IEO Annual Report 2005-06

Appendix 12 Evaluation of IMF Support to Jordan, 1989–2004: Recommendations, Board Response, and Subsequent Follow-Up

International Monetary Fund. Independent Evaluation Office
Published Date:
January 2007
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IEO Recommendation1Executive Board Response2Follow-Up3
Broad lessons suggested by the IMF experience in Jordan
The underlying rationale for key program design elements should be explained clearly in Board papers. In particular, judgments on the magnitude and composition of targeted adjustment need to be grounded in an explicit assessment of external and public debt sustainability over the medium term.Many Directors agreed that the Jordanian experience reinforces the need for Board papers to provide clearly the underlying rationale for key elements of program design. They also supported the IEO’s call for greater candor in staff report assessments, especially of the risks to the program and recommendations on how best to mitigate and manage them.Jordan has been under post-program monitoring (PPM) since July 2004. The macroeconomic framework and adjustment profile is based on the fiscal and external debt sustainability analysis. Staff reports under PPM have become more candid (see, in particular, EBS/05/154).
In certain circumstances, structural conditionality can have significant value added in terms of encouraging and monitoring progress on reforms. However, underlying issues such as large and abrupt surges in grants require that programs be set in an explicitly longer-term perspective. Timetables need to be designed carefully, taking account of the political economy situation, especially when legislative action is involved.Directors agreed with the report’s overall assessment: Jordan’s long engagement in IMF-supported programs helped the authorities address macroeconomic stabilization challenges successfully, although structural rigidities remain to be addressed.
While agreeing that structural conditionality had been well designed, many Directors also pointed to the lessons for the timing of these conditions offered by the Jordanian experience. In particular, they noted the importance of ambitious but realistic timetables that take into account a country’s implementation capacity as well as the prevailing political and social environment.
The IMF’s program involvement would have been more effective if programs had given greater emphasis at an earlier stage to the formulation of key institutional reforms in the fiscal area.Directors considered that a longer-term perspective, with greater emphasis at an earlier stage on the formulation of key institutional reforms in the fiscal area, would have increased the effectiveness of IMF-supported programs.
A wider dissemination of IMF TA reports would have contributed to more informed public discourse and shed light on the rationale for IMF policy advice on key issues.Directors concurred with the IEO’s lesson that a wider dissemination of IMF TA reports could have contributed to more informed public discourse and shed light on the IMF policy advice on key issues. At the same time, Directors noted that decisions on disseminating such reports are ones for the authorities to take.
The IMF’s future role in Jordan
Help Jordan manage the projected decline in grants in a manner that preserves the gains made in the areas of macro-economic stability and longer-term fiscal sustainability. This will be done by (1) assisting the authorities to design a macro-economic framework that will achieve a smooth transition and (2) focusing on helping to design strategies to tackle Jordan’s key remaining fiscal rigidities, including exploring alternative policy options to achieve the necessary structural reforms in the fiscal area.The Board shared the view that Jordan still faces the challenges of adjusting to a sharply lower level of foreign grants and reducing fiscal rigidities. Most Directors noted that these challenges would have been less daunting if more progress had been made on critical reforms during Jordan’s longer-term program engagement.The authorities have made progress in formulating their own medium-term macroeconomic adjustment strategy. Going forward, the staff remains in close consultation with the authorities through surveillance and the provision of technical assistance. The focus of future consultations will be on helping the authorities design a macrofiscal framework that would preserve macroeconomic stability and ensure debt sustainability in the environment of high oil prices and declining grants, and to reduce the remaining fiscal rigidities by improving tax administration and reforming the system of fuel subsidies.

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