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Jordan: 2020 Article IV Consultation and Extended Fund Facility Arrangement

Core Content Overview

The IMF Country Report No. 20/101 documents the 2020 Article IV consultation with Jordan and the approval of a US$1.3 billion extended arrangement under the Extended Fund Facility (EFF). This report includes the Executive Board's assessment, Staff Report, Press Releases, and Statements from the Alternate Executive Director for Jordan. The report outlines Jordan's economic developments, challenges, and the IMF's recommendations for fiscal, structural, and monetary reforms.

Main Points and Key Information

Economic Context and Challenges

• Jordan has made progress in economic reforms since the 2017 Article IV consultation.
• Growth has averaged only 2% since 2016, and per capita income fell to 10% below 2010 levels in 2019.
• Unemployment (excluding foreign labor) rose to 19% in 2019, with high levels among youth and women.
• Inflation was 3.5% in 2017-18, but dropped to 0.5% in 2019 due to subdued prices for food and fuel.
• The current account deficit (excluding grants) narrowed from 12% of GDP in 2017-18 to 6% in 2019.
• Reserve buffers remained at 7 months of imports in 2019, reflecting improved FX market conditions.

IMF Executive Board's Assessment

• The Board approved a 48-month extended arrangement under the EFF for SDR 926.37 million (about US$1.3 billion).
• The program focuses on fiscal consolidation, growth-promoting reforms, and support for the Syrian refugee crisis.
• The baseline growth projection for 2020 is 2.1%, with an expected gradual increase to 3.3% over the medium term.
• The inflation target is set to rise to 2.5% in the medium term.
• The current account deficit is projected to continue narrowing to 5% of GDP.
• Reserve buffers are expected to remain adequate at 8 months of imports.

Program Objectives

• Strengthen macroeconomic stability and fiscal sustainability.
• Boost growth and reduce unemployment, especially among youth and women.
• Improve the business environment and attract foreign investment.
• Enhance the social safety net and targeted support for vulnerable groups.
• Address structural issues in the electricity and water sectors.

Key Reforms and Policies

• Fiscal Policy: Broaden the tax base, reduce exemptions, and improve tax collection and administration. The program also includes measures to rationalize current expenditures and contain losses in the energy and water sectors.
• Electricity and Water Sectors: Reduce electricity costs for businesses, improve efficiency, and direct subsidies to those in need. The NEPCO and WAJ are central to these efforts.
• Monetary Policy: Continue supporting the exchange rate peg, maintaining reserve buffers at 7–8 months of imports, and promoting financial inclusion.
• Structural Reforms: Focus on improving governance, public sector transparency, and employment opportunities. These include labor market reforms and simplifying procedures for foreign investment.

Program Financing and Modality

• The Extended Fund Facility (EFF) provides SDR 926.37 million (about 270% of Jordan's quota).
• A baseline fiscal consolidation of 4% of GDP is expected during 2020–24 to reduce public debt.
• The program includes emergency spending to address the impact of the COVID-19 outbreak.
• Donor support, particularly through concessional loans and budget grants, is essential to ensure program success and address humanitarian needs.

Summary of Economic Indicators (2018–2025)

Risks and Concerns

• The ongoing COVID-19 outbreak poses significant risks to program implementation.
• High unemployment and fiscal vulnerabilities remain major challenges.
• Tax administration weaknesses and policy reversals have hindered fiscal consolidation.
• Customs service fees on EU imports have raised concerns among some Directors.
• Donor support is critical to meet the program's goals and address the refugee crisis.

Conclusion

The IMF Executive Board commended Jordan's efforts in preserving macroeconomic stability and improving the business climate, while acknowledging the need for further structural reforms, fiscal discipline, and donor assistance. The extended arrangement under the EFF is intended to support Jordan's growth and stability agenda, with a focus on reducing public debt, boosting competitiveness, and enhancing employment opportunities. The program is also designed to mitigate the impact of the pandemic and support the Syrian refugee population.