Fiscal consolidation, additional reserve buildup, and higher growth are key program objectives for the Jordanian authorities. Despite the socially difficult elimination of the fuel subsidy, program performance was mixed. Initiatives to strengthen banking supervision and develop capital markets are important. The program addresses economic imbalances and safeguards social stability. Executive Directors are satisfied with the action taken to rebuild reserves through an increase in interest rates and by attracting donor funds, as well as domestic dollar-denominated financing. The government is committed to working on steps to boost revenue.
The Executive Board of the International Monetary Fund (IMF) on April 10 completed the first review of Jordan’s economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review enables the immediate release of SDR 255.75 million (about US$384.5 million), bringing total disbursements under the program to SDR 511.5 million (about US$769 million). The Executive Board also approved the authorities’ request to re-phase the undrawn Fund balance under the SBA in one installment of SDR 170.5 million (about US$256.3 million) and eight equal installments of SDR 85.25 million (about US$128.2 million) spread over the program period.
Jordan’s 36-month SBA was approved on August 3, 2012, for SDR 1.364 billion (about US$2.06 billion; see Press Release No. 12/288) to support the national program of economic reforms aimed at maintaining macroeconomic stability and improving the fiscal and external positions, while protecting the vulnerable segments of the population and fostering stronger and more inclusive growth.
Following the Executive Board’s discussion on Jordan, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:
“The authorities have managed a difficult environment by taking appropriate policy actions under their Fund-supported economic program. Their efforts have mitigated the adverse impact of regional political instability, higher energy import prices, and a large influx of refugees from Syria.
“The central government and the national electricity company performed broadly in line with the program, although the end-2012 quantitative performance criterion on the central government deficit was narrowly missed and the electricity company did not repay arrears as planned. The end-2012 performance criterion on net international reserves was missed as well, but the authorities took corrective actions and reserves have since recovered.
“The 2012 removal of fuel subsidies accompanied by a cash transfer to compensate lower and middle income groups was an important step toward a stronger fiscal position and improved social equity. This, together with other revenue and expenditure measures, has paved the way for higher capital spending in the current budget. Looking ahead, it remains important to further improve tax administration and the public financial management.
“Implementing the draft medium-term energy strategy, including a restructuring of electricity tariffs, is key to returning the electricity company to cost recovery. Direct transfers from the central government to cover the losses of the company are appropriate, as they improve transparency and allow the repayment of the company’s arrears.
“The central bank managed pressures on reserves well by raising interest rates and maintaining the attractiveness of dinar-denominated assets. Its focus on further building foreign exchange reserves and containing inflation remains warranted.
“The planned increase in public investment will support growth. Additional reforms to boost competitiveness and reduce unemployment remain nonetheless essential. Recent measures to improve access to finance for small and medium enterprises, strengthen banking supervision, develop capital markets, and promote youth employment are welcome steps in the right direction.”