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© 2007 International Monetary Fund
March 2007
IMF Country Report No. 07/128
Jordan: 2006 Article IV Consultation and Fourth Post-Program Monitoring Discussions—Staff Report; and Public Information Notice on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2006 Article IV consultation with Jordan and the fourth post-program monitoring discussions, the following documents have been released and are included in this package:
the staff report for the 2006 Article IV consultation and Fourth Post-Program Monitoring Discussions, prepared by a staff team of the IMF, following discussions that ended on November 29, 2006, with the officials of Jordan on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 15, 2007. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF; and
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its March 5, 2007 discussion of the staff report on issues related to the Article IV consultation and the post-program monitoring discussions.
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by publicationpolicy@imf.org.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
JORDAN
Staff Report for the 2006 Article IV Consultation and Fourth Post-Program Monitoring Discussions
Prepared by the Middle East and Central Asia Department (In consultation with other departments)
Approved by David Owen and Martin Fetherston
February 15, 2007
Mission dates: November 15–29, 2006.
Team: Mr. Chami (head), Messrs. Petri and McGettigan, Mses. Sab and Dakanay (all MCD), Ms. Lusinyan (FAD), Mr. Vandenbussche (MCM), and Mr. Tadesse (PDR). Messrs. Khan (MCD) and El-Khouri (OED) participated in the policy discussions.
Counterparts: The prime minister; the minister of finance (and deputy prime minister), and ministers of planning and international cooperation, labor, and tourism; the Governor of the Central Bank of Jordan (CBJ); and other high government officials.
Last Article IV consultation and post-program monitoring (PPM) discussions: Executive Directors’ views can be found on http://www.imf.org/external/np/sec/pn/2006/pn0602.htm.
Exchange system: Jordan accepted the obligations of Article VIII, Sections 2, 3, and 4, in 1997, and the exchange system remains free of restrictions on the making of payments and transfers for current international transactions.
Credit outstanding: SDR 105.2 million or 61.7 percent of quota at end-December 2006 (Table 1).
PPM: Recently extended to end-December 2007.
Data: Timeliness and coverage are sufficient for surveillance. The authorities intend to subscribe to the SDDS by mid-2007.
Mission concluding statement: http://www.imf.org/external/np/ms/2006/112806.htm
Contents
List of Acronyms
Executive Summary
I. Background
II. Recent Developments
III. Policy Discussions
A. Macroeconomic Outlook
B. Fiscal Policy
C. Monetary and Exchange Rate Policy
D. Financial Sector Policies
E. Investment Climate
IV. Staff Appraisal
Tables
1. Indicators of Fund Credit, 2002–11
2. Selected Economic Indicators and Macro-economic Outlook, 2003–12
3. Indicators of Financial Vulnerability, 2002–06
4. Summary Balance of Payments, 2003–12
5. Summary of Fiscal Operations, 2003–12
6. Summary of Revenues and Expenditures, 2003–12
7. Summary Monetary Survey, 2003–08
8. Summary Accounts of the Central Bank of Jordan, 2003–08
9. Central Government Medium-Term External Debt and Debt Service, 2003–12
10. Consolidated Public Sector Fiscal Operations and Net Debt, 2003–12
Figures
1. External Sector Developments, 2000–06
2. Fiscal Sector Developments, 2001–06
3. Illustrative Medium-Term Macro-economic Framework, 2000–12
Box
1. External Outlook and Competitiveness
Appendixes
I. External Debt Sustainability Analysis
II. Public Debt Sustainability Analysis
List of Acronyms
| AML/CFT |
Anti-Money Laundering/Combating Financing of Terrorism |
| ASE |
Amman Stock Exchange |
| CBJ |
Central Bank of Jordan |
| CD |
Certificate of Deposit |
| CPI |
Consumer Price Index |
| CEE |
Central and Eastern Europe |
| DOS |
Department of Statistics |
| DSA |
Debt Sustainability Analysis |
| FDI |
Foreign Direct Investment |
| FSAP |
Financial Sector Assessment Program |
| GDP |
Gross Domestic Product |
| GFMIS |
Government Financial Management Information System |
| GNFS |
Goods and Nonfactor Services |
| GNP |
Gross National Product |
| GST |
General Sales Tax |
| JD |
Jordanian dinar |
| MOF |
Ministry of Finance |
| NEER |
Nominal Effective Exchange Rate |
| PPM |
Post-Program Monitoring |
| PPP |
Public Private Partnership |
| REER |
Real Effective Exchange Rate |
| SEZ |
Special Economic Zone |
| SDDS |
Special Data Dissemination Standard |
Executive Summary
Background
The Jordanian economy has performed remarkably well in recent years. Despite negative shocks (including increasing oil prices), growth has been robust (averaging 6 percent during 2001–06), the public debt ratio has continued to fall, inflation has remained low, and reserves have reached an all-time high. This reflects sound monetary and fiscal policies, far-reaching structural reforms—including trade liberalization and improvements in the business environment—and a successful privatization program.
Focus of discussions
This year’s discussions focused on policies needed to sustain Jordan’s strong economic performance.
Medium-term external outlook: Despite the large current account deficit in 2006 (16 percent of GDP), the baseline outlook is positive. With appropriate policies in place, the current deficit is expected to narrow substantially over the medium term, reducing reliance on capital inflows.
Macroeconomic policy mix: With a fixed exchange rate and an open capital account, the burden of adjustment will fall on fiscal policy to maintain macroeconomic stability, reduce the current account deficit, and lower further the public debt-to-GDP ratio. Monetary policy will continue to aim at maintaining the exchange rate peg, which has served Jordan well.
Structural reforms: Implementing a wide array of fiscal structural measures, including on pensions, sales and income taxes, revenue administration, and public expenditure management is key. Continued improvement in the business environment and proceeding with privatization are also important to maintain high growth and reduce unemployment.
Key staff recommendations
Maintain the policy reform agenda. This offers the best prospect for sustained strong economic performance. Jordan’s current account deficit and reliance on capital inflows remain high, as does its public debt burden. Making further progress on these issues requires both sustained policy reforms and a supportive external and regional environment.
Legislate a new public debt ceiling of 60 percent of GDP in 2011 as the new fiscal anchor to better insulate the budget from political pressures. This year’s budget could have been more ambitious.
Remove excess liquidity by issuing additional certificates of deposit (CDs). This should help slow domestic credit growth, rein in consumption and imports, and strengthen further the interbank market.
Authorities’ views
Sound economic policies will be continued to sustain Jordan’s good economic performance.
Growth should remain at 6 percent next year—despite risks from the recent equity market downturn, declining profits, and higher interest rates—given continued large investment projects.
The overall deficit, including grants, will be about 3½ percent of GDP in 2007, mainly to accommodate high-priority spending.
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INTERNATIONAL MONETARY FUND
JORDAN
Staff Report for the 2006 Article IV Consultation and Fourth Post-Program Monitoring Discussions Informational Annex
February 15, 2007
Contents
Appendixes
I. Statistical Issues
II. Relations with the Fund
III. World Bank Group Strategy and Operations
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Public Information Notice (PIN) No. 07/38
FOR IMMEDIATE RELEASE
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
On March 5, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the 2006 Article IV consultation and fourth Post-Program Monitoring (PPM) discussions with Jordan.1
