Transcript of a Conference Call on JordanWashington, D.C.
Thursday, April 11, 2013
MS. ELNAGAR: This is Randa Elnagar, EXR officer from the International Monetary Fund. As you know, yesterday the board had approved and completed the first review under the standby arrangement for Jordan and the Fund has disbursed $385 million to Jordan. We will inform you when the board paper will be out. I have with me Ms. Kristina Kostial, the Mission Chief for Jordan and she is going to give some introductory remarks and answer your questions. I wanted to let you know that this call is under embargo. It's on the record but under embargo until 12:30 D.C. time which is 6:30 p.m. Jordan time. Thank you. Ms. Kostial?
MS. KOSTIAL: Good afternoon to you. I am very happy that you are making time to talk with us. My name is Kristina Kostial and I am the Mission Chief for Jordan. I thought I could give you some introductory remarks and really put the Jordan program in a broader context and then go into the Jordan specific issues.
As you have been aware, the last couple of years have been quite difficult for the Arab countries in transition. They have been facing economic strains as they had to manage at the same time political change and urgent social demands. It has been a period when hard choices had to be made, and what didn't help was that this was happening at the time when there was a great turmoil in the global economy.
From the IMF side we have been closely engaged with the Arab countries in transition during this difficult period. We are advising countries on how to maintain economic stability and how to ensure that vulnerable households are protected during the transition, and then also, looking into the future, on how to lay the basis for job-creating sustainable growth.
We are also providing technical assistance to help build capacity and stronger institutions in these countries. As an example, for Jordan we're doing this in various areas and these include public financial management and also tax administration.
Another priority, particularly at a time when governments' budgets are stretched, is to help countries meet their financing needs. The IMF stands ready to provide such financial assistance, but it also must come at a time when the countries themselves feel that the timing is right and that it is in support of economic programs that enjoy broad support in the country.
As part of this process and as a response to the authorities' requests, the IMF has committed more than $8 billion to support home-grown economic programs in Jordan, Morocco and Yemen. You also will be aware that we are currently engaged in discussions on financial support in Egypt and Tunisia. Such financial assistance varies across the region, given that each country faces its own economic challenges and the instruments to tackle those challenges must be tailored to address these unique circumstances and to be tailored correctly to the country.
With this general introduction, let me now turn to the issues and challenges which are specific to Jordan. What I would like to highlight is first our financial engagement, how we see the program performing and then looking forward, what are the key challenges ahead and how do the authorities address those challenges.
Starting off with the IMF's financial support to Jordan, you will be all aware that Jordan has been hit hard by external shocks, most notably a marked cut in gas flow from Egypt over the past couple of years that required extensive fuel imports for electricity generation at a time when oil prices were quite high. Jordan was also hit by regional unrest and the influx of Syrian refugees. The latest update is that there are more than 400,000 Syrian refugees reported according to UNHCR, the U.N. refugee agency. These shocks have put sizable pressures on Jordan's budget, on Jordan's public debt and part of that is coming also because the electricity company NEPCO has been running losses. It has also put pressures on the balance of payments and international reserves.
In response to these shocks the Jordanian government adopted a home-grown reform program in June last year to correct the domestic and external imbalances through a combination of fiscal, energy and monetary policies as well as structural reforms to foster high and inclusive growth.
The IMF's loan was approved by our Executive Board on August 3, 2012, under what we call a standby arrangement, an SBA, in the amount of $2 billion. This IMF loan is helping Jordan to avoid sharp adjustments that could have an adverse impact on growth and also on the vulnerable segments of the population. The IMF loan is also to guard against any additional shocks. By providing liquidity over a period of 3 years, the IMF loan will enable the authorities to implement their reform program gradually and with adequate measures to protect the poor and vulnerable households.
The IMF loan comes in tranches, and as you may have seen in our press release which we issued today, our Executive Board just approved the first review under the standby, under the SBA, and as Randa said, it makes immediately available to Jordan the second tranche under the SBA in the amount of SDRs 255.75 million and that is equivalent to about $385 million.
Turning to the performance under the program: Despite a challenging political transition and a difficult external environment, Jordan's economic policies and performance last year were broadly sound. Starting out with the fiscal and energy sectors:
On the fiscal front, the central government's primary deficit excluding interest payments (where we're really measuring the true fiscal efforts) was reduced as domestic revenues were buoyant and spending was managed tightly. In late 2012 the authorities also eliminated the highly sensitive general fuel subsidy which was straining the budget and actually mainly benefiting the well-off while at the same time the government provided cash transfers to compensate low- and middle-income Jordanians. This was a major reform.
On the energy front, NEPCO, the electricity company, curbed its losses helped by increases in electricity tariffs in May and June last year and also a marked increase in gas inflows from Egypt starting in November.
Such policies on the fiscal and energy side are crucial because the financing needs of the central government and the electricity company NEPCO are adding to public debt which ultimately all Jordanians will have to pay. The financing needs are also commanding resources from the banking sector that otherwise could have actually been channeled to private-sector investment and thereby creating employment opportunities in supporting economic growth.
Turning to monetary performance under the program, the Central Bank of Jordan has managed well the temporary pressures on its reserves in late last year. These reserves have already been rebuilt and this was achieved through a combination of measures which included increases in interest rates to enhance the attractiveness of dinar-denominated assets, sizable grants from the Gulf Cooperation Council countries and a successful U.S. dollar-denominated domestic bond issuance.
Let's turn now to the future and the challenges ahead. Clearly significant challenges remain, but we think that the authorities have put in place a sound program to address these challenges. Let's go through the different elements.
First of all, there is a need to implement the authorities' medium-term energy and electricity strategy. This strategy is designed to ultimately bring NEPCO back to cost recovery while, and that's very important, protecting the poor and the vulnerable. This will entail gradually eliminating electricity subsidies for those with a higher ability to pay while providing targeted support for those with a lower ability. The success of this reform will depend very much on obtaining buy-in from key stakeholders including parliament.
The authorities will also have to continue fiscal consolidation and that would need to be done in a gradual manner so as to not jeopardize growth prospects and social stability. This together with the energy-sector reform would reduce the financing needs of the central government and NEPCO and place public debt on a downward trend and then crowd in private-sector investment.
The authorities are also working on maintaining the reserves of the central bank. The recent shocks that have hit Jordan underscored the difficult and uncertain global and regional economic environment and maintaining reserve buffers will help Jordan to cope well should there be any worsening in this environment.
Last but not least, what is a very important element in the program is to sustain and intensify existing reforms to foster inclusiveness and sustained growth. In particular, the authorities are unlocking obstacles to inclusive growth and these include that they are addressing chronically high unemployment including through a recent initiative, the Jordan Job Compact, designed to help youths find jobs through a combination of training, stimulus packages to employers and small- and medium-enterprise financing. The authorities are also undertaking initiatives to enhance access to finance including by improving the legal framework in favor of small- and medium-sized enterprise financing and actively seeking international support to secure resources for such enterprises.
From our side, from the IMF, we remain committed to helping the authorities meet these challenges whether that's in the form of our policy advice or technical assistance or financial support. With this introduction I'd be very happy to respond now to your questions.
OPERATOR: Thank you. Ladies and gentlemen, if you wish to ask your question or have a comment, please press star and then one on your touchtone phone. You will hear a tone indicating you've been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you're using a speaker phone, please pick up the handset before pressing the numbers. Once again, if you have a question or comment, please press star and then one at this time. One moment, please, for the first question. We'll go to the line of a of a questioner. Please go ahead.
QUESTIONER: Thank you for doing that. I just wanted to know if you could elaborate on the impact of the Syrian conflict on the Jordanian economy. Thank you very much.
MS. KOSTIAL: It's very clear that the conflict in Syria imposes quite a significant burden on Jordan. I think primarily the economy is affected through a massive influx of refugees. When you look at the numbers and compare them, in February the UNHCR had reported 300,000 refugees and the numbers increased quite dramatically just in the last month, and now they're recording more than 400,000 refugees. Clearly there is the need for humanitarian assistance. There is also the need for help in particular from the international.
There are also pressures on Jordan's economy through trade and the disruptions of bilateral and transit trade, bilaterally directly with Syria and transit trade through Syria. What helps Jordan cope with this is that is has a pretty diversified trade sector and bilateral trade with Syria has been relatively small, about 3 percent of Jordan's total trade. I'm happy to elaborate further.
OPERATOR: Sir, do you have any other question at this time?
QUESTIONNER: No, thank you.
OPERATOR: As a reminder, if you do wish to ask a question, then please press star and then one. Again, star and then one if you wish to ask a question or have a comment. One moment, please. No one is in queue at this time. Please continue.
MS. ELNAGAR: No more questions?
OPERATOR: Not at this time, but as a reminder, if you do wish to ask a question, please press star and then one.
MS. ELNAGAR: We will end this call at this moment. If you have any further questions, please do not hesitate to email us at media relations at IMF.org and just give us a call. Thank you very much. Thank you, Ms. Kostial.
MS. KOSTIAL: Thank you very much.