Key Questions on Jordan

Last Updated: June 18, 2018

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What is the IMF’s view on financial aid pledged by some Gulf countries worth US$2.5 billion?

  • We welcome the news that Saudi Arabia, the UAE, and Kuwait have pledged US$2.5 billion in aid to Jordan over the next five years. This is a positive step. We do not have details yet about the aid package. The IMF has repeatedly urged the international community and regional donors to shoulder more of the burdens of Jordan’s hosting of over a million Syrian refugees and providing security in the region, all of which have placed extraordinary strains on its public finances.
  • We reiterate our call to the international community to help Jordan with much-needed increased financial support, preferably in the form of grants.
  • We hope this aid package will help Jordan undertake bold reforms to address high unemployment, especially among the youth and women, and to stimulate economic growth while protecting the poor and middle class. The IMF remains committed to supporting Jordan and its people.

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Will Jordan need a program with the IMF after receiving financial aid from the Gulf?

Prime Minister Omar Razzaz has not yet formed his government. We look forward to continuing our discussions with the new government with a view to presenting the second review of Jordan’s economic reform program to our Executive Board as soon as possible.

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What is the IMF’s reaction to the recent events in Jordan?

  • We welcome King Abdullah’s recent call for a national dialogue as a very positive step forward. 
  • The ongoing IMF-supported program in Jordan is aimed at underpinning the government’s economic priorities. The IMF team that recently visited Amman held productive discussions with the authorities and significant progress was made toward recommending to our Executive Board the completion of the second review of the IMF-supported program.  This would make available to Jordan around US$70 million, additional to the almost US$1.2 billion already provided since 2012.  
  • As part of these discussions, the authorities and the IMF team reviewed the policies and planned reforms needed to further strengthen Jordan’s inclusive growth agenda. There is also a genuine concern for the social dimension. For this, it is critical that the benefits and costs of reforms are balanced and distributed across all sectors of the economy, with a greater focus on those with the capacity to pay, while also protecting the most vulnerable.  
  • Recent events confirm the critical importance of bold reforms to address high unemployment, particularly among youth and women, and to stimulate economic growth in a way that does not jeopardize Jordan’s hard-won macroeconomic stability. In this context, our discussions included tax reforms aimed at securing resources to meet urgent spending needs—including on security, health, and education--while ensuring a fair sharing of the burden of adjustment.   The focus ahead should be centered on taxing income, particularly the rich, rather than consumption taxes, which tend to adversely impact relatively more the poor.

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What has the IMF done to mobilize financial aid for Jordan?

  • Recent events underscore the need for the international community, including regional donors, to shoulder more of the burdens of Jordan’s hosting of over a million Syrian refugees and providing security in the region, all of which have placed extraordinary strains on its public finances. That is why the IMF has repeatedly urged the international community to help Jordan with much-needed increased financial support, preferably in the form of grants. 

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What is your response to those who blame the IMF for protests in Jordan?

  • This is a question that has come up in relation to other programs too. Firstly, it is important to recognize that countries come to the IMF for support because they are already having significant economic difficulties. The policies we support under a program are tailored to each country’s specific circumstances to put their finances back on a sustainable path.
  • In most cases countries would have to go through much more difficult economic transition if they did not have the cushion and catalytic role of the IMF support for others to lend to countries, and, in implementing such reforms, we advise countries to ensure protection for the poor and middle class.  
  • Support from the IMF gives a country time for needed policy reforms to turn things around and achieve a sustainable fiscal position while also advancing inclusive growth reforms. And, importantly, in implementing such reforms we advise countries to ensure protection for the poorest people affected. The IMF supported African countries when they became independent, and when countries of the former Soviet Union became independent and were trying to build their economies. Now, in the case of Jordan, the country is facing extraordinary pressure due to a combination of factors, some – but not all -- of which are beyond the authorities’ control, including the hosting of Syrian refugees.
  • In this context, the Jordanian authorities have asked the IMF for support and to work with them to preserve macroeconomic stability and advance reforms to promote growth and employment, which in turn can help ensure social and political stability.

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What are your specific policy suggestions for Jordan?

  • With high public debt, low tax revenues, falling external budget grants, and large social and infrastructure needs, Jordan’s public finances needs to remain underpinned by broadening the tax base so the burden is broadly shared, including by removing large tax exemptions on income and sales taxes. We have suggested taxing income, especially the better off, rather than introducing consumption taxes, which tend to adversely impact relatively more the poor.
  • However, these efforts need to be complemented by reforms that enhance the business environment and reduce the cost of formal jobs, particularly for youth and women.

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Media has reported that Jordan will request an extension of the IMF program for another one or two years. What is your view?

  • We will have discussions with the new Jordanian government when it is formed to assess their plans for completing the second review of Jordan’s IMF-supported economic reform program.

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What measures has the IMF put in place to address corruption, increase transparency and better governance in Jordan?

  • We have supported efforts to improve public accountability and governance. In this regard, the authorities merged the Ombudsman Bureau and the Anti-Corruption Commission into a National Commission for Integrity and Anti-Corruption. Our discussions with the authorities also included the unification of the legal framework for public procurement, and the establishment of a regulatory and policy committee.
  • Regarding transparency, the budget laws for 2017 and 2018 have included detailed estimates of tax expenditures, while they have also implemented the International Public Sector Accounting Standards (IPSAS) roadmap; and, to support the public investment management framework, they have submitted to parliament a draft Organic Budget Law.

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The former Jordanian government said that the tax law was a prerequisite for completing the review, could there have been other measures to achieve the required revenue?

  • Based on discussions with the Jordanian government over the past two years, it was agreed that other measures would be more difficult to implement and costly in terms of growth and social impact. There is no significant room to cut public spending without increasing unemployment or resorting to other cuts that would lower government’s ability to spend more on education, health, and domestic security.

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Can you clarify your views on the new tax law?

  • First of all, we welcome His Majesty King Abdullah’s call for national dialogue. The tax reforms that we support are aimed at securing resources to meet urgent spending needs—including on security, health, and education--while ensuring a fair sharing of the burden of adjustment. It is a critical step in anchoring Jordan’s gradual fiscal consolidation and in placing public debt on a downward path in 2019.
  • Such reforms broadens the tax base in an efficient and more equitable manner. It would also help shift the balance of fiscal adjustment away from taxing consumption (which tends to hurt the poor and middle class) toward taxing income, especially from those with greater capacity to pay. It also removes distortions and loopholes, and broadens the tax base for corporations.
  • An income tax reform in Jordan will also allow the authorities to address Jordan’s high security costs and social needs, which have been rising rapidly in recent years, while also reversing the build-up of public debt. Critical to the success of the proposed reform will be the strict implementation of measures to enhance tax administration, as well as measures to lessen incentives and increase penalties for tax evasion. As it stands, the proposed income tax reform is expected to yield one percent of GDP annually in permanent revenues.

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Jordan has undertaken some measures in terms of reducing subsidies and enforcing indirect taxes, how do all these measures play out with the introduction of the income tax and would better sequencing of such measures help people better absorb such shocks?

  • The income tax would help Jordan to continue to reduce its still large fiscal deficit and put its high public debt on a downward path in 2019.
  • Jordan’s public spending on education, health, and domestic security has been growing rapidly in recent years. Broadening the tax revenue base and enhancing tax compliance are important for meeting social and infrastructure needs ahead.

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How do you assess the conduct of monetary policy and the risks ahead?

  • The conduct of monetary policy by the Central Bank of Jordan (CBJ) remains appropriate and well-focused on maintaining an adequate level of reserves to support the Jordanian dinar peg, while also helping to provide supportive credit conditions to the economy. Looking ahead, staff is reassured by the authorities’ commitment to respond as needed to domestic, regional, and global monetary conditions, while preserving an adequate level of reserves. The authorities intend to keep gross usable reserves at about 7 months of projected imports, by end-2018. 

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What is the IMF’s position on the government’s decision to lift bread subsidies and to increasing taxes on medicines?

  • As we have said repeatedly, the IMF did not recommend the government’s decision to remove bread subsidies nor to tax medicines. We have publicly expressed our opposition to the lifting of bread subsidies.  We believe that policies and reforms should not burden the poorer segments of society and should not increase the price of critical commodities such as bread and medicines. 

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You said you opposed raising bread prices, what alternative policies did you recommend to the government?

  • We have discussed with the government several alternative revenue measures that achieve its budget goals without disproportionally burdening low income households. It could rely more on measures that target those with higher income rather than the poor who consume a higher portion of their income.

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What does the IMF do to improve the employment of women in Jordan?

  • We have discussed with the authorities and other parties, including donors, reforms that are specifically designed to support female labor force participation. These include the recently approved bylaw on flexible working hours, the facilitation of access to child-care services, the provision of low-cost and efficient public transportation system, and options to lower wage costs for formal jobs for women.

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What steps do you advise the government to improve social spending and reduce unemployment?

  • Some of the policy measures we discussed include putting in place a framework of additional targeted transfers to accompany tax reforms, so that vulnerable segments of the population do not face an increase in their tax burden. The program also includes a minimum level of social spending targeted at illness and disability, old age, family and children, housing, and research and development in the field of social protection.
  • Additionally, we recommended reforms to lower the costs of business inspections, improve investment approval procedures, and enhance access to finance should help with job creation. Other options under discussion include a temporary cut in social security contributions rates, or alternatively some formal employment tax credit, that could help address informality in the labor market and stimulate demand and jobs.

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Why does Jordan need a program with the IMF?

  • Over the last few years, Jordan has managed to maintain overall economic stability and undertake significant policy reforms against a difficult external environment, rising socio-economic tensions, high vulnerabilities, and the hosting of a large number of Syrian refugees. In this very difficult context, the authorities—with the support of the IMF under a Stand-By Arrangement that expired in August 2015— made progress in the energy sector (specially the replacement of fuel subsidies by cash transfers for the poor) and succeeded in restoring an adequate level of central bank reserves.
  • Despite that, Jordan still faces considerable challenges. Economic growth remains below potential, unemployment is high, particularly for youth and women, the refugee crisis is weighing on the economy and public finances, gross public debt is high (about 94 percent of GDP) and the regional outlook remains challenging.
  • To tackle these challenges, the authorities have adopted a new medium-term program to enhance conditions for more inclusive growth. In particular, reforms will be implemented in several areas to improve competitiveness, job prospects, notably for women and young people, and foster equity, fairness, and good governance. The IMF will support the authorities’ program implementation. The IMF financing will help maintain an adequate level of international reserves, support the exchange rate regime, finance imports like fuel and foodstuff, and it will encourage other donors to provide concessional loans and grants. In terms of policies, IMF will share its expertise to help implement Jordan’s Vision 2025.