Jordan: Second Review Under the Stand-By Arrangement, Request for Waivers of Nonobservance of Performance Criteria, and Modification of Performance Criteria

Publication Date: December 19, 2013
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Summary: EXECUTIVE SUMMARY Regional instability continues to affect Jordan. The conflict in Syria and shortfalls in gas flows from Egypt are putting pressure on the fiscal and external accounts. The large inflow of refugees from Syria is also straining labor and housing markets as well as the provision of public services. Nonetheless, growth is recovering (albeit slowly), inflation is contained, and the current account deficit is narrowing. Program performance is broadly on track. The central bank rebuilt reserves, which are now at a comfortable level and well above what was programmed. The national electricity company’s losses were in line with the program through June, but the end-September performance criterion (PC) is estimated to have been missed because a temporary interruption in gas flows required more expensive fuel imports. This, together with the central government unexpectedly having to service debt of utilities, resulted in a breach of the end-September PC on the central government primary deficit. Excluding these transfers, central government performance is estimated to have stayed broadly on track. The implementation of structural reforms has been mixed, with delays in actions related to the energy sector, a revised income tax law, and public financial management. The August increase in electricity tariffs, which exempted all households, was an important step to reforming the energy sector. Looking ahead, the program will continue to focus on fiscal consolidation, a comfortable reserve position, and higher and more inclusive growth. Fiscal consolidation will continue to place debt on a downward trend, but has been slowed down compared to the original program by up to 1.3 percent of GDP in 2013 and 1.1 percent of GDP in 2014 to help cushion the impact of external shocks, specifically from lower Egyptian gas supplies and the Syrian crisis . A better targeting of subsidies and income tax reform are among the key fiscal measures envisaged for 2014, aimed at improving equity. Energy sector reforms aim at diversifying Jordan’s energy sources, enhancing efficiency, and gradually reforming tariffs while protecting the poor. The central bank will focus on maintaining an appropriate reserve buffer. Structural reforms should be accelerated to create more jobs, including through enhancing access to finance. More grants are critical in light of elevated risks. The main risks relate to appropriately addressing the needs related to the Syria crisis, renewed disruptions to gas inflows , and a weaker current account. Such shocks could be absorbed, but growth would suffer and already high debt would expand. Securing additional grants is critical as it could help alleviate fiscal and macroeconomic pressures while stimulating employment and strengthening growth. The completion of the second review makes available SDR 170.5 million (about $258 million).
Series: Country Report No. 13/368
Subject(s): Stand-by arrangement reviews | Unemployment | Fiscal policy | Fiscal consolidation | Fiscal reforms | Energy sector | Monetary policy | Bank supervision | Economic indicators | Debt sustainability analysis | Staff Reports | Press releases | Jordan

Publication Date: December 19, 2013
ISBN/ISSN: 9781484314173/1934-7685 Format: Paper
Stock No: 1JOREA2013002 Pages: 86
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