Key Questions on Jordan

Last Updated: January 30, 2018

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When will the second review mission take place?

We do not have a date yet. The 2018 budget was approved by parliament in recent weeks, and staff is assessing the underlying fiscal measures, the need for revised macroeconomic assumptions, as well as progress with other reforms that are vital to macroeconomic stability and economic growth before deciding on a date for a review mission.

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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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Will the IMF reconsider program measures in light of pressures Jordan is facing, including expiry of Arab grants?

We will continue to evaluate changes to the macroeconomic projections as warranted by new developments. We have yet to update the macroeconomic projections that were part of the first review under the program.

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How will the reduction in Arab grants affect Jordan’s economy?

A reduction in grants would likely affect public investment negatively over the medium term, and stresses the need for Jordan to broaden the tax base and increase revenues to meet infrastructure and other social needs.

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What is the IMF’s position on the recent price increases including fuel and gas? Has the IMF recommended these measures?

Recent measures announced by the government as part of the 2018 budget have been discussed with the IMF. We understand that the authorities have exempted the lowest segment of electricity consumption (0-160 kwh) from the automatic electricity tariff adjustment mechanism. In general, we recommend that the Jordanian authorities to gradually remove large tax exemptions and subsidies, including those on fuels and gas.

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To what extent the program in Jordan contributes to growth and jobs?

One important contribution to growth and jobs is strengthening the economy’s stability, with gradual and steady economic reforms to reduce high public debt. In addition, there are several reforms aimed at enhancing the business environment for the private sector, particularly in reducing red tape and supporting for small firms, and to promote formal jobs, including for the youth and women.

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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. 

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What measures does Jordan need to take to implement this program?

The program’s main objective is to enhance the conditions for more inclusive growth. Achieving this objective will require reducing economic vulnerabilities while advancing reforms in various areas to promote investment and employment:

  • The program includes measures in areas to enhance competitiveness and job prospects, and to foster equity, fairness, and good governance. Such measures will aim at increasing labor force participation, particularly for women and youth; enhancing the business environment and access to finance; preserving social spending, and improving public accountability and good governance. 
  • Jordan will also be implementing gradual and steady measures to reduce deficits —underpinned by revenue- and equity-enhancing reforms to the tax system and continued energy and water sector reforms. The objective is to bring public debt toward safer levels while protecting the poor. The conduct of monetary policy has been successful in preserving the exchange rate peg, a comfortable level of reserves, and stable financial conditions, which are important for growth. As such, monetary policy will remain focused on maintaining these conditions.

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Given the fiscal challenge, how flexible is the new program?

Under the previous loan, the Stand-By Arrangement that expired in 2015, the IMF showed flexibility to help Jordan better cope with unanticipated adverse shocks, including large inflows of Syrian refugees and the halting of gas flows from Egypt. In particular, the fiscal deficit targets were adjusted to allow for the government to cover the direct fiscal costs related to the hosting of Syrian refugees. Also, additional grants coming in from the international community provided room to finance the greater flexibility in pursuing the required economic reforms.  

For example, there was flexibility with regard to the timing of the program policies. Some of the things that had been agreed on, such as the replacement of fuels subsidies by cash transfers for the most vulnerable, were implemented early on. Other reforms, such as changes to the income tax law, required more time to consult with stakeholders, and were implemented later in the program.

The new program (a three‑year extended arrangement under the Extended Fund Facility (EFF) for Jordan for an amount equivalent to about US$723 million) is also flexible. Recognizing that Jordan is facing a very challenging external environment, the program is designed to help Jordan lower debt in a gradual and steady manner, while ensuring measures are taken to protect the poor. In particular, the fiscal measures will be implemented gradually over the three-year program period. Also the program is designed to ensure that social spending is not cut, and that fiscal reforms will not affect the poor.

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Will the IMF loan add to Jordan’s already high debt levels?

To the contrary. One of the main objective of the program is in fact to reduce public debt. Jordan’s overall indebtedness will decline from about 94 percent of GDP to a safer level of 77 percent of GDP by 2021, and its debt to the Fund will also fall. This will be accomplished through reforms to bolster economic growth and gradual fiscal consolidation. The financing provided by the IMF will allow Jordan to implement the necessary reforms gradually, by helping to sustain a stable exchange rate, pay for necessary imports and allow more time to address the need for fiscal adjustment.

Also critical to these efforts will be the financial support of the international community, which will help Jordan cope with the weight of hosting a considerable number of Syrian refugees. The framework of an IMF-supported program will facilitate Jordan's access to grants and concessional financing from the international community. This will help Jordan meet the immediate needs of the refugees, and also to reestablish the quality of public services provided to the Jordanian population. All this can be achieved without increasing public debt.

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Will the poor in Jordan bear the burden of the IMF loan?

The program has social elements to help prevent the poor bear the burden of some economic measures. In particular, reforms should focus on revenue- and reforms to the tax system—such as the removal of tax exemptions, which mainly benefit the most affluent—and energy and water sector reforms that will continue to protect the poor, who will continue to benefit from affordable prices. Also to ensure that reforms will not affect the most vulnerable, the program closely monitors social spending and includes measures that ensure that such expenses will not be cut, including food and medicine.

More importantly, the program will aim primarily at increasing growth in an inclusive way, that is to say at providing more jobs and opportunities to more people. To do so, it will tackle some of the structural weaknesses that have contributed to high unemployment and low labor force participation, especially among women and young people. The authorities will notably intensify their efforts to facilitate access to finance, reduce the cost of starting and operating businesses, further strength investor protection, reduce penalties for business exit, and promote financial inclusion. 

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How is this program different from others supported by the IMF?

Many countries face similar challenges, like high unemployment and adverse external shocks, and the Fund has extensive experience in how countries have dealt with these circumstances and what tends to be best policies and practices. However, the circumstances behind those challenges in each society are unique. This makes program ownership critical to success, as every country will need to adapt the policies and reforms to the specific economic and social challenges. Programs that are home-grown and have the full ownership of country authorities are most likely to be effectively implemented and bring better macroeconomic performance.

In the case of Jordan, the program is based on Vision 2025’s in-depth analysis of the country strengths and weaknesses. Based on its findings and recommendations, the authorities have designed a program that takes into account Jordan’s specificities, including its challenging external environment and its main vulnerabilities, starting with low employment and high public debt. The new program has introduced a floor on social spending to help protect the poor.