Jordan: 2020 Article IV Consultation and Request for an Extended Arrangement Under the Extended Fund Facility—Press Releases; Staff Report; and Statement by the Alternate Executive Director for Jordan

2020 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Alternate Executive Director for Jordan


2020 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Alternate Executive Director for Jordan


1. Jordan has faced significant challenges during the past few years. Regional conflicts in Syria and Iraq have disrupted critical trade markets and capital flows; while the arrival of near 1.3 million Syrian refugees (equivalent to about one seventh of Jordan’s population) has strained the country’s infrastructure and public services, and increased labor-market pressures. Furthermore, volatile energy prices and uncertain regional energy supplies have undermined local confidence and investment.

2. Economic policies improved under the 2016 EFF, but not sufficiently to generate higher growth, reduce unemployment, and eliminate imbalances (Box 1). Growth in Jordan has averaged only 2 percent since 2016—insufficient to absorb the expanding pool of new job seekers in Jordan’s labor market. Per capita GDP growth has been negative every year since 2009. While external buffers have been preserved and reforms advanced, fiscal vulnerabilities remain, limiting the scope for social and capital spending. Subdued growth and high unemployment have led to public discontent, and eroded support for difficult reforms.

3. To address Jordan’s protracted external financing needs and support its pro-growth economic program, the authorities have requested a new Fund arrangement. Jordan needs strong structural reforms that can reliably uplift sustainable and inclusive growth, create jobs, and reduce poverty, coupled with gradual fiscal consolidation to enhance resilience and reduce debt to more sustainable levels. The proposed four-year arrangement under the Extended Fund Facility (EFF) builds on the 2016 EFF, while allowing the needed adjustment and reforms to spread over a longer period to support the growth recovery. It sets access at 270 percent of quota (SDR 926.37 million; about US$1.3 billion). Donor support for Jordan’s efforts, particularly in the form of concessional financing and budget grants, continues to be essential.

Economic Developments and Outlook

A. Preserving Macroeconomic Stability Amid Persistent Challenges

4. Despite a difficult environment, the authorities have made some important progress in recent years.

  • The economy remained stable and inflation low. Macroeconomic and financial stability has been maintained. Headline inflation has remained broadly contained, rising to 3½ percent during 2017–18, reflecting primarily the impact of fiscal measures, but decreasing to 0.6 percent in 2019, due to subdued food and imports prices, including fuel. Core inflation decelerated to 1.3 percent in 2019, compared to an average of 2½ percent during 2017–18.

  • External imbalances have improved significantly. The current account deficit has narrowed markedly since 2017, due to a strong recovery in exports and tourism and to lower imports. Exports have been supported by favorable trends in world prices of potash and phosphates and preferential access to the U.S. and EU markets. The demand for non-energy imports has weakened since 2018, reflecting a sharp decline in import-intensive FDI and lower import prices in 2019 (linked to the appreciation of the US dollar). These factors, combined with the lower energy import bill— driven by the resumption of gas imports from Egypt and drop in world energy prices— resulted in a narrowing of the current account deficit (excluding grants) from an average of 12 percent of GDP during 2017–18 to a projected 6 percent in 2019.

  • Reserve buffers have been preserved. Reserves fell significantly in mid-2018, in reaction to the uncertainty arising from protests against a draft income-tax law that forced the government to resign. However, reserves stabilized after the announcement of a new government, an increase in policy rates by the Central Bank of Jordan (CBJ), and additional external financing from bilateral and multilateral creditors. In 2019, conditions in the FX market improved and the CBJ was able to partly recoup past reserve losses. Reserve buffers remain at comfortable levels: slightly below 100 percent of RAM as of end-2019.

  • The financial sector is sound. The banking system remains well capitalized, liquid, and profitable. Private sector credit grew by about 5 percent in 2019, compared with around 10 percent during 2016–17, but SME access to credit continues increasing. The non-performing loan ratio is also relatively low, around 5.2 percent (although up from 4.2 percent in 2018).

  • The authorities have taken some important steps to improve Jordan’s business climate. Key measures include: passing amendments to the insolvency, inspections, and secured lending laws; revamping the PIM/PPP framework; launching a private credit bureau; opening previously-restricted economic activities to FDI; eliminating and merging multiple licenses; implementing electronic filing and payment for labor taxes and other mandatory contributions; and automating business registration. These improvements have been reflected in recent business environment assessments, including Jordan’s ranking among the top improvers in the World Bank’s 2020 Doing Business Report.

Imports: Select Categories, 2010–19

(JD millions, monthly, seas. adj. trend)

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

Sources: National authorities and IMF staff calculations.

Exports: Select Destinations 2010–19

(JD millions, monthly, seas.adj. trend)

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

5. However, despite efforts, fiscal consolidation proved difficult to maintain. Although there was important progress during 2016–17 (an adjustment in the primary deficit of 3¼ percent of GDP), this outcome was partly reversed during 2018–19 (a reversal of about 2 percent of GDP). Yields from efforts to broaden the tax base and mobilize revenues, particularly from the removal of sales tax exemptions, fell short of expectations, reflecting marked weaknesses in tax administration, tax arbitrage opportunities from special economic zones, and delays in implementation. Weaker revenues led the authorities to cut back on public investment and postpone the clearance of legacy arrears. Slippages in 2019 were particularly pronounced, owing to a significant loss of tax revenue from a pickup in cigarette smuggling after the re-opening of the border with Syria; delays in passing by-laws under the new income tax law; and weaker import growth. Significant wage and pension increase for public sector workers, agreed in 2019 and reflected in the 2020 budget, will add to expenditure pressures. There were also persistent off-budget expenditures in both 2018 and 2019.

6. Persistent obstacles in reaching cost recovery in public utilities continued to add to the fiscal challenges. The authorities made some progress in containing losses at the state-owned electricity company (NEPCO) but sizable losses at the water authority company (WAJ) remained.

  • In 2017, the authorities adopted an automatic electricity tariff adjustment mechanism (AETAM) to insulate NEPCO from swings in oil prices and contain its losses. Wholesale tariffs increased by 23 percent by mid-2018, but NEPCO’s losses amounted to 0.3 percent of GDP in 2018, reflecting an uneven implementation of the AETAM during the second half of 2018 and in early 2019.

  • To improve its financial viability, NEPCO adopted a “Roadmap towards financial sustainability of the power sector” with support from the World Bank. The implementation of cost-savings measures under the roadmap and lower international oil prices underpinned NEPCO’s operational balance in 2019. However, revenue growth has been subdued as higher tariff customers have reduced their consumption from the grid and invested in self-generation capacity to avoid high electricity tariffs (Box 2). This has brought up new challenges as with new electricity plants coming on stream, Jordan has now excess capacity in electricity production, but with limited export options. Overall, NEPCO’s operational position is still not strong enough to avoid losses and bring its debt down, which remains high at around 17 percent of GDP.

  • Losses in the water sector have remained sizable, despite progress in the implementation of the action plan to reduce sectoral losses. As part of the plan, measures focused on improving the collection of bills for water distribution companies and developing projects to reduce physical- and theft-related losses on the water grid. WAJ and the three distribution companies reached 89 percent of cost recovery by end-2017. However, WAJ and the water distribution companies ran an overall deficit of 1.3 percent of GDP in 2019, up from 0.9 percent of GDP in 2018. The sector also accumulated new arrears to the electricity sector estimated at ¼ percent of GDP for 2019.

7. Low private and public investment, high unemployment, and high public debt remain critical challenges. While buoyant tourism and exports gave some impetus to economic activity in 2019, the improvement in the business climate has not yet translated into higher domestic or foreign investment. In fact, gross capital formation has declined considerably in the last 10 years. This has undermined growth, averaging 2¼ percent in 2010–19 from 6½ percent in 2002–09. Per capita income has continued to decline due to rapid population growth and was in 2019 about 10 percent below its 2010 level. Unemployment (excluding foreign labor) remained on an upward trend in 2019, reaching 19.1 percent in the third quarter, up from 18 percent in the same period of 2017, remaining particularly high for youth (43.1 percent) and women (27.2 percent). Public debt has continued to increase, leaving fiscal space for critical social and infrastructure spending at risk.

B. Outlook and Risks

8. The macroeconomic framework underlying the program lays out a path to higher growth and fiscal and external stability. With full implementation of the envisaged pro-growth structural agenda and fiscal consolidation under the program, staff projects that real growth will be 2.1 percent in 2020 and gradually increase to 3.3 percent over the medium term. The baseline reflects fiscal consolidation of about 4 percent of GDP during 2020–24—to ensure placing public debt on a downward path—and a strengthened growth agenda, underpinned by reduced business costs, particularly on electricity and labor, and measures to increase employment for women and young people. Inflation is expected to gradually reach 2½ percent over the medium term. The current account deficit (excluding grants) is projected to expand to about 7 percent of GDP in 2020—reflecting the recovery of non-energy imports and FDI—and then narrow to about 5 percent of GDP over the medium term, with gross usable reserves expected to remain adequate above 100 percent of the ARA metric over the program period.

9. The outlook remains subject to significant risks (Annex III). Fiscal slippages—including from pressures in the run up to parliamentary elections due in the Fall, lower-than-expected yields from tax administration measures, and reform fatigue—could jeopardize program objectives, and together with heightened rollover risks, endanger debt sustainability. Powerful interests disadvantaged by structural measures, including electricity reform, could stir up social discontent, jeopardizing the authorities’ ability to deliver structural reforms. Externally, escalation of the conflict in Syria, an increase in social unrest in Iraq, a worsening economic crisis in Lebanon, and deterioration in relations with Israel might weigh on domestic sentiment, regional and global trade, tourism and FDI. Over the medium-term, if fiscal slippages or subdued growth were to continue, additional donor support with a significant grant component would be required to preserve the program objectives of reducing debt vulnerabilities. On the upside, deep structural reforms could increase potential growth over the medium term above staff projections, and reconstruction in Iraq and Syria could improve Jordan’s growth and external position.

10. The ongoing COVID-19 outbreak may exert significant pressures in the near term. Trade links with China, travel restrictions and unwillingness to travel by tourists, and reductions in FDI, trade and remittances channels—particularly from GCC countries in the event of an extended global impact of COVID-19—could exert significant pressures on economic growth and the balance of payments, though the latter may be mitigated by lower oil prices. There may be a need for emergency budget spending to prevent, detect, treat, and contain the outbreak, as well as revenue losses from lower economic activity. The authorities are already taking measures to contain COVID-19, including travel restrictions, quarantines, medical examinations at borders and airports, and a public communication and awareness campaign to limit the spread of COVID-19 and inform the public on examination and treatment facilities. The CBJ has also reduced policy interest rates by 50 basis points, following the recent Fed action. The program contains an adjuster for any immediate spending needs to respond to COVID-19. In the event of a large economic impact materializing, the authorities will consult Fund staff in how the program could be adapted to ensure its objectives remain achievable while ensuring there is needed COVID-19-related spending. Given the uncertainty about the extent and duration of the crisis in Jordan and globally, it is not possible to quantify the economic effects and the specific policy response on the program at this stage. However, the program would be reassessed, as needed, at the time of the reviews.

Article IV Policy Discussions: a Strategy for Growth and Stability

Staff and the authorities agreed that the challenge for Jordan is to raise growth while maintaining macroeconomic stability. Most of the effort to raise growth needs to come from structural reforms, including by removing the impediments to business growth, especially high electricity costs, while promoting employment, especially of women and young people. In the fiscal adjustment effort, the program puts an emphasis on revenue mobilization by collecting taxes from people who do not pay them, rather than raising tax rates, and on rationalizing current spending. Thus, reform of the Investment Law, which confers tax incentives to some companies, and reform of tax administration are key instruments of fiscal adjustment in the program. Reform of the electricity and water sectors will also be crucial and will need to balance social stability with fiscal and environmental sustainability. The whole package must be strong enough to preserve monetary and financial stability, with adequate reserve buffers to support the exchange rate peg, and scope for private-sector growth and greater financial inclusion.

A. Making Government Finances More Sustainable and Efficient

11. With public debt above safe levels, continued fiscal consolidation is critical to stabilize and place debt on a steady downward path, while protecting the growth recovery. Public debt (consolidated concept) is projected at about 80 percent of GDP in 2020 (equivalent to about 100 percent of GDP on unconsolidated basis; Box 3 and Annex I). Continued deficits of the size seen in the past two years would raise debt levels further and would represent a sizable drain on local liquidity, prompting higher interest rates, tighter credit, and eventually causing slower growth. With an immediate reduction in the deficit in 2020, in part reflecting the full-year effect of measures already taken, debt will be stabilized in 2020, but further measures will be needed to put debt on a downward path thereafter. In this respect, the authorities agreed that targeting a primary surplus of about ½ percent of GDP over the medium term is key to steadily reduce debt towards 75 percent of GDP.

12. Structural fiscal reforms are critical to underpin any fiscal strategy over the medium term. With military and security spending likely to stay elevated given the still challenging regional environment, and the need to increase public investment to support growth objectives, staff and the authorities agreed that it will be critical to advance reforms to mobilize additional revenues and enhance the efficiency of public expenditures.

  • On the revenue side, decisive actions are needed to address tax administration weaknesses, related to inaccurate registration, filing and audit deficiencies, sizable tax arrears, weak compliance risk management, substandard access and use of information for audit and enforcement purposes, and extensive revenue leakage from smuggling and tax arbitration and transfer pricing practices in special economic zones. Further efforts to rationalize tax exemptions, revisit the property taxation framework, and realign excises will be needed.

  • On the expenditure side, efforts should be concentrated on: (i) containing the wage bill, particularly after the increased compensation agreed in 2019 and legislated in early 2020; (ii) making more efficient the provision of public health services; (iii) rationalizing transfers to public sector entities; (iv) streamlining social assistance programs and improving their targeting to protect the vulnerable; and (v) further rationalizing non-priority current expenditures, as warranted.

13. Persistent structural fiscal vulnerabilities will also need to be overcome. The use of treasury cash resources to cover off-budget outlays amounted to about 1 percent of GDP per year during 2018–19, reflecting significant weaknesses in the budgeting process. Recent off-budget pressures have also partly emerged from the drawdown of trust accounts, which were accumulated in past years through the (now abolished) practice of carrying-over unspent budget allocations. Likewise, the accumulation of domestic arrears to the health and energy sectors has ranged between ½ and 1 percent of GDP per year over the past three years. Continued commitments to clear arrears and attend off-budget pressures without solving the underlying weaknesses will only continue adding to debt. The authorities agreed that these practices need to be arrested through a revamping of public financial management practices and legislation.

14. Further tax cuts and amnesties should be avoided. Staff considered that the practice of creating additional reduced GST rates should be arrested, as it only adds to an already complex and difficult-to-administer tax system. Well-targeted social programs are better tools to support those in need than the provision of sales tax exemptions, which could be regressive. Similarly, further tax amnesties and discretionary incentives would distort the tax system with, at best, dubious results, and should be resisted. The authorities saw some scope for discretionary fiscal measures to support growth as long as the impact on fiscal balances is limited.

B. Improving the Sustainability of the Electricity and Water Sectors

15. Reforming the electricity tariff structure is indispensable for Jordan businesses to regain competitiveness. The authorities agreed that electricity tariffs should be gradually lowered for businesses. This could be achieved in a revenue-neutral way for NEPCO by reducing cross-subsidies contributed by businesses and received by households. At present, electricity subsidies received by households and embedded in the electricity tariff structure are not targeted. A reform of electricity tariffs would seek to target subsidies to vulnerable households, while reducing subsidies received by households with capacity to pay.

16. The authorities considered continued efforts are needed to secure NEPCO’s financial sustainability. These involve three key pillars:

  • NEPCO should contain its costs. NEPCO has diversified its fuel mix, ensuring energy security through the coming on stream of several PPAs. Going forward, NEPCO should aim to continue reducing operational costs. The Electricity Bill Recovery Mechanism adopted under the energy-sector roadmap should ensure timely payments of electricity bills by government agencies, through adequate budgeting of electricity costs. Proper assessment of fiscal commitments and contingent liabilities (FCCLs) in current and future PPAs will also be critical to preserve NEPCO’s sustainability and mitigate the potential macro-fiscal and public debt impacts.

  • NEPCO’s revenues need to be strengthened. NEPCO should remove pricing distortions that have led customers to stop buying electricity from existing production capacity, invest in self-generation capacity, and get access to the grid below cost. High marginal electricity tariffs should be lowered in order to encourage consumption and incentivize large costumers to remain in the grid. The authorities agreed that NEPCO should continue seeking additional revenues and also explore electricity export opportunities in the region.

  • NEPCO needs to implement a debt optimization plan. As described in the electricity-reform roadmap, the authorities conducted a study to optimize NEPCO’s legacy debt as well as future contractual liabilities. The authorities agreed that it is critical for NEPCO to implement the plan to secure its financial viability and contain the impact stemming from contingent liabilities going forward.

17. While considering the sensitivities around water provision in a water-scarce country, the authorities agreed that WAJs finances should be strengthened. Jordan’s “Action Plan to Reduce Water Sector Losses” should continue to be implemented, with the regular issue of progress reports. Additional steps should be taken to strengthen water sector institutions and ensure better coordination between the water and energy sectors. Given the high burden of electricity costs on water distribution companies, a joint action plan between the energy and water sector should be developed. Water sector arrears to PPP projects and to electricity distribution companies need to be arrested, through proper budgeting and cash management practices.

C. Preserving Monetary and Financial Stability

18. The exchange rate peg continues to serve as an appropriate nominal anchor, which has helped preserve stability in the face of repeated external shocks. Monetary policy aims at balancing the need for an adequate level of reserves to support the peg, while also considering domestic economic conditions. Staff considered that the recent loosening cycle in Jordan was appropriate, but noted that a tightening of policy might be required should reserve pressures emerge. The authorities concurred but stressed that the current policy setting was well understood by markets, and that any changes would need to be communicated carefully. On the exchange rate, although analysis is complicated by continued regional turmoil, staff views Jordan’s real exchange rate to be moderately overvalued (Annex II). The authorities stressed that the peg still provides a critical anchor, and noted that in current circumstances an improvement in the current account is constrained by access to trading partners that are facing conflict. Staff agreed, but noted that continued steady fiscal consolidation and growth-enhancing reforms along with continued concessional donor financing, are essential to reduce Jordan’s remaining external imbalances over the medium term. Staff warned that in the absence of consolidation and reform, continued imbalances would increase Jordan’s vulnerabilities.

19. The banking system is well capitalized, liquid, and profitable, even in a low-growth environment. Despite a prolonged economic slowdown, capital adequacy at 17 percent is still well above the regulatory minimum. The authorities noted that the recent easing of household lending reflects, in part, an ongoing dialogue with banks on trends and potential risks, and they stressed that key prudential ratios are manageable. In the event of rising credit risk, the CBJ has a broad range of potential tools at its disposal, including risk-weight requirements, and concrete limits on loan-to-value and debt-to-income ratios. Moreover, stress tests suggest that even a 100 percent increase in NPLs resulting from a worsening of economic conditions would only reduce capital adequacy from 17 percent to 15.6 percent.

20. The authorities plan to continue strengthening the legislative and regulatory framework for Jordan’s banking and financial sectors, including for AML/CFT. The CBJ has issued Basel III regulations on capital adequacy and liquidity requirements. It also worked proactively with banks to ensure a smooth transition to IFRS9 accounting standards in 2018.1 In addition, the authorities have continued with their comprehensive review of banking sector, including amendments to the Banking Law and new instructions on large exposure limits. With the assistance of the Fund, the authorities also completed an ML/FT National Risk Assessment, which will contribute to a forthcoming review of Jordan’s AML/CFT law. Regulatory agencies, including the CBJ, have amended their regulations to strengthen conformity with FATF standards and are putting in place a risk-based framework for offsite and onsite AML/CFT supervision of banks, money-exchange firms, and other financial and nonfinancial institutions. A mutual evaluation by MENAFATF proceeded over the course of 2018, and was adopted in October 2019. The findings of that assessment will help inform the amendments to the AML/CFT Law in 2020 as well as other reforms needed to improve Jordan’s compliance with the FATF standard. Amendments to the Insurance Law, to allow for the transfer of the supervision of the insurance sector to the CBJ, are currently before parliament and are expected to be passed early in 2020, allowing for completion of the transfer by end-June 2020.

D. Rebalancing Structural Reforms

21. Reviving growth will require a focused effort to boost private-sector competitiveness and investment. Aside from its clearly demonstrated resilience, Jordan enjoys a range of advantages, including a young and highly educated population, a central regional location, and a stable political environment. But capitalizing on these benefits will not be easy. Jordan needs to attract investments to increase its manufacturing base and exports of high value-added services, and to attract entrepreneurs to areas such as professional business services, technology, tourism, and logistics. Private sector growth from these investments, and the export of high-quality human-capital services, will help boost domestic demand and confidence, increase the availability of high-productivity jobs, and help shake the economy loose from its current low-level growth trap.

22. The authorities should continue to take steps to enhance private-sector growth. With the assistance of the World Bank and other partners, the authorities are implementing a five-year matrix aiming to: (i) improve the business climate (by liberalizing FDI, reducing the cost of starting and operating a business, and supporting the digital economy); (ii) boost exports (especially in services); and (iii) foster a more flexible and responsive labor market (by removing regulatory barriers to female participation, lowering barriers to formalization, and allowing easier access for high-skilled foreign workers). To the extent possible, key measures should be frontloaded to have a faster impact on the business environment and economic activity.

23. In addition, pro-employment reforms are critical for inclusive growth and stability. Much has already been done. The authorities have amended the Social Security law, which now allows for: (i) a temporary reduction in contribution rates for small startups employing young workers;2 (ii) cash support for nurseries in areas with low female labor force participation; (iii) access to individual unemployment insurance savings to support higher education and medical expenses; and (iv) parametric reforms for social security (increasing the early-retirement age and the associated deduction rate, and allowing part-time workers to contribute to the scheme). The authorities have also recently approved a series of incentives to directly boost job creation for targeted groups (youth and women) through conditional direct cash support to businesses. The authorities are also planning to direct capital investment to infrastructure projects that support inclusive growth, for example, developing a safe and affordable public transportation system that will make it easier for women to join the workforce. This priority was reflected in the 2020 budget.

24. Measures to support financial sector development can help broaden financial access. Continued implementation of the authorities’ financial inclusion strategy, along with initiatives to support credit to SMEs, and the recent enactment of the secured transactions law, will help broaden financial access, especially for women, the poor, and SMEs.

Taking the Strategy Forward in the Program Supported by the Extended Fund Facility

Reflecting the need to balance growth and stability, the program combines a growth-enhancing reform agenda with further fiscal adjustment and structural fiscal reforms. Fiscal adjustment is designed to support macroeconomic stability. This encompasses both external stability through adequate reserves to support the exchange rate peg, and a more sustainable public debt level. The second anchor of the program is a pro-growth reform agenda, including more effective public-sector investment and finances, reduced business costs, and measures to improve government transparency and accountability, and the investment climate.

A. Fiscal Policy

25. The 2020 budget targets a primary deficit of 2.3 percent of GDP (MEFP, ¶8). This adjustment requires gross fiscal measures of 2½ percent of GDP, to offset higher budgeted outlays for public sector compensation and capital expenditures (see text table below). On the revenue side, the estimated yield from current policies and new measures would amount to 1.2 percent of GDP, underpinned by: (i) the full impact of the new income tax law; (ii) measures to reduce trading of illegal cigarette brands, to prevent losses from cigarette collections; (iii) curtailment and non-renewal of discretionary sales tax and customs exemptions; and (iv) an increase in customs service fees on FTA-related (tariff-exempted) imported goods, while reducing the complexity of the tariff rate structure (as previously recommended by staff). On the spending side, the budget includes the legislated increase in public sector compensation (civil and military wages and pensions), and an increase in public investment, along with offsetting measures amounting to 1.2 percent of GDP to arrest off-budget expenditures and compress current outlays. In this context, the 2020 budget has been enacted in line with program understandings, and the cabinet has passed a decision to prohibit the use of treasury cash resources other than in budgeted allocations and previously identified advances (prior actions). The authorities will also conduct a review of accumulated trust accounts (structural benchmark).

Gross fiscal measures under the 2020 budget

(percent of GDP)

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Source: IMF staff estimates.

26. Over the medium term, fiscal consolidation needs to be sustained to contain and begin to reduce debt (MEFP, ¶8). The authorities agreed to a medium-term fiscal path that delivers additional fiscal adjustment of about 2½ percent of GDP during 2021–24 (evenly phased per year).3 This adjustment is necessary given Jordan’s elevated debt and increasing interest burden. It can be achieved by striking a balance between revenue and expenditure measures. The medium-term strategy will be underpinned by: (i) improving tax administration and tackling tax evasion; (ii) curtailing investment tax exemptions; (iii) revisiting the property taxation framework; (iv) realigning excises; and (v) further rationalizing non-priority expenditures (see below).

27. Accelerated efforts to revamp tax and customs administration will be critical to ensure meeting fiscal program targets (MEFP, ¶18). ISTD has made recent progress in the implementation of key recommendations in the May 2019 FAD technical assistance report, including through the establishment of new directorates aimed at sectors with poor compliance, and the revamp of the audit function through risk-based practices and the establishment of specialized audit teams for high-risk sectors in the large taxpayer directorate (LTD). The program will support the authorities’ decision to recruit 100 qualified staff, including new auditors, to be distributed across the LTD and three new directorates, in two phases: 50 by end-June 2020 and 50 by end-December 2020 (structural benchmark). The program also includes the rollout of compliance improvement campaigns, as recommended by the January 2020 FAD technical assistance report, for professional groups by end-December 2020. To arrest smuggling tobacco activities, the authorities have committed to implement a digital track and trace system to monitor cigarette production by end-December 2020 (structural benchmark).

28. Managing compliance under and revisiting investment incentives are essential to prevent ongoing revenue leakage (MEFP, ¶19). Investment tax exemptions within and outside special economic zones create diversion risks and opportunities for tax arbitrage and transfer pricing abuses. A critical problem is the co-existent of two parallel tax and customs administrations in Jordan (ISTD/Jordan Customs, and the Aqaba Special Economic Zone Authority – ASEZA), particularly due to the weak “border” control at ASEZA and pervasive smuggling opportunities. The authorities are committed to amend the 2014 Investment Law to revisit and rationalize investment incentives within and outside special economic zones, and will submit to Parliament such amendments by end-September 2020 (structural benchmark). The authorities have agreed to impose a single tax administration and a single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control by end-December 2020 (structural benchmark). Furthermore, to address the problem of “letter-box companies” that do not produce in special economic zones but use the incentives for tax avoidance, the Ministry of Finance (MoF) will introduce Economic Substance Regulations for all special economic zones by end-December 2020 (structural benchmark).4

29. Public financial management will be strengthened (MEFP, ¶20). The authorities agreed to take measures to control domestic arrears, including through strengthened rules for issuance of medical exemptions, and a public-sector fuel consumption monitoring system (in coordination with the Jordan Petroleum Refinery Company) to prevent the buildup of energy arrears. The authorities, with technical assistance from the Fund, also plan to submit to Parliament an amended draft Organic Budget Law by end-December 2020.

30. Improving the targeting of Jordan’s social safety net is crucial to help accommodate social spending pressures, including on health and education (MEFP, ¶9). The authorities have committed to conduct a comprehensive review of their social spending envelope, and to publish an action plan to enhance its effectiveness and efficiency in coordination with the World Bank and UNICEF by end-September 2020, building on the recently published National Social Protection Strategy for 2019–2025. The program continues supporting the three-year expansion (2019–21) of the National Aid Fund (NAF)’s cash transfer program, and includes a revised definition of the social spending indicative target, consisting of: (i) non-wage components of the education and health sectors’ current expenditure envelope; (ii) NAF’s social protection programs; and (iii) the school feeding program.

31. The authorities have made progress in strengthening the public-private partnership (PPP) framework and the monitoring of fiscal risks (MEFP, ¶21). Parliament has recently passed a revamped PPP law, with the support of the World Bank. The law clearly establishes the process for tendering PPPs, with proper value-for-money assessments, and vetted by the MoF’s new unit to assess fiscal commitments and contingent liabilities (FCCLs). No sector is exempted from the application of the new law. The authorities will complete a detailed study to identify and quantify FCCLs stemming from the existing portfolio of PPPs/PPAs by end-December 2020.

B. Electricity and Water Sector Policies

32. Reducing electricity tariffs for key businesses and targeting electricity subsidies to vulnerable households is a core element of the program’s pro-growth agenda (MEFP, ¶10). By end-June 2020, the authorities will develop a detailed plan that will identify reforms to be implemented gradually over the program period to phase out cross-subsidies from businesses to households, in a revenue-neutral manner for NEPCO (structural benchmark). The plan will develop a mean-tested methodology to target households who will be eligible for electricity subsidies, based on detailed data on income and electricity consumption. The plan will also identify key businesses for which a reduction in electricity prices will have the highest growth and job-creation impact. By end-October 2020, the authorities will adopt measures to achieve a third of the needed reductions in cross-subsidies received by households (on an annualized basis), which, after measures already taken this year, are currently estimated at about JD 225 million (structural benchmark).

33. NEPCO will implement additional cost-savings and revenue-enhancing measures to contain its projected losses in 2020 and onwards (MEFP, ¶11–12). It is expected that at current policies and the prevailing electricity tariff structure, NEPCO will register significant losses in 2020 and onwards, following the increases in its generation costs due to the coming on stream of an oil-shale PPA (Box 2). Staff projections assume that NEPCO’s existing obligations will be met in full, but it is flexible to incorporate the outcome of potential renegotiations between NEPCO and its contractors (which would provide an upside to the program). To contain these losses, NEPCO will increase revenues through improvements in bill collection, targeted rebates to boost domestic demand, and the introduction of fixed fees for renewable energy systems that are connected to the grid.

34. The authorities are committed to ensure full transparency in the PPAs that will come on stream over the medium term (MEFP, ¶13). They will issue a tender for a contract with an international accounting, consulting or legal firm to conduct a comprehensive review of the underlying contracts of the most significant PPA (prior action) with a view to hiring a firm by end-June 2020 (structural benchmark) and to the review’s completion, which will be shared with Fund staff, by end-September 2020 (structural benchmark). The review will ascertain whether: (i) the procurement processes were conducted in line with international best practices and domestic laws; and (ii) the contracts’ financial implications on NEPCO are well understood. The authorities will make available all relevant contracts for this review. NEPCO will contract any new PPAs according to the needs of the electricity system, following international best practices for procurement, and guided by the new PPP law.

35. Further efforts are needed to contain water sector losses (MEFP, ¶14–17). The authorities will continue implementing the “Action Plan to Reduce Water Sector Losses” and issue progress reports on a regular basis to monitor the implementation of the strategy. The focus will be on reducing costs, including by increasing energy efficiency (MEFP, ¶15). Revenues will be enhanced through tackling non-revenue water (physical and commercial losses) and increasing billing efficiency. The authorities will also study the water tariff structure both for corporate and households and explore options for a restructuring of water tariffs and their potential social impacts (MEFP, ¶15). In order to improve efficiency and following the recent implementation of WAJ’s debt centralization, WAJ will be transferred under the Ministry of Water, while preserving WAJ’s independent accounting and reporting of their financial statements (MEFP, ¶14). The general budget will provide adequate allocations to ensure the timely payments to PPP projects and to the energy sector. Future contingent liabilities arising from existing and new PPPs will be closely monitored under the new PPP law (MEFP, ¶17).

C. Monetary Policy

36. The monetary policy stance is currently appropriate, and should remain geared toward supporting the peg by maintaining an adequate reserve buffer. The authorities will maintain the current interest rate differential with the United States, but will continue to monitor domestic and external economic developments carefully; acting swiftly and aggressively if needed to protect Jordan’s external buffer and to ensure that reserve targets are met (MEFP, ¶22). The current program aims to build on recent progress and to boost reserves further in 2020, maintaining them at around 107–110 percent of RAM over the program period. The authorities recognize that monetary and fiscal policy are tightly linked, and that meeting fiscal targets will be vital in easing the burden on monetary policy.

Reserves and Policy Rates

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

D. Structural Reforms

37. Program reforms are centered on the most important remaining impediments to growth. These will include measures in the areas of business costs (including access to finance) and competitiveness, the labor market, and governance. They build on the Jordan Economic Growth Plan 2018–22, and are anchored by the five-year reform matrix launched at the 2019 London Initiative.

38. Strengthening the business environment will help foster investment and enhance competitiveness (MEFP, ¶28). The program prioritizes measures to reduce the cost of starting and operating a business, including through simplifying procedures, and further strengthening investor protection. Initiatives under the program include: a new “Regulatory Predictability Framework”; the launch of the “Investor’s Journey” agenda, which seeks to prioritize Jordan’s business-environment reforms from the perspective of the investor; implementation of the Licensing Reform Policy Paper adopted by Council of Ministers in 2019; and the streamlining of construction permits and customs-clearance procedures.

39. Reforms to facilitate access to finance will help broaden the reach and usage of financial services (MEFP, ¶29). Given the important role of SMEs in Jordan’s economy, and their exclusion from traditional sources of finance, increasing their access to finance could boost economic growth and job creation, while supporting financial stability.

  • Jordan has already taken several important steps. The passage of the Secured Transactions Law was particularly important for SMEs, as these firms typically do not possess valuable “fixed” assets that they can pledge as collateral. Similarly, passage of amendments to the Insolvency Law (and associated by-laws) was important as the insolvency framework plays a key role in shaping SME’s access to credit. Further, the provision of credit scores by Jordan’s new Private Credit Bureau reduces the cost of assessing a borrower’s creditworthiness. These efforts, among others, have recently been reflected in a significant improvement in Jordan’s Doing Business score on “access to credit”, where Jordan now ranks 4th globally.

  • Under the program, in 2020 the authorities will move proactively to put the new insolvency framework in place, training licensed insolvency practitioners and judges, establishing the Insolvency Committee, and operationalizing an electronic insolvency registry. The CBJ has established a new division in charge of promoting financial inclusion in Jordan, and in 2017 published a Financial Inclusion Strategy for 2018–20. The strategy includes the development of critical infrastructure, such as the credit bureau and payment system; enhancing digital financial services; and improving access to microfinance. In early 2020, the authorities will commission a study on financial inclusion in Jordan, to be completed by end-2020 (structural benchmark). This study will inform an updated strategy for 2021–23.

40. The program will promote job creation through broad-based labor market reforms, with a focus on measures to support youth and female employment (MEFP, ¶30).

  • To encourage formality, the authorities have explored new and more flexible arrangements for social-security contributions for youth and new hires—for example, amending the Social Security Law to allow for a temporary reduction in contribution rates for start-ups hiring new entrants to the labor market. While initially this lower contribution rate is envisaged to only apply to the agricultural and ICT sectors, it will be expanded to all economic sectors by end-June 2020 (structural benchmark).

  • To improve gender equality, in addition to amendments to the Labor Law allowing for more flexible work arrangements, the authorities have removed all references to gender that can be used to discriminate against women in Ministry of Labor instructions, and have amended key by-laws that had previously restricted working hours for women. The Labor Law also mandates that firms with more than 20 parent employees (men or women) provide daycare for children under five. The authorities are now working on by-laws and instructions that will clarify firms’ obligations in providing this care. These will be approved and circulated by end-June 2020 (structural benchmark). As an additional step towards ensuring gender equality in the work force, the authorities are working to enhance the quality and reliability of public transport.

41. A well-functioning public procurement system will help advance inclusive growth and service delivery through more efficient, transparent, and accountable public spending (MEFP, ¶32). In 2019, the authorities enacted a new Unified Public Procurement By-law, which provides for the establishment of a fully independent central policy and oversight unit, as well as an independent complaints-handling unit. These units will be set up in 2020. They will develop and clarify procurement criteria to ensure that bidding companies use only formal employees/subcontractors, and will develop a plan to set aside public procurement quotas for SMEs. The authorities are also progressively rolling out an integrated e-procurement system, which will cover all public institutions at the ministerial level as well as at municipalities by end-December 2021.

42. The authorities intend to improve the asset disclosure system to increase information sharing and transparency and to promote public trust. (MEFP, ¶33). The authorities will by end-December 2020 propose amendments to the Illicit Gains Law to require that all disclosures be submitted to the Jordan Integrity and Anti-Corruption Commission (JIACC); to ensure that all disclosure information is maintained within an electronic database that can be shared across relevant government agencies; and to allow more public access to basic financial disclosure information by public officials (structural benchmark). These measures are intended to increase public trust and accountability.

Program Financing and Modalities

43. Length and conditionality. Staff proposes a four-year extended arrangement under the EFF, with semi-annual reviews. This would be sufficient to cover the time needed to place debt on a downward path without undermining growth, while also providing sufficient time for reviews to cover the full implementation of structural reforms. The attached Letter of Intent and MEFP describe the authorities’ economic program and set out their commitments. The program will be guided by performance criteria and structural benchmarks. Staff proposes performance criteria for end-June and end-December 2020 as well as indicative targets for end-September 2020 and end-March 2021 (Table 1 of the MEFP). Structural benchmarks are well-calibrated and phased in line with the authorities’ implementation capacity (Table 2 of the MEFP). The program is flexible to accommodate unbudgeted spending pressures that may stem from efforts to prevent, detect, control, treat, and contain the spread of COVID-19.

44. Financing. Firm commitments of financing assurances are in place for the first twelve months of the arrangement, with good prospects thereafter. Jordan’s combined financing needs would be covered by:

  • Fund access. Staff proposes normal access of 270 percent of quota (SDR 926.37 million or about US$1.3 billion). Disbursements would be evenly spaced throughout the program period across eight program review. Fund purchases will be on-lent to the government.

  • Additional financing from donors. The external financing needs over the first twelve months of the program are projected to be fully financed (see table below), with good prospects thereafter in the form of additional loans (partly on concessional terms) and grants. Issuances of non-guaranteed Eurobonds in 2020 and 2022 are expected to rollover maturing guaranteed Eurobonds.

External Financing Gap and Sources, 2020–24

(In million of U.S. dollars)

article image
Source: Fund staff projections.

Purchases under EFF.

Financial support from France, Germany, Italy, Kuwait, Saudi Arabia and UAE.

45. Program risks and contingency plans. Given past experiences, there is some risk that there will be fiscal slippages. The program guards against these by requiring significant prior actions (see below). Improvements in tax collection are critical for medium-term fiscal adjustment. Assurance that these can be achieved is enhanced by the authorities’ requests for technical assistance from the Fund to improve their tax administration, and much of this TA has already been delivered. There are also contingent fiscal measures (notably a willingness to increase excises) if sufficient savings are not realized. If other risks materialize, including economic disruption caused by COVID-19, it will be important that donors also be prepared to step up their support for Jordan. If the impact from the COVID-19 outbreak is deep enough to put at risk meeting program targets, the program may need to be adapted to the changed circumstances.

46. To demonstrate their commitment to the new program, the authorities have agreed to take three prior actions:

  • Enactment of the 2020 general budget consistent with program understandings;

  • Passage of cabinet decision to prohibit the use of treasury cash resources other than in budgeted allocations and previously identified advances, including COVID-19-related emergency outlays and medical supplies and equipment; and

  • Issue a tender, based on terms of reference prepared in consultation with IMF staff, for an international accounting, consulting or legal firm to undertake a comprehensive review of the most significant PPA.

47. Capacity to repay the Fund is adequate. Fund credit outstanding will peak in 2024 at 2.6 percent of GDP, equivalent to around 8 percent of exports of goods and non-factor services and gross usable reserves. EFF repurchases peak at 0.9 percent of exports of goods and non-factor services and 1.1 percent of gross usable reserves in 2028, well below the corresponding values under past Fund-supported programs.

48. Safeguards assessment. An updated safeguards assessment of the CBJ should be completed by no later than the first review. Also, a Memorandum of Understanding between the CBJ and MOF on responsibilities for servicing financial obligations to the IMF will be updated.

Staff Appraisal

49. Since the Arab Spring Jordan has maintained economic stability but has been mired in low growth. Thanks to strong efforts by the authorities and the generous support of donors, Jordan has avoided a balance of payments crisis and has kept inflation low, even in the face of a succession of external shocks. But growth has been only around 2 percent for the last few years, and unemployment, especially among young people, has risen further. Meanwhile, public debt has continued to grow, in part because persistent fiscal slippages have resulted in fiscal adjustment repeatedly falling short of expectations.

50. Structural reforms are essential to raise growth without sacrificing hard-won stability. Fiscal policy is constrained by high public debt, while the authorities’ strong preference for maintaining the exchange rate peg imposes constraints on monetary policy. Thus, structural reforms are the key to raising growth, especially reforms to support the growth of the sophisticated manufacturing and services that Jordan needs to thrive. Key policies include simplifying procedures to make Jordan an attractive destination for investment; energy sector reforms to reduce business costs; and steps to increase access to labor markets and credit for women and young people.

51. Fiscal adjustment must continue, based on improved tax collection and making sure targeted subsidies go to those who need them most. Given public resistance to higher tax rates, it will be important to improve tax collection from those who do not pay. Revenue mobilization therefore needs to rely more squarely on a comprehensive effort to broaden the tax base, reduce tax exemptions, and level the playing field between the formal and the informal sectors. This will require an overhaul of the investment incentives framework, particularly the reform of the 2014 Investment Law, and a steadfast effort to improve tax administration. Similarly, collection of electricity and water tariffs needs to be improved and subsidies concentrated on those people who need them most. Technical assistance from the Fund can help in both areas, but unwavering and timely implementation of the envisaged high-quality fiscal measures and a willingness to take on entrenched interests is vital to reverse the marked slippages of the recent past.

52. Improvements in governance are needed to win back trust. Improvements in tax administration and public financial management are needed not just to improve budget outcomes but to increase public trust. An independent review of some of the costly decisions made in the electricity sector and greater openness in the asset disclosure process for public officials can also improve economic governance, and in the latter case reduce vulnerability to corruption.

53. The staff supports the authorities’ request for a four-year arrangement under the EFF. Risks to the program could arise from social discontent that causes economic disruption and policy missteps, and from adverse global and regional developments. These risks are ameliorated by the authorities’ strong commitment to the program, as evidenced by the completion of prior actions, and by the broad support of the international community for Jordan. Continued strong efforts by the authorities and support from Jordan’s partners will be essential to the success of the program.

54. It is proposed that the next Article IV consultation with Jordan take place on a 24-month cycle in accordance with the Decision on Article IV Consultation Cycles (Decision No. 14747-(10/96), as amended).

Jordan: Past Fund Staff Advice and Implementation

Macroeconomic policies were implemented with delays but broadly in line with past staff advice. Despite efforts, however, fiscal consolidation fell short of expectations, reflecting sizable revenue shortfalls— due to widespread weaknesses in tax administration, low-quality measures, delays in implementation, and some tax policy reversals—and public financial management deficiencies.

  • Improving the tax framework. Macro-critical measures, such as the reduction of sales-tax exemptions and amendments to the income tax law, have strengthened the tax policy framework. However, persistent weaknesses in tax administration, inability to tackle tax evasion and smuggling, and some tax policy reversals contributed to sizable revenue slippages over 2018–19. To reduce deviations from program targets, the authorities have often relied on low-quality measures, including cuts to capital spending and postponing the clearance of domestic arrears. Combined with delayed structural reforms, this has undermined growth.

  • Containing fiscal losses from utilities. The automatic electricity tariff adjustment mechanism has curbed NEPCO’s losses since end-2017, while protecting vulnerable people, but it has been unevenly implemented. Moreover, the recently-approved Roadmap Towards Financial Sustainability of the Power Sector aims to support NEPCO’s financial sustainability and to reform Jordan’s cross-subsidized tariff structure that penalizes some businesses. Implementation of the water-sector action plan has somewhat contained losses in this sector; but delays in a number of action-plan measures, together with higher electricity costs, suggest the need for refinements to the strategy.

  • Ensuring adequate reserve buffers to preserve the exchange-rate peg at a time of high regional and domestic uncertainty. Notwithstanding the persistently challenging regional environment, the CBJ has been able to maintain an appropriate monetary policy stance, geared toward ensuring adequate reserve coverage. The banking sector has remained well capitalized, provisioned, and profitable, despite a prolonged slowdown in economic activity.

Progress on structural reforms.

  • Fostering inclusive growth and job creation by generating a business environment more conducive to investment. Albeit with delays, the business environment has been strengthened through passage of the inspection, insolvency and secured lending laws. These laws, together with a fully operational credit bureau, will help facilitate access to finance for SMEs.

  • Strengthening the social safety net and addressing constraints to female labor market participation. A three-year program, developed in collaboration with the World Bank, has led to the expansion of the National Aid Fund’s cash-transfer program and improved its targeting. Several recent regulations have promoted flexible work arrangements and access to childcare services to boost female participation in the labor force.

  • Reducing payroll taxes. High social security contributions are regarded as a key impediment to formal employment. Recent amendments to the Social Security Law have paved the way for implementing a temporary reduction in contribution rates for targeted groups (long-timed recommended by staff).

Jordan: Electricity Sector Challenges and Prospects


Electricity tariffs were significantly increased for all Jordanian businesses to absorb the costs stemming from the 2010 gas-supply crisis. Since 2011, electricity tariffs more than tripled for mining and for the banking sector, increased by 165 percent for telecommunication, 154 percent for water pumping and by 100 percent for large industries. In the meantime, households’ tariffs were left unchanged for the first four tranches of consumption (up to 600 kWh per month; or about 70 percent of households) and were increased by 50 percent for the largest consumption tranche.

As a result, high electricity tariffs have become a binding constraint for growth. Businesses face electricity costs that are higher than those prevailing in the rest of the world. Such high tariffs have a significant impact on growth, as Jordanian industries are relatively energy-intensive.

Electricity tariffs by industry compared to other countries

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

The highly dispersed tariff structure entailed cross-subsidies amounting to 1.3 percent of GDP in 2018. Businesses providing the highest cross-subsidies include: commercial sector (0.3 percent of GDP), telecommunication (0.1 percent of GDP), and large industries, mining, hospitals, and ports (a total of 0.1 percent of GDP). In 2018, households received 1.0 percent of GDP in cross-subsidies. At present, all households regardless of their income receive subsidies for part of their electricity consumption.

NEPCO’s challenges and measures going forward

NEPCO’s costs are projected to significantly increase due to the coming on stream of an oil-shale PPA. Staff estimates that the PPA will add costs to NEPCO amounting to about 0.7 percent of GDP every year, leading NEPCO to register losses amounting to 0.5 percent of GDP in 2020 and to 0.4 percent of GDP over the medium term.

NEPCO’s operational balance

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

NEPCO is committed to implement measures to contain losses over the medium term. NEPCO’s revenues are expected to be supported by regional export agreements; increased bill collection; and renewable connection fees. NEPCO will also continue to contain its operational costs, underpinned by cost-savings measures from its LNG regasification and storage capacity, optimization of PPA contracts, and implementation of its debt optimization plan.

Jordan: Implications of Expanding the Public Sector Coverage for Assessing Debt Sustainability Risks


  • The appropriate coverage of public debt is pivotal to adequately assessing risks to public debt sustainability. Under existing Fund guidance (see Staff Guidance Note for Public Debt Sustainability Analysis (DSA) in Market-Access Countries), the coverage of public debt in the DSA should be as broad as possible, but should take into account the availability (and frequency) of fiscal data.

  • Coverage at the general government level (GG) is the most commonly used in DSAs for market-access countries. GG, as defined in GFSM 2014, is the perimeter of government that is expected to cover all entities that materially affect fiscal policies, consisting of: (i) government units of central, state, provincial, regional, and local government, and social security funds imposed and controlled by those units; and (2) non-market non-profit institutions that are controlled by government units.

  • The 2016 EFF monitored fiscal operations at an expanded central government level. Debt dynamics and gross financing needs (GFNs) reflected fiscal operations at the level of the central government and selected government units (NEPCO, WAJ, and water distribution companies), for which debt accrued as a result of public policy decisions. Lack of fiscal data at the frequency needed for program purposes prevented the inclusion of public sector units outside the expanded central government (e.g., the Social Security Corporation).

  • The 2020 EFF expands the coverage of public debt. The program aligns the coverage of public debt to a concept closer to the general government, by consolidating the holdings of government debt of the Social Security Corporation. However, the program will continue monitoring fiscal targets at the expanded central government level.

Social Security Corporation (SSC). The SSC—a fully state-owned corporation—runs a contributory, defined-benefit pension plan. Its assets are managed by the Social Security Investment Fund (SSIF). Contribution rates have increased from 16.5 percent in 2011 to 21.75 percent currently. Together with a high ratio of contributors to beneficiaries (about 10 to 1), the SSC is running an annual surplus of about 3½ percent of GDP. Its pension fund assets amount to 35 percent of GDP, with holdings of Jordanian government debt representing 19 percent of GDP in 2019. SSIF’s investment guidelines cap its investment in government debt at 60 percent of its total portfolio, with the ratio now at 55 percent. Based on the latest actuarial report under existing pension parameters, contribution income would equal total expenses in 2034, contribution and investment income would equal total expenses in 2041, and the pension fund assets would start declining thereafter.

Contribution rate


Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

SSC’s holdings of government debt

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

SSC’s revenues and expenses (percent of GDP)

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

Implications of the new debt coverage.

  • The new consolidated debt concept for DSA purposes would better reflect Jordan’s sustainability risks.1 The consolidation of the SSC’s operations would help reflect the underlying debt sustainability risks and liquidity pressures over the near- and medium-term. It would also allow for comparability and evenhanded reporting of Jordan’s debt burden with market-access countries, most of which report at the GG level.

  • However, program targets will continue to focus on the expanded central government coverage. Fiscal effort under the program will continue to be monitored and measured by the adjustment at the central government level, NEPCO and the government-owned water sector. This is more under the direct control of the authorities. Also, achieving targeted improvements in central government balances are essential for the central government to be able to meet its long-term obligations with the SSC.

Public Debt (percent of GDP)

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

1 Efforts continue in order to compile financial data from other government units and local governments at a high frequency, with support of Fund and donor technical assistance. The authorities have made available SSC financial data at the frequency needed for program purposes.
Figure 1.
Figure 1.

Jordan: Macroeconomic Developments Since 2017 Article IV

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

Sources: National authorities; IMF staff calculations
Figure 2.
Figure 2.

Jordan: Fiscal Performance Since 2017 Article IV

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

Sources: Haver, Bloomberg, national authorities, and IMF staff calculations.
Figure 3.
Figure 3.

Jordan: External Performance Since 2017 Article IV

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

Source: Central Bank of Jordan, Jordan Department of Statistics, and Fund staff estimates.
Figure 4.
Figure 4.

Jordan: Monetary and Financial Developments

Citation: IMF Staff Country Reports 2020, 101; 10.5089/9781513540306.002.A001

1/ Adjusted for core inflation. Sources: Jordanian authorities; and IMF staff estimates.
Table 1.

Jordan: Selected Economic Indicators and Macroeconomic Outlook, 2018–25

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Sources: Jordanian authorities; and Fund staff estimates and projections.

The Department of Statistics changed the methodology of the Survey of Employment and Unemployment in 2017 following ILO recommendations.

Includes other use of cash (i.e. off-budget expenditures).

Estimated amount of fiscal measures that are need to meet the programmed fiscal adjustment.

Includes statistical discrepancy.

Defined as the sum of the primary central government balance (excl. grants and transfers to NEPCO and WAJ), NEPCO operating balance, WAJ overall balance, and, starting in 2019, Aqaba, Miyahuna, and Yarmouk Water Distribution Companies overall balance.

Government’s direct and guaranteed debt (including NEPCO and WAJ debt). SSC stands for Social Security Corporation. The authorities securitized domestic arrears amounting to 2.3 and 0.3 percent of GDP in 2019 and early 2020, respectively, part of which was previously assumed to be repaid over a three-year period.

Data from the 2017 Revision of World Population Prospects of the UN population division.

INS data. CBJ staff’s estimates, based on updated trade weights, shows a more moderate pace of real appreciation over the past few years.

Table 2a.

Jordanian Central Government: Summary of Fiscal Operations, 2018–25 1/

(In millions of Jordanian dinars)

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Sources: Jordanian authorities; and IMF staff estimates and projections.

Starting 2019, the fiscal accounts consolidate the operations of 29 government units, with a neutral impact on the overall balance.

Unidentified fiscal measures that will need to be implemented to meet program targets.

Includes net issuance of domestic FX bonds.

Primary government balance excluding grants and transfers to NEPCO and WAJ, plus NEPCO operating balance, WAJ overall balance, and starting in 2019, water distribution companies overall balance.

Table 2b.

Jordanian Central Government: Summary of Fiscal Operations, 2018–25 1/

(In percent of GDP)

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Sources: Jordanian authorities; and Fund staff estimates and projections.

Starting 2019, the fiscal accounts consolidate the operations of 29 government units, with a neutral impact on the overall balance.

The decline in the sales tax ratio reflects the impact of specific fixed excises over the projection period.

Unidentified fiscal measures that will need to be implemented to meet program targets.

Includes net issuance of domestic FX bonds.

Primary government balance excluding grants and transfers to NEPCO and WAJ, plus NEPCO operating balance, WAJ overall balance, and starting in 2019, water distribution companies overall balance.

Table 2c.

Jordanian Central Government: Summary of Quarterly Fiscal Operations, 2018–20

(In millions of Jordanian dinars)

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Sources: Jordanian authorities; and Fund staff estimates and projections.

Unidentified fiscal measures that will need to be implemented to meet program targets.

Includes net issuance of domestic FX bonds.

Primary government balance excluding grants and transfers to NEPCO and WAJ, plus NEPCO operating balance, WAJ overall balance, and, starting in 2019, water distribution companies overall balance.