Jordan: 2022 Article IV Consultation and Fourth Review Under the Extended Arrangement Under the Extended Fund Facility, Request for Augmentation and Rephasing of Access, and Modification of Performance Criteria-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Jordan
Author: International Monetary Fund. Middle East and Central Asia Dept.
Publication Date:
18 Jul 2022
eISBN:
9798400215551
Language:
English
Keywords:
Jordanian dinar; IMF staff estimate; water distribution company; IMF staff calculation; excess reserves; Global
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1. The pandemic is subsiding, after an Omicron surge in early 2022. Jordan has been hit hard by the pandemic, and has experienced the sixth highest death rate among MCD countries to date. However, as of May 12, daily new COVID cases had fallen to less than 100 from a peak of 20,000 in February. While some restrictions, including school closures, were re-introduced at the start of the year, nearly all COVID-related restrictions were lifted by the start of Q2. The vaccination rate has plateaued around 47 percent, and remains below the regional average, given vaccine hesitancy, a young population, and limited use of vaccine mandates.

Abstract

1. The pandemic is subsiding, after an Omicron surge in early 2022. Jordan has been hit hard by the pandemic, and has experienced the sixth highest death rate among MCD countries to date. However, as of May 12, daily new COVID cases had fallen to less than 100 from a peak of 20,000 in February. While some restrictions, including school closures, were re-introduced at the start of the year, nearly all COVID-related restrictions were lifted by the start of Q2. The vaccination rate has plateaued around 47 percent, and remains below the regional average, given vaccine hesitancy, a young population, and limited use of vaccine mandates.

Context

Recent Developments

1. The pandemic is subsiding, after an Omicron surge in early 2022. Jordan has been hit hard by the pandemic, and has experienced the sixth highest death rate among MCD countries to date. However, as of May 12, daily new COVID cases had fallen to less than 100 from a peak of 20,000 in February. While some restrictions, including school closures, were re-introduced at the start of the year, nearly all COVID-related restrictions were lifted by the start of Q2. The vaccination rate has plateaued around 47 percent, and remains below the regional average, given vaccine hesitancy, a young population, and limited use of vaccine mandates.

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COVID-19 Outbreak, Containment, Response, and Mobility

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: Our World in Data; Google COVID-19 Community Mobility Reports; and IMF staff calculations

2. A post-pandemic recovery is in train, but unemployment remains very high implying a challenging socio-economic backdrop. 2021 growth was 2.2 percent, 0.2 ppt. above third review projections, owing to a stronger rebound in manufacturing and mining. The output gap is estimated at -2.5 percent in 2021, to be closed gradually by 2026. Unemployment remained stubbornly elevated at 23.3 percent (compared to 19 percent in 2019), with youth unemployment still over 50 percent.

3. The authorities have limited the pass-through of rising fuel and food prices. Inflation in 2022Q1 was low at 2.3 percent, reflecting weak domestic demand as well as limited passthrough of rising global commodity prices thus far, but has picked up to 3.6 percent y-o-y in April. Jordan’s strategic wheat reserves, at 12 months, have shielded the authorities from having to import wheat at elevated prices after Russia’s invasion of Ukraine. Moreover, Jordan’s long-term stable-price import contracts for gas used in electricity generation have also mitigating passthrough. Jordan is, however, an oil importer, and oil derivatives prices have surged 30 percent since the start of the war in Ukraine. In response, the authorities decided to re-introduce blanket fuel subsidies in February (reversing a decade-old reform), to mitigate passthrough to households.

4. The 2021 current account deficit (CAD) came in at 8.8 percent of GDP, 1 ppt. tighter than envisaged in the third review. Although intermediate, capital goods, and energy-related imports exceeded third review expectations, this was dominated in 2021 by the overperformance in private transfers, tourism receipts (still less than half of pre-COVID levels), and fertilizer-related commodity exports buoyed by global prices. Consistent with the lower CAD, but also due to retrenchment of commercial banks’ net foreign assets (NFA) and large positive errors and omissions (potentially related to under-reported remittances), reserves reached 115 percent of the reserve adequacy metric (ARA) at end-2021. Staff’s external balance assessment suggests that Jordan’s external sector position is broadly in-line with the level implied by fundamentals and desirable policies (Annex II).

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Sources: National authorities; Bloomberg; Our World in Data; and IMF staff calculations.
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Sources: National authorities and IMF staff calculations.

Program Performance

5. Considerable progress has been made since the March 2020 AIV/EFF approval, notwithstanding multiple challenges.

  • Jordan entered the pandemic period having already faced multiple adverse external shocks over the previous decade, notably, the GFC, the disruption of Egyptian gas supplies in 2011, the closure of borders with Iraq and Syria, and the accompanying refugee crisis. Accordingly, FDI, exports, and growth had taken a major hit over 2011-19, and unemployment and public debt had increased significantly (to 19 percent, and 78 percent of GDP, respectively) by 2019. Education, health, water and infrastructure in general were under pressure due to the influx of Syrian refugees, who added about 15 percent to Jordan’s population.

  • The COVID-19 pandemic added significant headwinds to these pre-existing challenges. The program was recalibrated to provide space for critical spending to protect lives and livelihoods, and structural conditionality was rephased. This enabled the authorities to provide targeted economic support while maintaining overall fiscal and financial discipline. Importantly, they carried out important reforms, including delivering the long overdue adjustments in electricity tariffs to reduce cross-subsidization by businesses (delayed from the 2016 SBA); and legislative and administrative measures to broaden the tax base by closing loopholes and reducing evasion. This successful implementation appears to have reflected (i) the authorities’ very strong program ownership and drive (reforms included in the program have been aligned closely with the authorities’ own priorities, notably in the area of public finances); (ii) the careful design and sequencing of conditionality, including flexibility to reset conditions when capacity was affected by the spread of COVID-19; and (iii) the provision of adequate TA and ground support (Annex IV).

7. Key quantitative targets for this review have been met (MEFP Table 1). The primary deficit and combined public deficit QPCs, adjusted for unbudgeted COVID spending (0.5 percent of GDP) and grants overperformance (0.1 percent of GDP), were each met by a margin of ½ percent of GDP. December 2021 QPCs on non-accumulation of external arrears and on NIR, as well as the ITs on SSC net financing, on public debt stock, and on NDA, were all met, and the floor on social spending was surpassed by 0.3 percent of GDP (IT). However, NEPCO, WAJ, and water distribution companies continued to accumulate arrears, and consequently related ITs were not met in December 2021 or in March 2022; all other March ITs were met.

8. Strong progress on structural conditionality has continued under this review (MEFP Table 2). The authorities have implemented two important reforms: rollout of new electricity tariffs for businesses and households (March 2022 SB met); and parliamentary approval of legislation to bring ASEZA’s tax and customs functions within national systems (March 2022 SB implemented with delay). Earlier, the cabinet approved the amended Procurement Bylaw (December 2021 SB met). The draft law on Regulating the Investment Environment and Doing Business, which includes a chapter on investment that sets out a new regime on the governance of incentives, has not yet been submitted to parliament (May 2022 SB not met), but the process is under way and the law is expected to be tabled for discussion in the 2022 summer extraordinary session (SB reformulated and reset to August 2022). Recruitment for the new macro-fiscal unit (MFU) at MOF is almost complete, with two division heads and four staff hired; two remaining hires are expected over the summer (SB due Jan 2022, not met). The MFU has produced and shared with staff its first report on the macro-fiscal outlook and risks ahead of schedule (June 2022 SB met). In addition, the FCCL unit has gathered key financial and non-financial information on three major PPPs, and all new PPPs, and is expected to publish explicit fiscal costs and fiscal risks (as feasible under confidentiality limitations) on schedule (June 2022 SB).

Outlook and Risks

9. Growth in 2022–24 is expected to be slower than envisioned at the third review. GDP growth in 2022 is projected at 2.4 percent (down from 2.7 percent in the third review), reflecting Omicron-related restrictions in Q1, tighter monetary conditions and higher commodity prices, mitigated by offsetting effects of higher oil prices on remittances and tourism from GCC countries. Growth for 2023 and 2024 has been marked down to 2.7 percent and 3.0 percent, respectively (from 3.1 percent and 3.3 percent in the third review), as a challenging external environment is expected to weigh on the recovery beyond 2022. Medium-term growth is projected to remain unchanged at 3.3 percent, as the negative output gap closes, and structural reforms boost potential growth (see SIP). Higher commodity import prices will raise 2022 and 2023 inflation from 2.5 percent to 3.8 percent and 3.0 percent, respectively, before settling back at 2.5 percent in 2024. The CAD is expected to reach 6.7 percent of GDP in 2022, two percentage points higher than expected at the time of the third review, on account of the higher commodity prices, and despite the expected recovery in tourism and remittances. Given the sustained nature of the terms of trade shock, the CAD is now projected to settle at around 3½ percent of GDP in the medium-term, one percentage point higher level than in the third review. Public debt-to-GDP is projected to fall from 91.9 percent in 2021 to 91 percent in 2022, and then to 80 percent by 2027 (as discussed later a more gradual decline than in the third review, where the 80 percent target was projected to be reached in 2025).

10. Risks to the outlook stem from increased economic scarring from the pandemic and a more challenging external environment (Annex III, Risk Assessment Matrix). The impact of the pandemic on growth and unemployment—in the context of global economic headwinds,—and limited policy space—could be deeper and more lasting than expected, with attendant implications for socio-economic stability and reform momentum. Faster/larger-than-expected Fed interest rate hikes could weaken global growth and tighten global financial conditions, with knock-on effects on Jordan’s risk premia and capital inflows. If the surge in commodity prices is larger/more permanent, including due to a prolonged war in Ukraine, it will add to external and fiscal pressures. Inflationary pressures from passthrough of higher commodity prices could produce a popular backlash, especially if the vulnerable are not adequately protected through targeted support. Climate change could exacerbate already-dire water scarcity, necessitating fiscal outlays exceeding the amounts envisaged in the baseline. Global and regional geopolitical tensions could undermine stability and vital economic ties. Upside risks include potentially higher grants from the U.S., additional remittances and support from oil-rich GCC countries, and a major pick-up in exports, notably electricity.

Policy Dicussions

Discussions focused on near-term policies under the program, and—in the context of the Article IV Consultation—on medium-term challenges and policy options. Given a still-fragile recovery and high unemployment, as well as the more difficult global landscape, the key questions centered around: (I) implications of the emerging conjuncture for the 2022 fiscal targets, and the medium-term fiscal strategy, including the case for a more phased consolidation path; (ii) the appropriate monetary policy response to Fed tightening, and measures needed to preserve financial stability; (iii) reforms in the electricity and water sectors, including to address water scarcity, Jordan’s key climate adaptation challenge; (iv) structural reforms to boost potential growth, competitiveness, governance, and employment (especially via higher female labor participation) over the medium-term; and (v) the financing strategy—including a Fund augmentation/rephasing, alongside stepped-up donor support—to close the 2022–23 funding gap.

A. Fiscal Strategy: Entrenching the Recovery, Protecting the Vulnerable, While Safeguarding Debt Sustainability

11. The authorities’ fiscal strategy, anchored by efforts to close tax loopholes and combat tax evasion, is bearing fruit. On the back of recently implemented legislative reforms aimed at broadening the tax base, as well as administrative efforts (notably ISTD’s compliance campaign), domestic revenues overperformed 2021 projections by 0.5 percent of GDP, with tax revenues up 13 percent y-o-y. These efforts, together with contained non-priority current spending, created space for increased social spending (up by 0.6 percent of GDP relative to 2020) and a strong rebound in capital spending, both essential to supporting an inclusive recovery. The revenue momentum helped deliver a significant consolidation in the central government primary deficit (excluding grants) of 1.2 percent of GDP relative to 2020; public debt, nonetheless, continued to increase, reaching 91.9 percent of GDP at end-2021, underscoring the need for a gradual fiscal consolidation. Revenue momentum has continued into 2022Q1.

Near Term

12. Measures to mitigate the impact of high commodity prices on households have created significant fiscal costs. The temporary re-introduction of untargeted fuel subsidies through freezing prices at the pump for all oil derivatives from February to end-April has cost [0.5] percent of GDP. To protect public finances, the authorities have begun to phase out the subsidies starting in May; announcing as a Prior Action (i) a 6 piastre increase in the price of 95 octane gasoline for the month of June, and the full removal of the subsidy by end-August 2022; (ii) their commitment to remove fuel subsidies on all other oil derivatives by end-2022, while protecting the most vulnerable through targeted support. Moreover, a cabinet decision will be issued to contain (i) the 2022 fuel subsidy cost to JD 350 million, and (ii) the 2022 primary deficit (excluding grants) to 3.4 percent of GDP (new proposed August 2022 SB). In addition, while Jordan has relied on its large strategic wheat reserve to shield itself from the surge in global food prices, the wheat subsidy is expected to increase by 0.1 percent of GDP as these stocks are replenished later in the year. Lastly, social spending is expected to be JD 30 million (0.1 percent of GDP) higher than third review projections, given the elevated demand for NAF’s programs.1

13. The 3.4 percent of GDP primary deficit (excluding grants) target for 2022 set at the third review is still within reach.2 The target implies a notable (1.1 ppt.) y-o-y improvement in the primary balance (excluding grants). Higher spending on subsidies and social protection (by 1.2 percent of GDP compared to the third review) is expected to be offset by (i) stronger revenue performance by 0.25 percent of GDP; (ii) adjustment in the real estate registration tax, which will generate an additional 0.15 percent of GDP; (iii) a 0.2 percent of GDP claw back of overpaid transportation costs from oil marketing companies; and (iv) an expected deferral of 0.6 percent of GDP in non-priority spending, while still keeping capex at its 2021 percent of GDP level.

14. The authorities are making progress toward critical fiscal structural reforms, despite some delays. In January 2022, the Cabinet approved a major customs reform which simplifies and unifies the tariff system by reducing the number of tariff brackets from 16 MFN rates and 31 bound rates to just four (three after 2028); the reform is expected to reduce tax evasion and corruption, but also to lower customs revenue (by 0.3 percent of GDP) in the near-term due to a lower average tariff. Efforts to integrate digital and administrative systems to facilitate bringing ASEZA under the single tax and customs administrations are under way. Draft amendments to adopt GST place-of-taxation rules are expected to be tabled for discussion in the 2022 extraordinary session (new July 2022 SB).

15. Fiscal risks bear close monitoring.

  • The new MFU is assisting MOF in monitoring public balance sheet risks. The unit will prepare and publish a Fiscal Risk Statement with the 2023 budget, including a fiscal risk analysis of four major SOEs (see MEFP para 11).

  • To further limit the incurrence of fiscal risks related to PPPs, the authorities are (i) continuing a campaign to adequately staff the Fiscal Commitments and Contingent Liabilities Unit (FCCL) at MOF; (ii) working toward launching the electronic version of the National Registry of Investment Projects (NRIP) by end-2022 in order to ensure proper selection and management of projects; and (iii) coordinating work between the Project Management Unit (PMU) at MOPIC and the PPP unit at MOF to gather information on all major planned PPP projects to incorporate in the NRIP. The authorities will include all new PIPs from the 2023 General Budget in NRIP. Continued coordination and information sharing between the FCCL, the PMU, and the PPP unit, is essential for fiscal risk management.

  • Monitoring the financial performance of large public corporations and subnational governments is critical to containing risks. During the pandemic, contingent liabilities related to Royal Jordanian (RJ) airlines materialized (via the use of ‘comfort letters’). While the return of tourism is expected to improve RJ’s revenues, surging commodity prices may delay the return to a financial surplus and the government is considering a further capital injection of JD 70 million in 2022. GAM is also expected to continue running deficits, and the next phase of the rapid bus transit project will involve significant costs. Provision of government support to public enterprises or local governments should be measured and conditional on credible plans to increase operational efficiency.

Medium Term

16. Given the challenging outlook, a more gradual medium-term fiscal consolidation path can help entrench the recovery. In light of the global economic headwinds, monetary tightening, residual economic slack (which, together with the peg, implies a high fiscal multiplier), and high unemployment, the rapid reduction of the central government primary balance (excl. grants) envisioned at the third review could impart a significant drag on growth. Accordingly, a revised pace of consolidation averaging 0.8 percent of GDP per year over the medium-term is proposed; this pace would imply reaching a zero primary balance by 2027. The revised targets will allow the authorities to better support the recovery, continue to strengthen social protection schemes, and advance growth-enhancing capital spending.

Central Government Primary Balance

(In percent of GDP, excl. grants)

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17. The proposed fiscal consolidation path safeguards debt sustainability. The new path of fiscal adjustment maintains debt on a firmly downward trajectory, with risks to debt sustainability remaining elevated but manageable given available buffers. Under the new path, general government debt would fall to below 80 percent of GDP by end-2027 and below 85 percent of GDP by end 2025. Risks are further mitigated by (i) overperformance of the Social Security Investment Fund (SSIF), which has ample balance sheet-space to take on more government debt over the medium term (see Annex I); (ii) the increased horizon for surpluses by the Social Security Corporation (see Annex I) and (ii) expectations of continued robust donor financing at favorable terms.

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Public Debt

(Percent of GDP)

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Source: National authorities and IMF staff calculations

18. To support the credibility of their fiscal program, the authorities have identified and committed to additional high-quality revenue and expenditure reforms to close the medium term fiscal gap. Reforms already implemented during the program period will support continued revenue momentum and, together with the unwind of COVID-related spending, will underpin a significant decline in deficits over the medium-term. Nonetheless, additional discretionary measures of 1.7 percent of GDP will be needed to meet the envisaged targets (see MEFP para. 11, and Annex V). In this regard, the authorities have identified a number of revenue and spending measures to be implemented in the context of the program:

  • Given Jordan lagged several peers in tax revenue collection prior to the start of the program, revenue measures will continue to center around tax base broadening, including efforts to (i) broaden the income tax base by rationalizing tax incentives and improving tax compliance by the ‘professionals and self-employed’ sector; (ii) broaden the GST base via introducing place of taxation rules, rationalizing new GST incentives, and reduced smuggling following the recent customs reform; (iii) close key tax loopholes by implementing legislation bringing ASEZA within the national tax and customs systems. These reforms, to be implemented by leveraging the authorities’ FAD-supported revenue mobilization plan, are expected to produce an additional 0.4 (1.2) percent of GDP in revenues by 2024 (2027). Introducing a digital track-and-trace system for alcohol companies (new proposed June 2023 SB), in addition to all cigarette companies, is expected to generate a further 0.1 percent of GDP in revenues by 2024.

  • Expenditure measures will include efforts to (i) roll out e-procurement (JONEPS) to the Education and Health Ministries (December 2022 SB), and to the broader public sector, (ii) contain the growth of the public wage bill while enhancing public sector; and (iii) improve the efficiency of health care spending. Jordan has higher spending on health than MENA and EM peers, and lower out of pocket costs, which, in a context of relatively low insurance coverage, reflects the high (and poorly targeted) use of exemptions for the uninsured (see Annex V). The reduction in current spending resulting from these reforms could also help Jordan recalibrate its expenditure composition toward growth-enhancing investment, in line with fast-growing EMs.

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Composition of Health Spending

(Percent of GDP)

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Source: World Bank HealthStats and IMF staff calculations

If these reforms prove to be insufficient to deliver the envisioned path of consolidation, the authorities are committed to implementing additional reforms as needed. In this context, the authorities will seek FAD support to explore the potential for enhancing the framework for capital income taxation, improving property tax assessment and collection practices, and optimizing tax incentives based on the results of the upcoming tax expenditure analysis.

Expected Sources of Medium-Term Fiscal Consolidation

(Estimated yield, in percent of GDP)

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B. Ensuring Monetary Stability and Financial Sector Resilience

19. The CBJ has successfully preserved financial stability through the pandemic, including by maintaining robust international reserve buffers. Confidence in the financial system remains strong: deposit dollarization reached its lowest level of 19 percent in recent years as of 2021,3 reflecting robust JD deposit growth and official inflows (including the $469 million SDR allocation), and a significant retrenchment of banks’ net foreign assets (NFA) driven by a rise in non-resident deposits. Accordingly, this allowed the CBJ to be a net foreign exchange (FX) buyer in 2021.4 Consistent with these developments, the December 2021 and March 2022 QPCs on NIR were met by comfortable margins. The revised NIR path for 2022–23 reflects both the higher-than-expected stock of NIR to date, but also larger current account deficits, while continuing to ensure reserves above 100 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric (the authorities’ operational benchmark for reserve adequacy). The ITs on net domestic assets (NDA) of the CBJ for December 2021 and March 2022 were also comfortably met, reflecting the gradual unwinding in 2021 by CBJ of its elevated reverse repo position built up in 2020 at the height of the pandemic. Meanwhile, private sector credit growth slowed, but to a still-healthy level of around 5 percent y-o-y in 2021 and 5.7 percent y-o-y in March 2022.

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FX Reserves

(USD millions)

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: National authorities and IMF staff calculations.
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Base Money Growth & Contributions from NFA and NDA

(Percent, year-over-year. March 2022) 1/

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: IMF Integrated Monetary Database and IMF staff calculations.1/Jordan and UAE data are for Feb 2022.

Near Term

20. Monetary policy will be focused on protecting the hard peg to the U.S. dollar.

  • Jordan's peg to the U.S. dollar, backed by adequate international reserves, has served as an effective anchor for macroeconomic stability through a series of adverse exogenous shocks. The CBJ generally responded 1-to-1 to Fed rate hikes during 2004–06 and 2015–19, with only small and temporary deviations along the path. Consistent with that, the CBJ matched the 25 and 50 bps increases in Fed interest rates in March and May 2022, respectively; interest rates on all CBJ monetary policy instruments were raised, except the two subsidized lending schemes (see below). To credibly protect the peg, it would be important that the CBJ continues to undertake the necessary monetary policy adjustments in response to Fed actions. Operationally, this will imply continuously maintaining adequate reserve buffers—defined by the CBJ as above 100 percent of the Fund’s ARA metric.

  • CBJ’s responses should remain data-driven at all times. In particular, the CBJ will need to remain alert to sudden BoP pressures, e.g., in the event of a sharper/faster-than-expected U.S. monetary tightening, and be ready to adjust policy rates (or other tools) sufficiently to maintain confidence in the peg.

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Fed Funds Rate and CBJ Policy Rates

(Percent)

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

21. The CBJ’s subsidized lending schemes have provided helpful support to businesses thus far, but should be unwound as the recovery gets entrenched. In March 2022, to mitigate the impact of Ukraine war on commodity imports, the CBJ lifted the borrowing limits under the JD 700 million SME scheme for firms who import basic commodities (e.g., wheat, sugar, oil) (MEFP¶17). In addition, in light of the still-nascent recovery, high unemployment, and the central role SMEs play in job creation, the CBJ has extended the scheme from June to September 2022.5 However, demand for this scheme started to decrease in 2021Q2, and has continued to fall with the full reopening of all economic sectors this year. The duration of the other subsidized lending scheme of JD 1.3 billion, introduced in 2012 to support vital economic sectors, has also been extended by a year to March 2023. Going forward, these schemes should become more targeted and be phased out as the recovery gains momentum. To this end, the authorities have indicated their intention to unwind the SME scheme as the recovery consolidates, and no later than 2023, and to review the interest rate on the JD 1.3 billion scheme over the medium-term in light of CBJ’s monetary policy stance and evolving economic conditions.

22. The banking system has remained healthy, but asset quality bears close monitoring. The banking system’s capital adequacy ratio remained strong at 18 percent in 2021, well above the regulatory minimum of 12 percent. The CBJ has also maintained stringent provisioning standards, in line with the IFRS9’s forward-looking expected loss approach. Bank profits have recovered back to their pre-pandemic level, as most of the provisioning had already taken place in 2020. NPLs have slightly decreased to 5 percent given write-offs concentrated in some banks. However, given the debt deferment period for affected borrowers expired in 2021, it will likely take time for the asset quality effects of the pandemic to fully manifest. Accordingly, there is a need for continued close monitoring of banks’ asset quality, and sustained application of prudent accounting, reporting, and provisioning standards. Should downside risks materialize, the CBJ should ensure that banks swiftly resolve NPLs, while requiring weaker banks to prepare timely and feasible capital restoration plans.

Bank Soundness Indicators

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Source: Central Bank of Jordan.

23. The CBJ has continued to work on strengthening its prudential supervision of the financial sector (MEFP¶20-¶21). In June 2021, the supervisory responsibilities in respect of the insurance sector were transferred to the CBJ. In this context, the CBJ will develop of a risk-based solvency regime to ensure the safety and soundness of the insurance sector in line with international best practices (new SB for June 2023).6 The authorities also plan to improve effectiveness and efficiency of onsite inspection operations and procedures through implementing an Inspection Management System (IMS).7

Medium Term

24. The monetary transmission mechanism can be further strengthened. Since 2000, the CBJ successfully kept the interbank rate within the interest rate corridor (IRC), i.e., between the overnight deposit window rate (floor) and the overnight repo rate (ceiling).8 In the presence of large excess reserves, the effective policy rate (the one driving short-term market rates) has become the deposit facility rate. Staff recommends offering 7-day absorption instruments at the policy rate with full allotment. This would ensure the absorption of all excess reserves that banks do not wish to keep for precautionary reasons, and strengthen the role of the policy rate, with attendant benefits for monetary transmission.

25. Enhancing the regime for Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) is a priority (MEFP¶22). Notwithstanding the enactment of a new AML/CFT law in September 2021, Jordan was placed on the Financial Action Task Force (FATF)’s watch list in October 2021 (consistent with the results of the 2019 mutual evaluation). Since then, the authorities have made good progress and have completed the assessment to identify non-profit organizations that are vulnerable to terrorist financing abuse; and have also addressed AML/CFT deficiencies such that Jordan would no longer qualify for referral to the FATF’s ICRG process on the basis of its technical compliance ratings (SB for June 2022). Furthermore, the authorities have committed to an action plan for resolving the identified strategic deficiencies to facilitate exit the watch list by October 2023 (SB for October 2023).

26. The ongoing joint IMF/WB FSAP will help identify financial sector vulnerabilities and measures to address them. It will take stock of progress made on the 2008 FSAP recommendations, and assess: key vulnerabilities and risks to the financial system as the economy recovers from the pandemic; resilience of the banking system to shocks; and how best the financial sector can align with the priorities of the real economy. Separately, the authorities are leveraging Fund TA in policy modeling, central bank digital currency, risk-based banking supervision, and requested TA on forecasting excess reserves and strengthening monetary and BoP statistics (MEFP ¶25–26. In this context, the CBJ will implement an FDI survey to improve the BoP statistics (new SB for October 2022) which will help to better understand the composition of capital flows and reduce errors and omissions.

C. Reforming the Electricity and Water Sectors

Electricity Sector Reforms

27. A new electricity tariff system has been implemented reducing cross subsidization. The reform, designed to be revenue-neutral for NEPCO, reduces electricity tariffs for key business sectors and reforms the household tariff system in a progressive manner. Around 1.1 million households (or 90 percent of total eligible households) have applied for subsidies through the online platform launched this January. Transitional subsidies for six months will be provided to the 32,000 most vulnerable Syrian refugee households identified by the UNHCR; donor assistance will be needed beyond this period to continue electricity subsidies for refugees.9

28. NEPCO’s financial position remains difficult despite a markdown in the loss expected for 2022. NEPCO’s losses were contained at around ½ percent of GDP in 2021, including due to robust electricity consumption. Projected consumption for 2022 is being marked-up by 2.7 percent relative to the third review, aided also by the new lower electricity tariffs for businesses. Moreover, NEPCO’s long-term supply contracts for natural gas and relatively high renewable power capacity are expected to largely shield it from the surge in global fuel prices in the near-term. Accordingly, NEPCO’s deficit is projected to decline to 0.3 percent of GDP in 2022, due to stronger electricity consumption, and unanticipated delays in the Attarat oil shale project. However, NEPCO’s stock of arrears stood at JD 100 million by end-March 2022 (December and March ITs not met), and looking ahead, NEPCO’s financial losses are expected to increase to 0.7 percent of GDP in 2023, before falling to 0.4 percent over the medium term.

29. Restoring NEPCO’s financial viability requires continued reforms. The Financial Sustainability Roadmap for the electricity sector, being developed in consultation with international partners, will lay out measures to improve NEPCO’s operating balance. Revenue-enhancing measures include introducing Time of Use tariffs, installing meters for all houses connected to the grid, and increasing exports to neighboring countries. If global energy prices and the cost of electricity generation rise materially above staff’s baseline, consideration would also need to be given to adjusting electricity tariffs toward cost recovery levels to protect NEPCO finances. Cost-reducing measures include reducing the costs of LNG storage and regasification, improving electricity storage, and optimizing costs related to PPA commitments. Governance reforms, supported by EBRD, to strengthen accountability will also help to improve NEPCO’s operational efficiency.

Water Sector Reforms

30. The financial position of WAJ and water distribution companies remains challenging. Jordan is one of the most water scarce countries in the world, and making water available and affordable gives rise to combined losses of 1.2 percent of GDP in the water sector, in line with program expectations. Despite regular transfers from MOF, WAJ and distribution companies have continued to incur arrears in 2021—the total stock of arrears of WAJ and the water sector were JD 90 million and JD 152 million at March 2022 (December and March ITs not met). The water sector’s deficit is expected to decline slightly to 1 percent of GDP in 2022 as bill collections improve.

31. The authorities are taking measures to address water scarcity and improve the financial sustainability of the water sector. Available water is projected not to suffice to cover Jordan’s future needs. In view of this, a Financial Sustainability Roadmap for the water sector—prepared with international partner assistance – is expected to be adopted by August 2022, and will encompass:

  • Aqaba-Amman Conveyance (AAC) project. This will be one of the largest public projects in Jordan, aiming to desalinize and transport water from the port of Aqaba to Aman’s main metropolitan area. As agreed in the third review, the authorities are de facto subjecting the ~US$2.5 billion PPP project to the requirements of the new PPP law, notably, a robust FCCL analysis, transparent RFP process, and open bidding. RFPs were issued to five pre-qualified consortiums in February 2022, and a donor conference in March yielded pledges of US$1.8 billion for the project. Fiscal costs during the build stage are assumed to be US$70 million annually over 2023-2027 in staff’s baseline, but long-term fiscal risks are sizable, as the government is guaranteeing service payments of at least 1 percent of GDP annually for 21 years from 2028, the year the project is expected to come online (see Appendix VI for projections of AAC’s long-term fiscal implications).

  • Non-revenue water (NRW) reduction. A National NRW Strategy will be adopted by September 2022 to reduce non-revenue water from the current level of 50 percent of total water supplied to 40 percent and 25 percent by 2030 and 2040, respectively. An investment plan of US$1.8 billion under a PPP structure, supported by donor grants and concessional loans, will be implemented over 2023–40 to achieve this target. The direct costs incurred by WAJ, estimated at US$70 million annually over this period, are now included in staff’s baseline.

  • Other measures. The authorities are also exploring other reform areas to conserve water and reduce the sector’s deficits, including agricultural water allocation and licensing, electricity use efficiency, wastewater treatment and reuse options, the tariff structure, and debt optimization.

D. Structural Reforms to Strengthen Employment, Investment, and Governance

32. Addressing impediments to female participation and youth employment and reducing labor market segmentation are critical for enhancing inclusive growth. Despite closing gender gaps in health and education, Jordan has one of the lowest female labor force participation rates in the world (see chart below, and Annex IV). To support female labor force participation, the government has issued revised instructions to businesses on childcare provision for female employees and completed the Amman BRT project to provide safe and affordable transport to women (MEFP ¶12). The government has launched a National Employment Program to support 60,000 new private sector jobs for the youth. The streamlining of work permits for Syrian refugees— allowing them to work across sectors open to non-Jordanians without being tied to a specific employer—is supporting formality and productivity. But further action is needed in these areas:

(i) Increasing female labor force participation and enhancing gender equality:

  • Supporting a safe workplace environment. Enacting the necessary amendments to the Labor law would enhance protection for women in relation to harassment and violence in the workplace. The proposed amended law also removes restrictions on female employment in certain professions and industries. The authorities will table these amendments for discussion in parliament (new proposed SB for November 2022).

  • Supporting financial incentives for women to work in the formal sector including equal pay and social security benefits. Women on average receive 17 percent less wages than men for the same work, suggesting the need for better enforcement of anti-discrimination laws on pay. Survivor benefits differ between female and male-led households, with husbands ineligible for benefits unless they have disabilities. The Social Security Corporation (SSC) is considering options to close this gap.

  • Supporting women in leadership roles. While women make up an equal share of the public sector workforce, they are notably under-represented in decision and policy making roles. The government is working to improve the representation of women on the boards of SOEs.

(ii) Addressing labor market segmentation:

  • Ensuring that policies are in line with an efficient and competitive labor market. The government is conducting a comprehensive review of labor legislation and will expand the work to include an assessment of policies affecting labor-market costs and segmentation (including benchmarking to peers). The review will be shared with Fund staff by end-November 2022 and provide the basis for policy recommendations on how to tackle segmentation, enhance firms’ capacity to hire the most productive workers, and reduce the cost to employers of job creation.

  • Supporting productivity and efficiency of the civil service requires (i) leveraging the Public Sector Modernization plan (which will tie remuneration more closely to performance); and (ii) addressing the findings of the Government-commissioned public wage bill study in 2021 by aligning remuneration with that of market comparators to address the wage premium for new low-skilled entrants, while providing incentives to attract and retain talent, including at more senior levels.

  • Phasing out exceptional measures in the labor market in response to COVID-19. The government has reintroduced some flexibility in the labor market by issuing circular 56, which narrowed employees protected by Defense Order 6 (which prohibited employers from terminating the contracts of workers) to only those hired before the Order went into effect in 2020. With the economy fully reopened, the authorities should aim to phase out these Defense Orders and related measures that disadvantage new entrants vis-à-vis established workers, inhibiting labor market dynamism.

(iii) Reducing youth unemployment:

  • Streamlining and enhancing technical and vocational education and training (TVET) can help address skill mismatches in the job market and support higher preparedness for new entrants. The government is working on legislation that will bring existing initiatives under a single umbrella, as well as on a strategy to transition the beneficiaries of the program into the labor market.

  • Reducing the cost of hiring youth. The authorities see scope to reduce the social security contributions rate (21.25 percent) for workers under the age of 30 for a specified number of years in exchange for lower retirement benefits (so will not adversely affect the financial sustainability of the SSC. Moreover, the aforementioned comprehensive review of labor market legislations will assess options to reduce the cost of hiring youth, leveraging international experience.

33. The authorities are also undertaking reforms to enable the private sector to enhance its contribution to the economy. Recent reforms to customs and electricity tariffs will meaningfully reduce costs for businesses. The streamlining of licenses is ongoing with some progress in the tourism sector, but much remains to be done to make starting a business less onerous. (MEFP ¶34). The authorities are also submitting a new omnibus law for Regulating the Business Environment, which aims to modernize and streamline the regulatory framework. As part of that, they are submitting legislation to strengthen the competition framework (June 2022 SB proposed to be rescheduled for August 2022) and are conducting market analysis to identify sectors that demonstrate signs of unfair practices. They are also working to further improve insolvency legislation to facilitate the implementation of the 2019 insolvency law.

34. Recent progress on governance reforms should be entrenched. The authorities have been transparent in reporting COVID-related spending, by (i) continuously publishing details of contracts and beneficial ownership of entities on the MOF website; and (ii) undertaking and publishing ex-post audits of all COVID-related spending. Additionally, the government is working on strengthening the capacity of the Integrity and Anti-Corruption Commission (JIACC), including on implementing the amended the Illicit Gains Law and the 2022 amendments to the JIACC law. The authorities are working to extend the responsibilities of JIACC through new legislations that would allow it to also cover illicit gains through public procurement. Consideration could be given in this regard to extending beneficial ownership reporting requirements to all public procurements, leveraging the experience with COVID spending. It is important that JIACC be adequately resourced, and have flexibility to hire staff with needed competencies, to be able to fulfil its expanded mandate.

35. Unlocking Jordan’s growth potential will require promoting high-return investments, strengthening export competitiveness, and enhancing productivity.10 Staff’s analysis of the drivers of economic growth in Jordan revealed that, as capital accumulation, exports, and imports declined sharply after the GFC, in the context of elevated regional instability, the complexity of the Jordanian economy also declined, TFP growth dropped drastically, and labor productivity stagnated (see SIP). In light of these results, staff discussed the scope to attract financing for digital infrastructure and climate adaptation; further reducing electricity costs and tax administration burdens for businesses; and improving firm dynamism and innovation. Tourism remains a key service export with significant complementarities and growth enhancing spillovers to other sectors (SIP). Promotion of new areas such faith-based and wellness tourism as well as medical tourism is welcome, but more can be done to expand access to new source markets (such as Asia and Sub-Saharan Africa) and prolonging duration of stay.

uA001fig10

Labor Participation Rates, Investment Trends, and Growth Impact of Tourism

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: Redl, Xin and Bi, International Labor Organization, and IMF staff calculations.

Program Financing and Safeguards

36. The oil price surge, together with slower fiscal consolidation in 2023, has driven a US$2 billion widening in the CAD (excluding grants) for 2022-23 (combined) relative to the third review, warranting a recalibration of the financing strategy. The authorities have drawn the SDR allocation, and are using it for budget financing in lieu of higher domestic debt issuance (thus also boosting reserves). The additional CAD is roughly evenly split between 2022 and 2023, and is met from different sources (text table).11 Overall, financing assurances are in place for the 12 months ahead, with good prospects thereafter:

  • Development partner support. Public grants will be about US$1.5 billion (about US$180 million higher in 2022–23 than in the third review, mainly to account for the somewhat larger package under the new U.S. Memorandum of Understanding (MOU) (from 2023). Similarly, public sector loans and program financing are together about US$300 million higher than in the third review, capturing new expected disbursements from the World Bank. At the same time, the authorities [have] approached GCC creditors to convert their deposits at the CBJ (in the amount of US$1,166 million) into long-term loans (which would reduce 2023 deposit amortizations by the amount converted).

  • Eurobonds. In light of the sharp rise in sovereign yields since February 2022, the authorities are now considering issuing US$1 billion (rather than US$1.5 billion) in Eurobonds in 2022; with the residual issuance in 202312.

  • FX reserves. Jordan’s higher than expected reserve position at the end of 2021 enables the use of reserve buffers to the tune of about US$1 billion, mostly in 2022, while still maintaining reserve levels around 100 percent of the ARA metric over 2022-23. Given higher financing needs and tighter global conditions, reserve levels fall to around 90 percent of the ARA metric in the outer years of the projection period, which still equates to about seven months of imports Staff’s baseline does not include U.S. Congress top-ups to the MOU (these have averaged US$300 million in recent years); the potential conversion of US1,166 million GCC deposits at the CBJ into concessional loans (discussions on which are underway); and potentially higher WB disbursements (to the tune of US$600 million in 2023–24, under discussion). Materialization of these additional sources should support reserve levels over the medium term.

Current Account Deficit and Sources of Financing, 2022-23

(In millions of USD)

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Source: IMF staff calculations.

  • Augmentation under the EFF. Staff proposes an augmentation of access by SDR 75.482 million (about US$105 million or 22 percent of quota), and rephasing of a share of the disbursements scheduled for 2023 into 2022 (Table 5) to be made available at the time of the fifth review., as well as rephasing of a share of the disbursements scheduled for 2023 into 2024 to be made available at the time of the eighth and last review. The augmentation will bring access under the EFF to SDR 1,145.954 million or 334 percent of quota. Cumulative access will peak just below 435 percent of quota in 2023Q3, and annual access will peak at 115 percent of quota in 2022Q4. Purchases in 2022-23 will be on-lent to the government and used for budget support, as part of the Balance of Payments needs that arise for external debt service payments.

37. Capacity to repay the Fund remains adequate. Despite the COVID-19-induced deterioration in indicators of Fund credit, they remain below the peak values under past Fund supported programs (see Table 6). While debt sustainability risks remain, development partners’ ongoing commitment to Jordan and continued market access constitute important safeguards.

38. Safeguards assessment. The CBJ has implemented all the 2020 safeguards recommendations, except the one related to enhancement of financial statements disclosures that is expected to be addressed as part of FY2022 audit.

39. Risks to the program. As noted earlier, further increases in commodity prices and interest rates (beyond what is envisaged in staff’s baseline) could suppress growth, raise inflation, and put pressure on fiscal and external deficits. Staff’s analysis of potential downside scenarios suggests that the implications for the program would be manageable, given mitigating factors. The pass-through of higher energy prices to the current account is mitigated somewhat by the share of natural gas imports in the energy mix (17 percent), which are under longer-term price contracts. Higher international food prices would affect domestic prices with a lag, and their impact on external and fiscal accounts is expected to be relatively limited in the near-term, due to: (a) the current large wheat reserve which gives the authorities the ability to delay/optimize purchases; (b) the relatively low level of net food imports (2 percent of GDP) ; and (c) Jordan’s potash and fertilizer exports, which generally co-move with food prices, and would rise in such a scenario. A more rapid pace of interest rate increases could weaken private capital flows somewhat, but inflows from the region could mitigate this; the implications for debt sustainability should also be manageable, given already conservative assumptions regarding the level and trajectory of borrowing costs in staff’s baseline, and Jordan’s high reliance on grants and concessional financing. Still, if the global headwinds turn out to be much stronger than staff’s baseline, the authorities will need to consider additional measures, both to support reserves, and protect public finances. Implementation risks remain mitigated by the authorities’ continued program ownership.

Staff Appraisal

40. A recovery is underway, thanks to post-pandemic reopening and to the authorities’ timely and proportionate policy responses. The authorities’ swift and decisive policy actions mitigated the effects of the pandemic on the economy and supported the ongoing recovery, which, in the context of a full reopening, is expected to bring GDP growth to around 2.4 percent in 2022. The rebound in tourism and robust exports will also help narrow the current account deficit, albeit at a slower pace, due to the commodity price surge. However, unemployment persists at very high levels, particularly among the youth.

41. Program performance has been strong, with all key quantitative targets met and firm implementation of structural reforms. All QPCs and most ITs have been met, and implementation of structural reforms remains strong, as the authorities continue to demonstrate ownership of the program. Domestic revenue collection has been robust, exceeding 2021 targets by 0.5 percent of GDP, anchored in an institutional effort to tackle tax evasion and improve tax compliance. The recent passage of legislation unifying the tax and customs administrations in ASEZA under the national systems has delivered an important longstanding reform. New electricity tariffs were rolled out in early-April, which will boost Jordan’s competitiveness by lowering costs for businesses.

42. However, Jordan’s economy faces headwinds from high fuel and food prices due to the war in Ukraine, and from ongoing tightening of global financial conditions. Jordan’s long- term stable-price gas import contracts for electricity generation and adequate wheat reserves provide important near-term buffers. However, as an oil and food importer, Jordan is expected to eventually experience the cost-push inflationary shock. Further, Fed interest rate hikes will weigh on demand, both via the CBJ’s response to defend the peg, and the knock-on effects of tighter global financial conditions on EM risk premia and capital flows.

43. Given limited fiscal space, blanket fuel subsidies should be phased out in favor of targeted support for the vulnerable, and efforts should continue on maintaining the revenue mobilization momentum. Fuel subsidies are fiscally costly and highly regressive and should be phased out and replaced with well-targeted transfers, leveraging Jordan’s well-established and quite efficient social safety net. Capping fuel subsidies at JD 350 million in 2022, coupled with continued strong revenue collection and some reprioritization of spending, will be essential to delivering the 3.4 percent of GDP primary deficit target, and reduce debt from high levels. Going forward, returning durably and fully to the market-based pricing formula for fuel derivatives, while protecting the vulnerable through targeted support, will be essential to preserving the credibility of the program’s fiscal strategy.

44. Given the challenging circumstances, a more gradual medium-term path of fiscal consolidation is appropriate to support the recovery and protect the vulnerable. In light of global headwinds, the tightening in monetary policy, and the very high unemployment, a slower fiscal consolidation is necessary to entrench the recovery and avoid scarring and social unrest. With continued robust donor support, the new path of fiscal adjustment would still bring debt below 80 percent of GDP by 2027 (only two years later than expected at the third review), anchoring debt sustainability. The authorities have identified and are firmly committed to adopt and implement new revenue and expenditure measures required to deliver this fiscal consolidation path.

45. Monetary policy should remain data-driven, while safeguarding the peg and financial stability. To ensure the peg is credible, the CBJ must continuously maintain adequate reserve buffers, and be seen as committed to preempt any major BoP outflows. In addition, there is a need for continued close monitoring of banks’ asset quality, and sustained application of prudent accounting, reporting, and provisioning standards.

46. Reforms in the water and electricity sectors are critical for tackling the economy’s structural issues and preserving the financial sustainability of the public sector. The financial position of water and electricity sectors remains challenging, and reforms are needed to durably reduce deficits and arrears. In this context, the long-awaited completion of the financial sustainability roadmaps in both sectors is crucial. Financial reforms will also create room for new projects to address Jordan’s structural water shortage and for a further lowering of electricity tariffs for businesses to boost competitiveness.

47. Realizing Jordan’s growth potential requires more forceful actions to enhance employment, investment, and governance. Recent measures in these areas, including to reduce electricity costs for businesses and support the employment of youth and women, are welcome. But eliminating gender-biased legislations and ensuring a safe workplace environment for women; reducing labor market segmentation; and lowering the cost of hiring youth are also critical. At the same time, more efforts are needed to reduce red tape, and strengthen competition regulations. Recent progress on governance reforms needs to be consolidated with adequate resourcing of JIACC, timely rollout of e-procurement, and continued strengthening of the AML/CFT framework consistent with the requirements to exit the FATF watch list by next year.

48. Staff supports the authorities’ request for the completion of the Fourth Review under the extended arrangement and modification of targets and augmentation. Given the additional financing needs in 2022, staff supports the request for augmentation. In light of the global economic headwinds, staff also supports the authorities’ request for modification of the end-June and end-December QPCs to allow adequate phasing of support to protect the recovery. Stepped-up and timely development partner support is needed to help Jordan cope with these headwinds, maintain reform momentum, address water scarcity, and shoulder the burden of hosting 1.3 million Syrian refugees. It is expected that the next Article IV Consultation will be held on the 24-month cycle, in accordance with Decision No. 14747-(10/96).

Figure 1.
Figure 1.

Jordan: Real Sector Developments

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: National authorities; Haver Analytics; and IMF staff calculations.
Figure 2.
Figure 2.

Jordan: Fiscal Developments

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: National authorities and IMF staff calculations.
Figure 3.
Figure 3.

Jordan: External Sector Developments

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: National authorities and IMF staff calculations.
Figure 4.
Figure 4.

Jordan: Monetary and Financial Indicators

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: Central Bank of Jordan; Jordan Department of Statistics; and IMF staff estimates.
Figure 5.
Figure 5.

Selected Indicators for Jordanian Banks

(As of December 2021)

Citation: IMF Staff Country Reports 2022, 221; 10.5089/9798400215551.002.A001

Sources: Bloomberg; Fitch; IMF staff calculations. The sample includes 14 banks: Arab Bank PLC, Housing Bank for Trade and Finance, Bank of Jordan, Bank Al Etihad, Jordan Kuwait Bank, Cairo Amman Bank, Capital Bank of Jordan, Arab Jordan Investment Bank, Societe Generale de Banque – Jordanie, Jordan Ahli Bank, Safwa Islamic Bank, Invest Bank, Jordan Commercial Bank, Arab Banking Corp. The average is a weighted average by total assets of the above banking sample.1/ Non-performing loans to gross loans, less ratio of provisions to gross loans.2/Liquid assets to deposits and money market funding. Latest available quarterly data for 2021 from Fitch database is used.
Table 1.

Jordan: Selected Economic Indicators and Macroeconomic Outlook, 2020–27

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

The Department of Statistics changed the methodology of the Survey of Employment and Unemployment in 2017 following ILO recommendations. The variable now reports unemployment rates for Jordanians only (excluding foreigners).

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

Estimated amount of fiscal measures that are needed to meet the programmed fiscal adjustment over 2022-25.

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.

Jordan: Central Government: Summary of Fiscal Operations, 2020–27 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.

For 2023-25, these are unidentified cumulative fiscal discretionary measures needed to reach program deficit targets.

Includes net issuance of domestic FX bonds.

In 2021, includes drawdown of SDR allocation amount from the government's account at CBJ.

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.

In 2021, JD105 million in arrears were resolved through securitization.

Table 2b.

Jordan: Central Government: Summary of Fiscal Operations, 2020–27 1/

(In percent of GDP)

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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.

For 2023-25, these are unidentified cumulative fiscal discretionary measures needed to reach program deficit 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.

In 2021, JD100 million in arrears will be resolved through securitization.