Press Release: IMF Reaches Staff-Level Agreement with Jordan on its Request to Support a National Reform Program Through a Stand-By Arrangement
July 25, 2012Press Release No. 12/275
July 25, 2012
In support of the government’s economic reform program, the Jordanian authorities and the staff of the International Monetary Fund (IMF) have reached an ad referendum, or staff-level, agreement on a request for a 36-month Stand-By Arrangement (SBA). This agreement will be subject to approval by the IMF’s Executive Board, which is expected to consider the SBA-supported program in the near future. Under the arrangement, Jordan would have access to IMF credit amounting to SDR 1.364 billion (about US$2 billion).
Ms. Kristina Kostial, mission chief for Jordan, issued the following statement today in Amman:
“Jordan’s economy has been hit by exogenous shocks that were outside the government’s control. Repeated and extensive disruptions to the flow of natural gas from Egypt due to the sabotage of the Sinai Peninsula pipeline, together with high and rising oil prices, required imports of expensive fuel products for electricity generation. At the same time, regional tensions and the global economic downturn adversely affected tourism, worker remittances, and FDI. As a result, growth has slowed. Despite improvement in tourism income and remittances in 2012 along with the projected decline in oil prices, the external current account deficit is expected to widen to an estimated 14 percent of GDP in 2012.
“Fiscal and energy policies in 2011 accommodated the social impact of these shocks by protecting consumers from the increase in energy prices, including through higher subsidies, social spending, and targeted wages increases. These steps though have contributed to a higher central government deficit and rising operating losses at the electricity company NEPCO, which subsidized electricity tariffs. This was further exacerbated in 2012 by the need to provide housing and medical services to refugees from Syria. The large financing needs of the central government and NEPCO have lowered the financing available to support adequate private-sector investment and added to the already high public debt.
“In response to the negative external shocks, the Jordanian government has adopted a national reform program. In this context, it took significant measures to bring back fiscal and energy policies to a sustainable path while providing targeted support to the vulnerable part of the population.To avoid sharp adjustments that could adversely affect growth and the vulnerable parts of the population and to guard against additional shocks, the Jordanian government asked for financial assistance from the IMF. The IMF staff agreed to support Jordan’s agenda for a socially acceptable fiscal consolidation. It will provide liquidity during the next three years, which will allow the authorities to gradually implement their agenda. Anchored in Jordan’s currency peg which has served the country well, the key objectives of the authorities’ program are to: (i) correct fiscal and external imbalances; and (ii) foster high and inclusive growth. To meet these objectives, the authorities plan to undertake the following measures: Short- and medium-term fiscal adjustment underpinned by expenditure and tax reforms; comprehensive reforms in the electricity sector to bring NEPCO back to cost recovery; and structural reforms aimed at improving the business environment, enhancing transparency, and fostering trade.
“These policies are expected to justify the exceptional level of access to Fund resources—equivalent to around 800 percent of Jordan’s quota in the IMF—and deserve the support of the international community, in the form of additional grants as well as official investment.”