels through which asset purchases may affect them. Using proprietary data from PSPP purchases and repo transactions for specific (“special") securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1 percent of a bond outstanding is associated with a decline of its repo rate of 0.78 bps. Using an instrumental variable, we find that the full effect may be up to six times higher.
Keywords:
WP; repo rate; repo market; GC rate; SC rate; monetary policy; Specialness; asset purchases; money market; Repo rates; Bonds; Securities; Excess liquidity; Money markets
Cover IMF Working Papers
¿En qué se diferencia la transmisión de la política monetaria en los países que dependen de las remesas?
Mr. Adolfo Barajas
,
Mr. Ralph Chami
,
Mr. Christian H Ebeke
, and
Anne Oeking
Pese a que las remesas aportan ventajas en materia de bienestar y reducción de la pobreza para los hogares receptores, se ha observado que también traen consigo problemas macroeconómicos: producen efecto de tipo mal holandés debido a sus presiones alcistas (apreciación) sobre los tipos de cambio reales, perjudican la calidad de las instituciones, retardan el ajuste fiscal y, en definitiva, tienen un efecto indeterminado en el crecimiento a largo plazo. En este documento se analiza un desafío adicional, que incide sobre la política. Si bien expanden los balances de los bancos al proporcionar un flujo estable de financiamiento que no es sensible a las tasas de interés, las remesas tienden a incrementar las tenencias de activos líquidos de los bancos. Esto reduce la necesidad de un mercado interbancario y al mismo tiempo desarticula el vínculo entre la tasa de política monetaria y el costo marginal de financiamiento de los bancos, cerrando así un importante canal de transmisión. Elaboramos un modelo estilizado basado en información asimétrica y una falta de prestatarios transparentes y realizamos un análisis econométrico que demuestra el aumento de las entradas de remesas está asociado a un debilitamiento de la transmisión. Como la política monetaria independiente se ve vulnerada, este resultado es congruente con observaciones anteriores en las que los países receptores tienden a preferir regímenes de tipo de cambio fijo.
Keywords:
WP; monetary policy; bank balance; excess reserves
Cover IMF Working Papers
The Design of Fiscal Reform Packages: Insights from a Theoretical Endogenous Growth Model
Andrew Hodge
This paper studies the impact on growth, welfare, and government debt of fiscal reform packages in a theoretical model drawing together three key features of the endogenous growth literature: (i) investment in technology (in the form of human capital) offsets diminishing marginal productivity of private capital, allowing for perpetual growth in output per capita; (ii) changes in investment behavior because of cuts to distortionary tax rates impact long-run growth; and (iii) public capital has a role influencing total factor productivity and growth. A quantitative simulation using reasonable parameter values suggests that modest capital and/or labor income tax cuts and public investment increases have significant positive effects on consumer welfare but small effects on per capita income growth, where fiscal costs are offset by reductions in unproductive government spending. Capital income tax cuts and public investment increases continue to boost welfare when offset by consumption tax rises (rather than spending cuts), although the welfare benefits of modest labor income tax cuts are outweighed by the costs of a compensating consumption tax increase.
Keywords:
WP; physical capital; Fiscal policy; Endogenous growth; physical capital goods; private physical capital; reform BGP; public capital; constant returns to scale; capital share; consumer welfare; Human capital; Capital income tax; Public investment spending; Personal income tax