Front Matter Page
© 2007 International Monetary Fund
August 2007
IMF Country Report No. 07/284
Jordan: Fifth Post-Program Monitoring Discussions—Staff Report; and Press Release on the Executive Board Consideration
In the context of the post-program monitoring discussions with Jordan, the following documents have been released and are included in this package:
The staff report and informational annex for the Fifth Post-Program Monitoring Discussions, prepared by a staff team of the IMF, following discussions that ended on April 30, 2007, 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 June 8, 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.
A Press Release summarizing the views of the Executive Board consideration of the staff report.
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 e-mail to publicationpolicy@imf.org.
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Front Matter Page
INTERNATIONAL MONETARY FUND
JORDAN
Fifth 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
June 8, 2007
Mission dates: April 22–30, 2007.
Team: Messrs. Chami (head), McGettigan, and Watt, Ms. Sab (all MCD), Ms. Lusinyan (FAD), and Mr. Tadesse (PDR).
Counterparts: Prime minister; minister of finance (and deputy prime minister); Governor of the Central Bank of Jordan (CBJ); and high level government officials and banking sector representatives.
Last Article IV consultation and PPM discussions: Directors’ views can be found on http://www.imf.org/external/np/sec/pn/2007/pn0738.htm. At the authorities’ request, PPM was extended through end-2007.
Credit outstanding: SDR 81.8 million or 48 percent of quota at end-April 2007 (Table 1).
Mission aide mémoire: http://www.imf.org/external/np/ms/2007/043007.htm.
Contents
List of Acronyms
Executive Summary
I. Introduction
II. Recent Developments and Outlook for 2007
III. Near-Term Economic Outlook and Key Challenges
IV. Policy Discussions
A. Current account
B. Public debt
C. Credit growth
V. Staff Appraisal
Figures
1. External Sector Developments, 2000–06
2. Fiscal Sector Developments, 2001–06
Tables
1. Indicators of Fund Credit, 2002–11
2. Selected Economic Indicators and Macroeconomic 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
Appendixes
I. External Debt Sustainability Analysis
II. Public Debt Sustainability Analysis
List of Acronyms
| AML/CFT |
Anti-Money Laundering/Combating Financing of Terrorism |
| 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 |
| EM |
Emerging Market |
| FDI |
Foreign Direct Investment |
| FSAP |
Financial Sector Assessment Program |
| GDP |
Gross Domestic Product |
| GNFS |
Goods and Nonfactor Services |
| JD |
Jordanian dinar |
| MoF |
Ministry of Finance |
| PFM |
Public Financial Management |
| PPM |
Post-Program Monitoring |
| PPP |
Public Private Partnership |
| REER |
Real Effective Exchange Rate |
| TSA |
Treasury Single Account |
| WEO |
World Economic Outlook |
| yoy |
Year-On-Year |
Executive Summary
Background and focus of discussions
Jordan’s economic performance remains strong. Growth is robust, core inflation is contained, the current account deficit is narrowing, reserves are comfortable, and the fiscal situation continues to improve.
Yet challenges remain, on which discussions focused: (i) a large current account deficit, (ii) still-high public debt, and (iii) rapid credit growth.
Current account: With supportive policies, the current account deficit should decline steadily over the medium term, and the external debt burden should be cut by half by 2012. Foreign direct investment (FDI) inflows are expected to provide medium-term financing support.
Public debt: Medium-term fiscal adjustment will reduce the debt-to-GDP ratio to well below the official 60 percent of GDP target by 2011. Given higher medium-term financing requirements, the authorities are considering new debt instruments (sukuk, regional local-currency denominated bonds).
Credit growth: While banking sector indicators are strong, the effects of past rapid credit growth require careful monitoring.
Staff views and recommendations
Adhere to the 2007 fiscal target and aim for more ambitious medium-term fiscal adjustment. This will help reduce public debt, inflation, and the current account deficit. Given risks, including from higher-than-budgeted fuel subsidies, contingency measures should be implemented if the 2007 targets appear in danger.
Support the Central Bank of Jordan’s (CBJ) plans to strengthen further the supervisory and regulatory framework. A Financial Sector Assessment Program (FSAP) update is needed.
The CBJ’s plan to simplify the interest rate structure and remove excess liquidity through the sale of certificates of deposit (CDs) is appropriate. Staff suggested replacing the one-week repo facility with an overnight facility and reducing the repo rate below the discount rate to reflect maturity differences. Collateralized interbank lending and increased CD auction frequency should help strengthen the interbank market.
Authorities’ views
The authorities consider the outlook for the Jordanian economy as strong, including on growth, inflation, and the current account.
The debt target remains a key policy anchor and fiscal policies aim to support this target. These include spending cuts, revenue gains (mainly through improved revenue administration), and, if needed, further fuel price increases. Achieving a lower debt-to-GDP ratio than the 60 percent target by 2011 is well within reach.
Bank supervision and regulation will continue to be strengthened. Stress tests suggest that banks are resilient and the CBJ is committed to undertaking further steps to ensure the banking system remains sound.
Front Matter Page
INTERNATIONAL MONETARY FUND
JORDAN
Fifth Post-Program Monitoring Discussions Informational Annex
Prepared by the Middle East and Central Asia Department
(In consultation with other departments)
June 8, 2007
Contents
Appendixes
I: Statistical Issues
II. Relations with the Fund
III. World Bank Group Strategy and Operations
Front Matter Page
Press Release No. 07/180
FOR IMMEDIATE RELEASE
August 10, 2007
International Monetary Fund
Washington, D.C. 20431 USA
