The staff report for the 2004 Article IV Consultation on Jordan highlights economic developments and policies. General sales tax collections increased strongly boosted by high import growth and improved revenue administration. The government has embarked on a substantial improvement of the education system, with support from an education sector reform loan from the World Bank. The integration of the sales and income tax departments into a unified revenue department will also contribute by strengthening tax collections and enforcement.
April 2, 2004
This statement updates the information provided to the Executive Board in the staff report issued on March 17, 2004. The new information does not change the thrust of the staff appraisal.
Recent economic developments point to continued strong macroeconomic performance. Exports in the three months through January 2004 grew at an annual rate of 30 percent, spurred by a near doubling of exports of clothing and apparel. Imports grew at an annual rate of 18 percent during the same period. Revised estimates of the balance of payments for 2003 indicate a slightly higher current account surplus compared to the data presented in the staff report. General sales tax (GST) and income tax collections were strong through February 2004, leading to a budgetary surplus—excluding spending through nonbudgetary accounts— of JD 117 million (1½ percent of projected 2004 GDP). Broad money continued to expand at a healthy pace through January 2004 (13.5 percent year-on-year), reflecting strong demand for currency. Revised monetary data through end-2003 also show a somewhat higher expansion of broad money (12.4 percent year-on-year) compared to 11.0 percent presented in the staff report. The gross usable reserves of the CBJ declined by $237 million since end-2003 and stood at $4.5 billion on March 25, 2004, reflecting the unfreezing of Iraqi government accounts held in Jordan and the timing of disbursements of grants, as envisaged under the program. The performance criterion on the net international reserves of the CBJ at end-March 2004 is expected to have been observed by a comfortable margin.
The authorities continued to make progress on policy implementation and structural reforms. Parliament approved the increase in the standard GST rate to 16 percent effective April 1, one percentage point higher than envisaged in the authorities’ Memorandum on Economic and Financial Policies. In addition, the cabinet approved the extension of the GST to alcohol and tobacco, and an average increase of 9 percent in domestic petroleum product prices effective April 3. These measures should yield additional revenue equivalent to 2.2 percent of GDP on an annualized basis, which will help the authorities achieve the fiscal deficit target under the program. Parliament also ratified the temporary laws passed in 2003 on the taxation of interest income and the income withholding tax on importers. Finally, the cabinet approved the planned privatization of the electricity generation and distribution companies, which is expected to attract significant interest from investors.