## 1jorea2020001

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---

### Recent economic developments and macroeconomic stability
- Growth and inflation
  - Real GDP growth: 1.9 percent (2018); 2.0 percent (2019).
  - Real GDP projected: 2.1 percent (2020); rising to 3.3 percent (2025) with intermediate values 2.3 (2021), 2.6 (2022), 2.9 (2023), 3.1 (2024).
  - GDP deflator: 1.8 percent (2018); 1.6 percent (2019); projected 1.9 (2020) and 2.5 percent annually from 2021–25.
  - Consumer price inflation (annual average): 4.5 percent (2018); 0.3 percent (2019); 1.5 percent (2020); projected 1.7 (2021), 2.5 (2022–25).
  - Consumer price inflation (end of period): 3.6 percent (2018); 0.7 percent (2019); 0.8 percent (2020); projected 2.5 percent (2021–25).

- Labor market and social conditions
  - Unemployment rate (excluding foreign labor): 19 percent in 2019, up from 18.5 percent in 2017.
  - Unemployment (excluding foreign labor) reached 19.1 percent in Q3 2019.
  - Youth unemployment: 43.1 percent (Q3 2019); youth unemployment also reported as 44.4 percent in other figures.
  - Female unemployment: 27.2 percent (Q3 2019); female unemployment also reported as 27.5 percent in other figures.
  - Labor market remains challenging, especially for youth and women.

- External sector and reserves
  - Current account deficit (excluding grants): averaged 12 percent of GDP during 2017–18; projected 6 percent in 2019.
  - Current account balance (including grants): -7.0 percent (2018); -2.9 percent (2019); projected -3.2 (2020) and improving to -2.8 (2025).
  - Current account balance (excluding grants): -10.6 percent (2018); -6.1 percent (2019); projected -6.9 (2020) and narrowing to -4.5 percent (2025).
  - Exports of goods, f.o.b. ($ billions): 7.8 (2018); 8.4 (2019); projected 8.7 (2020) to 11.6 (2025).
  - Imports of goods, f.o.b. ($ billions): 18.1 (2018); 17.4 (2019); projected 18.1 (2020) to 21.3 (2025).
  - Oil and oil products ($ billions): 3.8 (2018); 3.1 (2019); projected 3.2 (2020) and stable around 3.3 by 2025.
  - Gross usable international reserves ($ millions): 12,513 (2018); 13,513 (2019); 15,307 (2020); projected 16,991 (2021) to 19,401 (2025).
  - Reserves in months of prospective imports: 6.7 (2018); 7.0 (2019); 7.7 (2020); projected 8.3 (2021) and about 8.0–8.4 across 2022–25.
  - Net international reserves ($ millions): 11,430 (2018); 12,756 (2019); 14,462 (2020); projected 15,879 (2021) to 17,809 (2025).
  - CBJ’s net international reserve (NIR) position: $12.8 billion at end-2019 (98 percent of the Fund’s ARA Metric); NIR as of December 31, 2019: USD 12,756.1 million (program rate).

- Public finances and debt
  - Revenue and grants (% of GDP): 26.1 (2018); 24.7 (2019); projected 27.0 (2020) then declining to 24.0 (2025).
    - Grants: 3.0 (2018); 2.5 (2019); 3.2 (2020); projected 0.9 (2025).
  - Expenditure (% of GDP): 29.8 (2018); 29.7 (2019); projected 30.0 (2020) then gradually to 29.1 (2025).
  - Overall fiscal balance (% of GDP): -3.3 (2018); -5.0 (2019); projected -3.0 (2020) and around -2.6 (2024–25).
  - Primary government balance (excluding grants): -3.0 (2018); -3.8 (2019); projected -2.3 (2020) improving to 0.4 (2024–25).
  - Combined public sector balance: -4.2 (2018); -5.1 (2019); projected -4.0 (2020) improving to -0.8 (2025).
  - Government and guaranteed gross debt: 94.4 percent of GDP (2018); 99.1 (2019); 100.4 (2020); projected peak 100.7 (2021) then decline to 96.1 (2025).
  - Government and guaranteed gross debt, net of SSC's holdings: 76.3 (2018); 79.4 (2019); 79.9 (2020); projected 73.6 (2025).
  - External debt (percent of GDP): 37.2 (2018); 35.5 (2019); 39.5 (2020); projected 36.1 (2025).
  - Public debt (consolidated) projected to peak at 80 percent of GDP in 2020 and decline to 74 percent of GDP by 2025 (Annex I).

- Other indicators
  - Nominal GDP at market prices (JD millions): 29,984 (2018); 31,058 (2019); projected 32,313 (2020) to 42,052 (2025).
  - Nominal GDP at market prices ($ millions): 42,291 (2018); 43,805 (2019); projected 45,575 (2020) to 59,312 (2025).
  - Nominal per capita GDP ($): 4,270 (2018); 4,350 (2019); projected 4,464 (2020) to 5,627 (2025).
  - Population (millions): 9.9 (2018); 10.1 (2019); projected 10.2 (2020) to 10.5 (2025).

---

### Outlook, risks, and baseline assumptions
- Growth and macro assumptions
  - Growth projected at 2.1 percent in 2020 and gradually increasing to 3.3 percent over the medium term.
  - Baseline scenario assumes fiscal consolidation of about 4 percent of GDP during 2020–24 to place public debt on a downward path.
  - Inflation expected to gradually reach 2.5 percent over the medium term.
  - Current account deficit (excluding grants) projected to continue narrowing to about 5 percent of GDP over the medium term.
  - Reserves buffers expected to remain adequate at 8 months of imports over the medium term.

- Risks (selected)
  - Significant downside risks from the COVID-19 pandemic and regional conflicts.
  - Large population of Syrian refugees increases fiscal and social pressures (1.3 million Syrian refugees noted; equivalent to about one seventh or about one-fifth of Jordan’s population in different passages).
  - Fiscal slippages from tax administration weaknesses, policy reversals, and delays in implementing fiscal measures could derail consolidation.
  - Donor financing shortfalls could jeopardize program objectives and refugee protection.
  - Political economy risks: powerful interests disadvantaged by structural measures could stir social discontent and impede reform delivery.
  - Stress-test outcomes: combined macro-fiscal shock → public debt would reach about 90 percent of GDP over the medium term.

- Upside and contingency
  - Upside scenario: deep structural reforms and reconstruction in Iraq and Syria could increase potential growth above staff projections.
  - Program contains an adjuster for exceptional unbudgeted COVID-19-related spending; authorities will consult Fund staff if treasury advances for COVID-19 exceed ½ percent of GDP.

---

### Program objectives, measures, and structural reforms
- Program goals
  - Support stronger and more inclusive growth, create jobs (especially for women and young people), and reduce poverty.
  - Stabilize and bring public debt toward more sustainable levels.
  - Preserve macroeconomic stability and the exchange rate peg as a nominal anchor.

- Fiscal consolidation strategy and key measures
  - Fiscal consolidation of about 4 percent of GDP during 2020–24 (cumulative fiscal effort at central government level ~4 percent of GDP during 2020–24).
  - Gross fiscal measures of 2½ percent of GDP in 2020 to offset higher budgeted outlays; estimated overall yield of gross fiscal measures: 2.5 (percent of GDP) broken down as:
    - Revenue measures: 1.2
      - Full annual impact of the new income tax law: 0.5
      - Measures to reduce trading of illegal cigarette brands: 0.3
      - Increase in customs service fees and rationalization of tariff rates: 0.1
      - Curtailment and non-renewal of discretionary customs and sales tax exemptions: 0.1
      - Collection of large taxpayers' arrears: 0.1
      - Tax administration measures: 0.1
    - Expenditure measures: 1.2
      - Control of off-budget expenditures: 0.9
      - Rationalization of government employees: 0.2
      - Other net current-expenditure compression: 0.2
  - Identified "unidentified measures" estimated at 0.0 percent (2018–19) and rising to 2.4 percent of GDP by 2024–25 in program projections.
  - 2020 budget: primary deficit target of 2.3 percent of GDP (MEFP, ¶8); cabinet passed prior action to prohibit use of treasury cash resources other than in budgeted allocations and previously identified advances.

- Revenue administration and tax policy
  - Focus on broadening the tax base and reducing tax exemptions, overhaul of the investment incentives framework, and revamping tax and customs administrations.
  - Avoid further tax cuts and amnesties; arrest creation of additional reduced GST rates.
  - Tax-administration measures and structural benchmarks:
    - Recruit 100 qualified staff (50 by end-June 2020 and 50 by end-December 2020) to support ISTD (structural benchmark).
    - Rollout compliance improvement campaigns for professional groups by end-December 2020 (structural benchmark).
    - Implement digital track and trace system to monitor cigarette production by end-December 2020 (structural benchmark).
    - Put in place e-invoicing framework by end-December 2020.

- Expenditure rationalization and social protection
  - Rationalize current expenditures while protecting critical social, health and education spending.
  - Improve targeting of Jordan’s social safety net; three-year expansion (2019–21) of the National Aid Fund (NAF)’s cash transfer program.
  - Conduct comprehensive review of social spending and publish action plan by end-September 2020.
  - Bring the National Unified Registry (NUR) online by end-June 2020 as single gateway for social assistance.

- Utilities and contingent liabilities
  - Contain losses and contingent liabilities in the energy and water sectors (NEPCO and WAJ).
  - NEPCO: implement Roadmap towards financial sustainability; contain NEPCO losses; debt optimization plan; debt remains high at around 17 percent of GDP.
  - WAJ and water distribution: reached 89 percent cost recovery by end-2017; ran an overall deficit of 1.3 percent of GDP in 2019; implement “Action Plan to Reduce Water Sector Losses”.

- Structural and sectoral reforms
  - Reduce high electricity costs faced by businesses; direct electricity subsidies only to those who need them most.
  - Temporary reduction in social security contributions and labor market reforms to promote employment, particularly for women and youth (reduced contribution rate from 21.75 percent to 5.25 percent for specified firms and workers up to age 28 for 5 years in targeted programs).
  - Implement five-year reform matrix from the 2019 London Initiative to improve business climate and attract foreign investment.
  - Governance reforms to strengthen public-sector transparency and accountability; asset disclosure reform by end-December 2020.
  - Strengthen banking and financial sector legislative/regulatory framework and enhance AML/CFT regime; promote financial inclusion.

- Monetary and financial sector stance
  - Monetary policy to continue focusing on supporting the peg while considering domestic conditions.
  - Program reserve target: maintain reserves at around 107–110 percent of RAM over the program period; projected reserves around 8 months of imports.
  - Banking system judged overall sound; capital adequacy about 17 percent; non-performing loan ratio ~5.2 percent in 2019.

---

### Financing, program modalities, and donor support
- IMF financing and arrangement
  - Executive Board approved a 48-month arrangement under the Extended Fund Facility (EFF) for SDR 926.37 million (about US$1.3 billion or 270 percent of Jordan’s quota).
  - Immediate disbursement available: SDR 102.93 million (about US$139.23 million); remaining phased over the program subject to eight program reviews.
  - Fund access: normal access of 270 percent of quota (SDR 926.37 million or about US$1.3 billion). Disbursements evenly spaced across eight program reviews. Fund purchases will be on-lent to the government.
  - Program allows adaptation to support unbudgeted COVID-19-related spending and may be adjusted if the outbreak threatens objectives.
  - Prior actions include: enactment of the 2020 general budget consistent with program understandings; cabinet decision to prohibit use of treasury cash resources other than in budgeted allocations; issue tender for PPA review (prior action).

- Donor support and external financing
  - Continued donor support, particularly concessional loans and budget grants, deemed critical to program success and refugee response.
  - Committed budget grants over 2020–24 expected to decline to about $4½ billion; past five years: $5.8 billion.
  - External financing table highlights include example entries: World Bank: 1,129 1,146 331 843 626; European Union: 336 336 227 0 0 0; Japan: 200 200 100 100 100 0; Others: 711 724 518 396 343 345.
  - Memorandum item: Eurobond issuance: 1,000 1,000 0 1,000 0 0 (as presented).
  - Financing gap row example: 2,660 2,689 1,462 867 767 517 (table rows as presented).

- Program risks and contingent plans
  - Risk of fiscal slippages; mitigants include prior actions and willingness to increase excises.
  - Donor support may need to step up if COVID-19 causes disruption; program may be adapted if impact prevents meeting targets.
  - Fund credit outstanding will peak in 2024 at 2.6 percent of GDP; EFF repurchases peak at 0.9 percent of exports of goods and non-factor services and 1.1 percent of gross usable reserves in 2028.

---

### Public debt sustainability and stress tests (Annex I highlights)
- Summary assessment
  - Public debt assessed as sustainable, contingent on fiscal adjustment and growth-enhancing reforms and mobilizing committed donor and market financing.
  - Public debt (consolidated gross direct and guaranteed debt of the central government and the state-owned Social Security Corporation) projected to peak at 80 percent of GDP in 2020 and decline to 74 percent of GDP by 2025.
  - External debt projected to reach 73 percent of GDP by 2021 and remains vulnerable to shocks.

- Gross Financing Needs (A1+A2)
  - 2020: 6,256 US$ Million; 13.7 Percent of GDP
  - 2021: 6,340 US$ Million; 13.3 Percent of GDP
  - A1. Overall deficit (after grants): 2020: 367 US$ Million; 0.8 Percent of GDP; 2021: 931 US$ Million; 1.0 Percent of GDP
  - A2. Debt amortization: 2020: 5,889 US$ Million; 12.9 Percent of GDP; 2021: 5,847 US$ Million; 12.2 Percent of GDP

- Public sector DSA projections (selected)
  - Nominal gross public debt: 71.8 (2018), 76.3 (2019), 79.4 (2020), 79.9 (2021), 79.7 (2022), 78.7 (2023), 78.7 (2024), 75.8 (2025), 73.6 (2025).
  - Public gross financing needs: 26.5 (2018), 17.9 (2019), 14.4 (2020), 13.7 (2021), 13.3 (2022), 13.4 (2023), 12.6 (2024), 10.7 (2024), 11.5 (2025).
  - Real GDP growth (percent): 2.7 (2018), 1.9 (2019), 2.0 (2020), 2.1 (2021), 2.3 (2022), 2.6 (2023), 2.9 (2024), 3.1 (2025), 3.3 (2025).

- Stress test outcomes (selected)
  - Growth shock: cumulative growth decline of 1½ percentage points in 2021–22 → debt-to-GDP ratio would reach 83 percent of GDP in 2021.
  - Real exchange rate shock: calibrated to close estimated overvaluation (6 percent) → debt ratio would reach 83 percent of GDP by 2021.
  - Higher borrowing costs: increase of 200 bps → debt-to-GDP ratio would be 79 percent of GDP by 2025.
  - Combined macro-fiscal shock → public debt would reach about 90 percent of GDP over the medium term.

- External sector DSA highlights
  - Baseline external debt (percent of GDP): 68.6 (2019), 71.9 (2020), 72.6 (2021), 71.4 (2022), 69.7 (2023), 67.2 (2024).
  - Public and Publicly Guaranteed External Debt: 35.5 (2019), 39.5 (2020), 41.1 (2021), 40.8 (2022).
  - Gross external financing need (in percent of GDP): 9.8 (2019), 12.2 (2020), 12.1 (2021), 8.7 (2022), 10.4 (2023), 10.1 (2024).

---

### Utilities reform: electricity (NEPCO) and water (WAJ)
- Electricity sector (NEPCO)
  - AETAM adopted in 2017; wholesale tariffs increased by 23 percent by mid-2018.
  - NEPCO’s losses amounted to 0.3 percent of GDP in 2018; NEPCO’s debt around 17 percent of GDP.
  - NEPCO secured operational balance in 2019 via lower-cost gas from Egypt, LNG efficiencies, decreased the fuel clause from 24 to 10 fils, and other measures.
  - Oil-shale PPA projected to add costs amounting to about 0.7 percent of GDP every year.
  - Projected NEPCO losses: 0.5 percent of GDP in 2020; 0.4 percent of GDP over the medium term (staff estimates).
  - Program electricity-sector actions and benchmarks:
    - By end-June 2020: develop detailed plan to phase out cross-subsidies from businesses to households in a revenue-neutral manner for NEPCO (structural benchmark).
    - By end-October 2020: adopt measures to achieve a third of needed reductions in cross-subsidies (estimated about JD 225 million) (structural benchmark).
    - Prior action: issue tender for PPA review; hire firm by end-June 2020 and complete review by end-September 2020.
    - NEPCO 2020 containment measures: tariff reductions for businesses (75 fils per kWh for additional kWh relative to 2019 consumption), fixed fees for renewable connections, meters installation, gas switching, debt optimization plan, and cabinet approval of NEPCO debt optimization plan in 2020.

- Water sector (WAJ)
  - WAJ and water distribution companies reached 89 percent cost recovery by end-2017.
  - WAJ and distribution companies ran an overall deficit of 1.3 percent of GDP in 2019, up from 0.9 percent in 2018.
  - Water sector measures:
    - Continue "Action Plan to Reduce Water Sector Losses" with progress reports.
    - Transfer WAJ under the Ministry of Water while preserving independent accounting.
    - Strengthen coordination between water and energy sectors and assess ceilings on electricity tariffs charged to water sector.
    - Arrest water sector arrears to PPP projects and electricity distribution companies and conduct comprehensive audit of infrastructure.

---

### Labor market, employment, and social policies
- Labor-market reforms and measures
  - By-law on Flexible Work approved in 2019; minimum wage redefined on an hourly basis.
  - Expanded framework for home-based businesses since 2017.
  - Temporary reduction in social security contributions for targeted startups and sectors; reduced contribution rate trial expanded (benchmark: expand to all economic sectors by end-June 2020).
  - National Service program: train 20,000 participants over a two-year cycle.
  - NEEP launched March 2019 to promote on-the-job training; expected expansion to reach over 30,000 job seekers.
  - TVET strengthening and consolidation under single umbrella.

- Gender, childcare, and transport to boost female participation
  - Labor Law amendments and by-laws to remove discriminatory provisions and mandate daycare for firms with more than 20 parent employees; by-laws to be approved and circulated by end-June 2020 (benchmark).
  - Public transport improvements, BRT in Amman by mid-2021, interurban BRT by 2022; bus fleet consolidation by end-2022.

- Social safety net
  - Three-year expansion (2019–21) of National Aid Fund (NAF) cash transfer program; significantly expanded coverage.
  - Comprehensive review of social spending and action plan by end-September 2020.
  - Revised social spending indicative target includes: non-wage components of education and health current expenditure, NAF’s social protection programs, and school feeding program.
  - Bring National Unified Registry (NUR) online by end-June 2020.

---

### Governance, public financial management, PPPs, and anti-corruption
- Public financial management
  - Treasury cash resources used to cover off-budget outlays ~1 percent of GDP per year during 2018-19.
  - Accumulation of domestic arrears to health and energy sectors ranged between ½ and 1 percent of GDP per year over past three years.
  - Commitments to end flow of new arrears and off-budget expenditures; prior action: cabinet decision prohibiting use of treasury advances for unbudgeted expenditures.
  - Submit amended Organic Budget Law to Parliament by end-December 2020.

- PPPs and FCCLs
  - Revamped PPP law passed that requires MoF’s unit to vet PPP fiscal commitments and contingent liabilities (FCCLs).
  - Authorities to complete study to identify and quantify FCCLs from existing PPPs/PPAs by end-December 2020.
  - Tender and external review of most significant PPA: hire firm by end-June 2020 and complete review by end-September 2020.

- Anti-corruption and transparency
  - Amend Illicit Gains Law by end-December 2020 to require disclosures to JIACC and maintain electronic database; allow more public access to basic financial disclosure information (structural benchmark).
  - Unified Public Procurement By-law enacted in 2019; establish independent central policy and oversight unit and complaints-handling unit in 2020.
  - Roll out integrated e-procurement (JONEPS) to cover ministerial-level institutions and municipalities by end-December 2021.

---

### Program monitoring, performance criteria, and structural benchmarks
- Monitoring framework and exchange rates
  - Program exchange rates and valuation as of December 31, 2019: JD 0.709 = $1; gold price JD 1046.52 per fine troy ounce; cross rates listed for GBP, JPY, EUR, CAD, SDR.
  - Quantitative performance criteria and indicative targets in Table 1 include ceilings on: primary fiscal deficit (central government excl. grants and net transfers to NEPCO/WAJ), combined public deficit, continuous zero ceiling on accumulation of external debt service arrears; floor on NIR; indicative floor on social spending; ceiling on public debt net of SSC holdings; ceilings on domestic payment arrears and NDA of CBJ; SSC net financing to central government, among others.

- Selected structural benchmarks for 2020 (selected)
  - June 2020: Adopt multi-year plan (budget neutral for NEPCO) to align corporate tariffs with average supply cost and redirect household subsidies by end-2024.
  - October 2020: Implement measures equal to JD75 million (annualized) to permit reduction in business tariffs.
  - June 2020: Issue by-laws/instructions to increase access to affordable childcare; expand targeted temporary reductions in social-security contributions to all new startups.
  - June 2020: Hire international firm to review most significant PPA (benchmark); complete review by September 2020.
  - December 2020: Publish Financial Inclusion Report; implement digital track and trace for tobacco; pass legislation for single tax administration and customs service; pass Economic Substance Regulations; recruit 100 ISTD staff in two phases (50 by end-June, 50 by end-December).
  - September 2020: Submit to Parliament amendments to the 2014 Investment Law; conduct comprehensive review of trust accounts by end-September 2020.

- Data provision and reporting
  - Extensive reporting requirements to IMF: weekly, monthly, quarterly fiscal, monetary, NEPCO/WAJ financials, arrears, gas/LNG flows, external debt tables, national accounts, and other data with specified lags (weekly within one week; monthly/quarterly within six to eight weeks).
  - Definitions and adjustors for program ceilings (primary deficit, combined public deficit, NIR) specified including COVID-19 adjustor rules.

---

### Executive Board assessment and staff priorities
- Executive Directors’ views
  - Commended authorities for preserving macroeconomic stability and improving business climate.
  - Noted disappointing growth, high unemployment, rising public debt, and COVID-19 and refugee-related challenges.
  - Supported EFF’s focus on fiscal consolidation and growth-promoting reforms; cautioned on COVID-19 risks and the need for donor support.
  - Urged steady fiscal consolidation using revenue and expenditure measures, broadening the tax base, mitigating fiscal pressures from state-owned electricity and water sectors, improving public financial management, and better targeted social safety nets.
  - Supported monetary policy focus on the peg and welcomed financial sector soundness while encouraging measures to preserve stability and promote financial inclusion.
  - Emphasized implementing ambitious structural agenda to improve business environment, reduce electricity costs for businesses, create jobs (especially for women and youth), and strengthen public-sector transparency and accountability.

---

*Source: IMF staff report "JORDAN: STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION AND REQUEST FOR AN EXTENDED FUND FACILITY" (selected excerpts).*

### 0.5 percent in 2019, due to subdued food and imports prices, including fuel. Labor market

### JORDAN: STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION AND REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY

### Recent economic developments and macroeconomic stability
- Growth and inflation
  - Real GDP growth: 1.9 percent (2018); 2.0 percent (2019).
  - Real GDP projected: 2.1 percent (2020); rising to 3.3 percent (2025) with intermediate values 2.3 (2021), 2.6 (2022), 2.9 (2023), 3.1 (2024).
  - GDP deflator: 1.8 percent (2018); 1.6 percent (2019); projected 1.9 (2020) and 2.5 percent annually from 2021–25.
  - Consumer price inflation (annual average): 4.5 percent (2018); 0.3 percent (2019); 1.5 percent (2020); projected 1.7 (2021), 2.5 (2022–25).
  - Consumer price inflation (end of period): 3.6 percent (2018); 0.7 percent (2019); 0.8 percent (2020); projected 2.5 percent (2021–25).

- Labor market and social conditions
  - Unemployment rate (excluding foreign labor) reached 19 percent in 2019, up from 18.5 percent in 2017.
  - Labor market remains challenging, especially for youth and women.

- External sector and reserves
  - Current account deficit (excluding grants) narrowed from an average of 12 percent of GDP during 2017–18 to a projected 6 percent in 2019.
  - Current account balance (including grants): -7.0 percent (2018); -2.9 percent (2019); projected -3.2 (2020) and improving to -2.8 (2025).
  - Current account balance (excluding grants): -10.6 percent (2018); -6.1 percent (2019); projected -6.9 (2020) and narrowing to -4.5 percent (2025).
  - Exports of goods, f.o.b. ($ billions): 7.8 (2018); 8.4 (2019); projected 8.7 (2020) to 11.6 (2025).
  - Imports of goods, f.o.b. ($ billions): 18.1 (2018); 17.4 (2019); projected 18.1 (2020) to 21.3 (2025).
  - Oil and oil products ($ billions): 3.8 (2018); 3.1 (2019); projected 3.2 (2020) and stable around 3.3 by 2025.
  - Gross usable international reserves ($ millions): 12,513 (2018); 13,513 (2019); 15,307 (2020); projected 16,991 (2021) to 19,401 (2025).
  - Reserves in months of prospective imports: 6.7 (2018); 7.0 (2019); 7.7 (2020); projected 8.3 (2021) and about 8.0–8.4 across 2022–25.
  - Net international reserves ($ millions): 11,430 (2018); 12,756 (2019); 14,462 (2020); projected 15,879 (2021) to 17,809 (2025).

- Public finances and debt
  - Revenue and grants (% of GDP): 26.1 (2018); 24.7 (2019); projected 27.0 (2020) then declining to 24.0 (2025).
    - Of which: grants: 3.0 (2018); 2.5 (2019); 3.2 (2020); projected 0.9 (2025).
  - Expenditure (% of GDP): 29.8 (2018); 29.7 (2019); projected 30.0 (2020) then gradually to 29.1 (2025).
  - Overall fiscal balance (% of GDP): -3.3 (2018); -5.0 (2019); projected -3.0 (2020) and around -2.6 (2024–25).
  - Primary government balance (excluding grants): -3.0 (2018); -3.8 (2019); projected -2.3 (2020) improving to 0.4 (2024–25).
  - Combined public sector balance: -4.2 (2018); -5.1 (2019); projected -4.0 (2020) improving to -0.8 (2025).
  - Government and guaranteed gross debt: 94.4 percent of GDP (2018); 99.1 (2019); 100.4 (2020); projected to peak 100.7 (2021) then decline to 96.1 (2025).
  - Government and guaranteed gross debt, net of SSC's holdings: 76.3 (2018); 79.4 (2019); 79.9 (2020); projected 73.6 (2025).
  - External debt (percent of GDP): 37.2 (2018); 35.5 (2019); 39.5 (2020); projected 36.1 (2025).

- Other indicators
  - Nominal GDP at market prices (JD millions): 29,984 (2018); 31,058 (2019); projected 32,313 (2020) to 42,052 (2025).
  - Nominal GDP at market prices ($ millions): 42,291 (2018); 43,805 (2019); projected 45,575 (2020) to 59,312 (2025).
  - Nominal per capita GDP ($): 4,270 (2018); 4,350 (2019); projected 4,464 (2020) to 5,627 (2025).
  - Population (millions): 9.9 (2018); 10.1 (2019); projected 10.2 (2020) to 10.5 (2025).

### Outlook, risks, and baseline assumptions
- Growth outlook and policy assumptions
  - Growth projected at 2.1 percent in 2020 and gradually increasing to 3.3 percent over the medium term.
  - Baseline scenario assumes fiscal consolidation of about 4 percent of GDP during 2020–24 to place public debt on a downward path.
  - Inflation expected to gradually reach 2.5 percent over the medium term.
  - Current account deficit (excluding grants) projected to continue narrowing to about 5 percent of GDP over the medium term.
  - Reserves buffers expected to remain adequate at 8 months of imports over the medium term.

- Risks
  - Significant downside risks from the COVID-19 pandemic and regional conflicts.
  - Large population of Syrian refugees increases fiscal and social pressures.
  - Fiscal slippages from tax administration weaknesses, policy reversals, and delays in implementing fiscal measures could derail consolidation.
  - Donor financing shortfalls could jeopardize program objectives and refugee protection.

### Program objectives, measures, and structural reforms
- Program goals
  - Support stronger and more inclusive growth, create jobs (especially for women and young people), and reduce poverty.
  - Stabilize and bring public debt toward more sustainable levels.
  - Preserve macroeconomic stability and the exchange rate peg as a nominal anchor.

- Fiscal consolidation strategy and measures
  - Fiscal consolidation of about 4 percent of GDP during 2020–24.
  - Focus on broadening the tax base and reducing tax exemptions, including an overhaul of the investment incentives framework and revamping tax and customs administrations.
  - Rationalize current expenditures while protecting critical social, health and education spending.
  - Contain losses and contingent liabilities in the energy and water sectors (NEPCO and WAJ).
  - Improve targeting of Jordan’s social safety net.
  - Identified need for unspecified "unidentified measures" estimated at 0.0 percent (2018–19) and rising to 2.4 percent of GDP by 2024–25 in program projections.

- Structural and sectoral reforms
  - Reduce high electricity costs faced by businesses; direct electricity subsidies only to those who need them most.
  - Temporary reduction in social security contributions and other labor market reforms to promote employment, particularly for women and youth.
  - Swift implementation of the five-year reform matrix launched at the 2019 London Initiative to improve the business climate, boost competitiveness, and attract foreign investment.
  - Governance reforms to strengthen public-sector transparency and accountability.
  - Strengthen legislative and regulatory framework for banking and financial sectors and enhance the AML/CFT regime.
  - Promote financial inclusion.

- Monetary and financial sector stance
  - Monetary policy to continue focusing on supporting the peg while considering domestic conditions.
  - Reserves management to maintain adequate buffer (projected around 8 months of imports).
  - Financial sector judged overall sound; continued efforts encouraged to preserve stability and promote inclusion.

### Financing, program modalities, and donor support
- IMF financing and arrangement
  - Executive Board approved a 48-month arrangement under the Extended Fund Facility (EFF) for SDR 926.37 million (about US$1.3 billion or 270 percent of Jordan’s quota).
  - Immediate disbursement available: SDR 102.93 million (about US$139.23 million); remaining phased over the program subject to eight program reviews.
  - Program allows adaptation to support unbudgeted COVID-19-related spending and may be adjusted if the outbreak threatens objectives.

- Donor support
  - Continued donor support, particularly concessional loans and budget grants, deemed critical to program success and to help Jordan cope with humanitarian and economic needs arising from COVID-19 and the Syrian refugee crisis.

### Executive Board assessment and staff summary of priorities
- Executive Directors’ views
  - Commended authorities for preserving macroeconomic stability and improving the business climate.
  - Noted disappointing growth, high unemployment, rising public debt, and COVID-19 and refugee-related challenges.
  - Supported the EFF arrangement’s focus on fiscal consolidation and growth-promoting reforms but cautioned on COVID-19 risks and the need for donor support.
  - Urged steady fiscal consolidation using revenue and expenditure measures, broadening the tax base, mitigating fiscal pressures from state-owned electricity and water sectors, improving public financial management, and better targeted social safety nets.
  - Supported monetary policy focus on the peg and welcomed the soundness of the financial sector while encouraging measures to preserve stability and promote financial inclusion.
  - Emphasized implementing an ambitious structural agenda to improve the business environment, reduce electricity costs for businesses, create jobs (especially for women and youth), and strengthen public-sector transparency and accountability.

*Source: IMF staff report "JORDAN: STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION AND REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY" (selected excerpts).*

### 1.   Past Fund Staff Advice and Implementation _________________________________________________ 23

### 1.   Past Fund Staff Advice and Implementation

### Context and key challenges
- Regional conflicts in Syria and Iraq disrupted trade and capital flows and, together with the arrival of 1.3 million Syrian refugees (equivalent to about one seventh of Jordan’s population), strained infrastructure, public services, and labor markets.  
- Volatile energy prices and uncertain regional energy supplies undermined confidence and investment.  
- To address protracted external financing needs and support a pro-growth program, the authorities requested a four-year Extended Fund Facility (EFF) with access set at 270 percent of quota (SDR 926.37 million; about US$1.3 billion). Donor concessional financing and budget grants remain essential.

### Macroeconomic performance since 2016
- Growth and living standards
  - Growth has averaged only 2 percent since 2016.  
  - Per capita GDP growth has been negative every year since 2009; per capita income in 2019 was about 10 percent below its 2010 level.  
  - Real growth under the program is projected at 2.1 percent in 2020 and to gradually increase to 3.3 percent over the medium term (with full implementation of the structural agenda).
- Inflation and external balances
  - Headline inflation rose to 3½ percent during 2017–18, and decreased to 0.6 percent in 2019.  
  - Core inflation decelerated to 1.3 percent in 2019, compared to an average of 2½ percent during 2017–18.  
  - The current account deficit (excluding grants) narrowed from an average of 12 percent of GDP during 2017–18 to a projected 6 percent in 2019.
- Reserves and financial sector
  - Reserves fell significantly in mid-2018 but stabilized and were slightly below 100 percent of RAM as of end-2019.  
  - The banking system remained well capitalized, liquid, and profitable. Private sector credit grew by about 5 percent in 2019, compared with around 10 percent during 2016–17.  
  - The non-performing loan ratio was around 5.2 percent in 2019 (up from 4.2 percent in 2018).
- Labor market
  - Unemployment (excluding foreign labor) reached 19.1 percent in Q3 2019, up from 18 percent in the same period of 2017.  
  - Unemployment remained particularly high for youth at 43.1 percent and for women at 27.2 percent.

### Fiscal performance and risks
- Recent fiscal outcomes
  - The 2016–17 program achieved an adjustment in the primary deficit of 3¼ percent of GDP, but this was partly reversed during 2018–19 with a reversal of about 2 percent of GDP.  
  - Slippages in 2019 were driven by cigarette smuggling after the re-opening of the border with Syria, delays in passing by-laws under the new income tax law, weaker import growth, and significant wage and pension increases legislated in early 2020.
  - Persistent off-budget expenditures occurred in both 2018 and 2019.
- Public debt and targets
  - Public debt (consolidated concept) is projected at about 80 percent of GDP in 2020 (equivalent to about 100 percent of GDP on an unconsolidated basis).  
  - The program baseline assumes fiscal consolidation of about 4 percent of GDP during 2020–24 to put public debt on a downward path.  
  - Authorities and staff agreed that targeting a primary surplus of about ½ percent of GDP over the medium term is key to steadily reduce debt towards 75 percent of GDP.
- Program and contingency
  - The program contains an adjuster for any immediate spending needs to respond to COVID-19; the authorities will consult Fund staff if a large economic impact materializes and program adaptations are required.

### Utilities and contingent fiscal pressures
- Electricity sector (NEPCO)
  - An automatic electricity tariff adjustment mechanism (AETAM) was adopted in 2017; wholesale tariffs increased by 23 percent by mid-2018. NEPCO’s losses amounted to 0.3 percent of GDP in 2018.  
  - NEPCO adopted a “Roadmap towards financial sustainability of the power sector”; implementation and lower international oil prices underpinned NEPCO’s operational balance in 2019.  
  - Revenue growth at NEPCO has been subdued as higher-tariff customers reduced grid consumption and invested in self-generation; Jordan now has excess electricity production capacity with limited export options. NEPCO’s debt remains high at around 17 percent of GDP.
- Water sector (WAJ)
  - WAJ and water distribution companies reached 89 percent of cost recovery by end-2017.  
  - WAJ and the water distribution companies ran an overall deficit of 1.3 percent of GDP in 2019, up from 0.9 percent of GDP in 2018.  
  - The sector accumulated new arrears to the electricity sector estimated at ¼ percent of GDP for 2019.

### Outlook, risks, and scenarios
- Baseline macro outlook
  - Inflation is expected to gradually reach 2½ percent over the medium term.  
  - The current account deficit (excluding grants) is projected to expand to about 7 percent of GDP in 2020—reflecting recovery of non-energy imports and FDI—and then narrow to about 5 percent of GDP over the medium term.  
  - Gross usable reserves are expected to remain adequate above 100 percent of the ARA metric over the program period.
- Downside risks
  - Fiscal slippages—including pressures in the run up to parliamentary elections, lower-than-expected yields from tax administration measures, and reform fatigue—could jeopardize program objectives, increase rollover risks, and endanger debt sustainability.  
  - Political economy risks: powerful interests disadvantaged by structural measures (including electricity reform) could stir social discontent and impede reform delivery.  
  - Regional risks: escalation of the conflict in Syria, increased social unrest in Iraq, a worsening economic crisis in Lebanon, or deterioration in relations with Israel could weaken domestic sentiment, regional and global trade, tourism and FDI.  
  - COVID-19 risks: trade links with China, travel restrictions, reduced tourism, and reductions in FDI, trade, and remittances—particularly from GCC countries—could exert significant pressures on growth and the balance of payments; emergency budget spending and revenue losses may be needed.
- Upside scenario
  - Deep structural reforms could increase potential growth above staff projections; reconstruction in Iraq and Syria could improve Jordan’s growth and external position.
- Financing implications
  - If fiscal slippages or subdued growth persist over the medium term, additional donor support with a significant grant component would be required to preserve the program objective of reducing debt vulnerabilities.

### Policy priorities and recommendations
- Growth-oriented structural reforms
  - Remove impediments to business growth and reduce high electricity costs; promote employment, especially for women and young people.  
  - Reform the Investment Law and tax administration to reduce tax exemptions, address tax arbitrage in special economic zones, and improve enforcement and compliance.
- Revenue mobilization
  - Focus on collecting taxes from those not currently paying rather than raising tax rates.  
  - Address tax administration weaknesses: inaccurate registration, filing and audit deficiencies, sizable tax arrears, weak compliance risk management, substandard access and use of information for audit and enforcement, and revenue leakage from smuggling and transfer pricing practices in special economic zones.  
  - Further efforts to rationalize tax exemptions, revisit the property taxation framework, and realign excises.
- Expenditure rationalization and efficiency
  - Contain the wage bill, particularly after the 2019 compensation increases.  
  - Make public health service provision more efficient.  
  - Rationalize transfers to public sector entities.  
  - Streamline social assistance programs and improve targeting to protect the vulnerable.  
  - Further rationalize non-priority current expenditures as warranted.
- Utilities reform
  - Continue measures to contain losses at NEPCO and WAJ while balancing social and environmental considerations; ensure tariff frameworks and cost-recovery mechanisms are implemented to reduce contingent fiscal risks.
- Monetary and financial stability
  - Preserve monetary and financial stability with adequate reserve buffers to support the exchange rate peg and maintain scope for private-sector growth and greater financial inclusion.

*IMF staff report: “Past Fund Staff Advice and Implementation” (excerpt).*

### 13.      Persistent structural fiscal vulnerabilities will also need to be overcome. The use of

### 13.      Persistent structural fiscal vulnerabilities will also need to be overcome. The use of

### Structural fiscal vulnerabilities and off-budget practices
- Treasury cash resources were used to cover off-budget outlays amounting to about 1 percent of GDP per year during 2018-19, reflecting significant weaknesses in the budgeting process.
- Recent off-budget pressures partly emerged from the drawdown of trust accounts, accumulated through the (now abolished) practice of carrying-over unspent budget allocations.
- Accumulation of domestic arrears to the health and energy sectors has ranged between ½ and 1 percent of GDP per year over the past three years.
- Continued commitments to clear arrears and attend off-budget pressures without addressing underlying weaknesses will add to debt.
- Authorities agreed these practices need to be arrested through a revamping of public financial management practices and legislation.

### Tax policy and administration
- Further tax cuts and amnesties should be avoided; creation of additional reduced GST rates should be arrested because they add complexity and administrative difficulty.
- Well-targeted social programs are preferred to sales tax exemptions, which could be regressive.
- Further tax amnesties and discretionary incentives distort the tax system and should be resisted.
- Authorities saw some scope for discretionary fiscal measures to support growth as long as the impact on fiscal balances is limited.
- Measures to strengthen tax administration and tackle evasion include:
  - Recruitment of 100 qualified staff (50 by end-June 2020 and 50 by end-December 2020) to support ISTD, including new auditors (structural benchmark).
  - Rollout of compliance improvement campaigns for professional groups by end-December 2020 (structural benchmark).
  - Implementation of a digital track and trace system to monitor cigarette production by end-December 2020 (structural benchmark).

### Improving the sustainability of the electricity sector (NEPCO)
- Reforming the electricity tariff structure is indispensable for Jordan businesses to regain competitiveness; authorities agreed tariffs should be gradually lowered for businesses in a revenue-neutral way for NEPCO by reducing cross-subsidies.
- Household electricity subsidies embedded in tariffs are not targeted; reform should target subsidies to vulnerable households and reduce subsidies for households with capacity to pay.
- NEPCO financial-sustainability pillars:
  - Contain costs: continue reducing operational costs; Electricity Bill Recovery Mechanism should ensure timely payments by government agencies; proper assessment of fiscal commitments and contingent liabilities (FCCLs) in PPAs is critical.
  - Strengthen revenues: remove pricing distortions that led customers to self-generate or access the grid below cost; lower high marginal electricity tariffs to encourage consumption and retain large customers; seek additional revenues and explore electricity export opportunities.
  - Implement a debt optimization plan: authorities conducted a study to optimize legacy debt and future contractual liabilities and agreed implementation is critical to secure viability and contain contingent-liability impacts.

### Water sector financial strengthening (WAJ)
- Authorities agreed WAJ’s finances should be strengthened while considering sensitivities around water provision in a water-scarce country.
- Continue implementation of Jordan’s “Action Plan to Reduce Water Sector Losses” with regular progress reports.
- Strengthen water sector institutions and coordination between water and energy sectors; develop a joint action plan addressing high electricity cost burdens on water distribution companies.
- Arrest water sector arrears to PPP projects and to electricity distribution companies through proper budgeting and cash management.

### Preserving monetary and financial stability
- The exchange rate peg remains an appropriate nominal anchor supporting stability amid external shocks; monetary policy balances adequate reserves with domestic conditions.
- Recent loosening cycle was considered appropriate; tightening might be required if reserve pressures emerge. Authorities stressed market understanding and careful communication of policy changes.
- Staff views Jordan’s real exchange rate to be moderately overvalued (Annex II); improvement in the current account is constrained by access to trading partners facing conflict.
- Continued steady fiscal consolidation, growth-enhancing reforms, and concessional donor financing are essential to reduce Jordan’s remaining external imbalances; absence of consolidation and reform would increase vulnerabilities.
- Banking system is well capitalized, liquid, and profitable; capital adequacy at 17 percent remains well above regulatory minimum despite low growth.
- CBJ tools to address rising credit risk include risk-weight requirements, limits on loan-to-value and debt-to-income ratios.
- Stress tests indicate a 100 percent increase in NPLs would reduce capital adequacy from 17 percent to 15.6 percent.
- Strengthening of legislative and regulatory framework:
  - CBJ issued Basel III regulations on capital adequacy and liquidity; proactive transition to IFRS9 in 2018.
  - Comprehensive review of banking sector, including Banking Law amendments and new large exposure instructions.
  - ML/FT National Risk Assessment completed with IMF assistance to inform AML/CFT law review; MENAFATF mutual evaluation proceeded in 2018 and was adopted in October 2019.
  - Amendments to the Insurance Law to transfer supervision to the CBJ were before parliament and expected to be passed early in 2020, allowing completion of the transfer by end-June 2020.

### Rebalancing structural reforms to revive growth
- Jordan’s advantages: young and highly educated population, central regional location, stable political environment; but attracting investment and boosting private-sector competitiveness is essential.
- Authorities implementing a five-year matrix (with World Bank and partners) to:
  - Improve the business climate (liberalize FDI, reduce cost of starting/operating businesses, support digital economy).
  - Boost exports, especially in services.
  - Foster a more flexible and responsive labor market (remove regulatory barriers to female participation, lower barriers to formalization, allow easier access for high-skilled foreign workers).
- Frontloading key measures is recommended to have faster impact.

### Pro-employment and social policies
- Social Security law amendments allow:
  - A temporary reduction in contribution rates for small startups employing young workers (reduced contribution rate from 21.75 percent to 5.25 percent for specified firms and workers up to age 28 for 5 years; pension credits for old-age insurance are not granted during that period).
  - Cash support for nurseries in areas with low female labor force participation.
  - Access to individual unemployment insurance savings for higher education and medical expenses.
  - Parametric reforms (increasing early-retirement age and associated deduction rate; allowing part-time workers to contribute).
- Authorities approved incentives for job creation for youth and women through conditional direct cash support to businesses.
- Planning capital investment in infrastructure supporting inclusive growth (e.g., safe and affordable public transportation to facilitate female labor force participation); priority reflected in the 2020 budget.

### Financial inclusion and access
- Continued implementation of financial inclusion strategy, initiatives to support credit to SMEs, and the secured transactions law enactment will broaden financial access, especially for women, the poor, and SMEs.

### Program under the Extended Fund Facility — fiscal policy and structural benchmarks
- The 2020 budget targets a primary deficit of 2.3 percent of GDP (MEFP, ¶8).
- The adjustment requires gross fiscal measures of 2½ percent of GDP to offset higher budgeted outlays for public sector compensation and capital expenditures.
- Estimated overall yield of gross fiscal measures: 2.5 (percent of GDP) broken down as:
  - Revenue measures: 1.2
    - Full annual impact of the new income tax law: 0.5
    - Measures to reduce trading of illegal cigarette brands: 0.3
    - Increase in customs service fees and rationalization of tariff rates: 0.1
    - Curtailment and non-renewal of discretionary customs and sales tax exemptions: 0.1
    - Collection of large taxpayers' arrears: 0.1
    - Tax administration measures: 0.1
  - Expenditure measures: 1.2
    - Control of off-budget expenditures: 0.9
    - Rationalization of government employees: 0.2
    - Other net current-expenditure compression: 0.2
- 2020 budget enacted in line with program understandings; cabinet passed decision to prohibit use of treasury cash resources other than in budgeted allocations and previously identified advances (prior actions).
- Authorities will conduct a review of accumulated trust accounts (structural benchmark).
- Medium-term fiscal path: additional fiscal adjustment of about 2½ percent of GDP during 2021–24 (evenly phased per year) to contain and begin to reduce debt (MEFP, ¶8).
- Medium-term strategy underpinned by:
  - Improving tax administration and tackling tax evasion.
  - Curtailing investment tax exemptions.
  - Revisiting the property taxation framework.
  - Realigning excises.
  - Further rationalizing non-priority expenditures.

### Investment incentives, special economic zones, and customs control
- Issues identified with investment tax exemptions and dual tax/customs administrations (ISTD/Jordan Customs and ASEZA) creating diversion risks, weak border control at ASEZA, and smuggling opportunities.
- Authorities committed to:
  - Amend the 2014 Investment Law to revisit and rationalize investment incentives within and outside special economic zones and submit amendments to Parliament by end-September 2020 (structural benchmark).
  - Impose a single tax administration and a single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control by end-December 2020 (structural benchmark).
  - Introduce Economic Substance Regulations for all special economic zones by end-December 2020 (structural benchmark) to address “letter-box companies.”

### Public financial management and social spending targeting
- Measures to control domestic arrears include strengthened rules for issuance of medical exemptions and a public-sector fuel consumption monitoring system (in coordination with Jordan Petroleum Refinery Company).
- Authorities plan to submit to Parliament an amended draft Organic Budget Law by end-December 2020 (with Fund technical assistance).
- Authorities committed to conduct a comprehensive review of social spending and publish an action plan to enhance effectiveness and efficiency in coordination with the World Bank and UNICEF by end-September 2020, building on the National Social Protection Strategy for 2019-2025.
- Program supports three-year expansion (2019–21) of the National Aid Fund (NAF)’s cash transfer program.
- Revised definition of the social spending indicative target consists of:
  - Non-wage components of the education and health sectors’ current expenditure envelope.
  - NAF’s social protection programs.
  - The school feeding program.

*Source: IMF staff and authorities’ program documents as presented in the provided PDF chapter.*

### 31.      The authorities have made progress in strengthening the public-private partnership

### 31. The authorities have made progress in strengthening the public-private partnership

### Public-Private Partnerships (PPP) and Fiscal Risks
- Parliament passed a revamped PPP law, with World Bank support, that:
  - Clearly establishes the process for tendering PPPs with proper value-for-money assessments.
  - Requires vetting by the MoF’s new unit to assess fiscal commitments and contingent liabilities (FCCLs).
  - Applies to all sectors; no sector is exempted.
- Authorities will complete a detailed study to identify and quantify FCCLs from the existing portfolio of PPPs/PPAs by end-December 2020.
- Future contingent liabilities from existing and new PPPs will be closely monitored under the new PPP law.

### Electricity Sector Policies
- Core program objective: reduce electricity tariffs for key businesses and target electricity subsidies to vulnerable households (MEFP, ¶10).
- Deadlines and deliverables:
  - By end-June 2020: develop a detailed plan to phase out cross-subsidies from businesses to households, in a revenue-neutral manner for NEPCO (structural benchmark). The plan will include:
    - A mean-tested methodology to target households eligible for electricity subsidies, based on detailed income and electricity consumption data.
    - Identification of key businesses for which electricity price reductions will have the highest growth and job-creation impact.
  - By end-October 2020: adopt measures to achieve a third of the needed reductions in cross-subsidies received by households (on an annualized basis), which, after measures already taken this year, are currently estimated at about JD 225 million (structural benchmark).
- NEPCO measures to contain projected losses in 2020 and onwards (MEFP, ¶11-12):
  - Increase revenues via improvements in bill collection, targeted rebates to boost domestic demand, and introduction of fixed fees for renewable energy systems connected to the grid.
  - Staff projections assume NEPCO’s existing obligations will be met in full, with flexibility to incorporate potential renegotiations (an upside to the program).
- Transparency in PPAs:
  - Prior action: issue a tender for a contract with an international accounting, consulting or legal firm to conduct a comprehensive review of the most significant PPA.
  - By end-June 2020: hire a firm (structural benchmark).
  - By end-September 2020: complete the review and share with Fund staff (structural benchmark).
  - The review will ascertain whether procurement followed international best practices and domestic laws, and whether contracts’ financial implications on NEPCO are well understood.
  - Authorities will make available all relevant contracts for the review. NEPCO will contract new PPAs following international best practices and guided by the new PPP law.

### Water Sector Policies
- Authorities will continue implementing the “Action Plan to Reduce Water Sector Losses” and issue regular progress reports (MEFP, ¶14–17).
- Focus areas:
  - Reduce costs, including by increasing energy efficiency (MEFP, ¶15).
  - Enhance revenues by tackling non-revenue water (physical and commercial losses) and increasing billing efficiency.
  - Study the water tariff structure for corporate and households and explore options for tariff restructuring and potential social impacts (MEFP, ¶15).
- Institutional change:
  - WAJ will be transferred under the Ministry of Water while preserving WAJ’s independent accounting and financial reporting (MEFP, ¶14).
- General budget will provide adequate allocations to ensure timely payments to PPP projects and the energy sector.

### Monetary Policy
- Stance: currently appropriate and should remain geared toward supporting the peg by maintaining an adequate reserve buffer (MEFP, ¶22).
- Authorities will maintain the current interest rate differential with the United States and monitor developments to protect external buffers.
- Program reserve target: maintain reserves at around 107–110 percent of RAM over the program period.
- Recognition that monetary and fiscal policy are tightly linked; meeting fiscal targets is vital to ease the burden on monetary policy.

### Structural Reforms
- Program focus: address impediments to growth in business costs, labor market, and governance; build on Jordan Economic Growth Plan 2018-22 and the five-year reform matrix from the 2019 London Initiative.
- Business environment reforms (MEFP, ¶28):
  - Reduce cost of starting and operating a business, simplify procedures, and strengthen investor protection.
  - Initiatives: “Regulatory Predictability Framework”, “Investor’s Journey” agenda, Licensing Reform Policy Paper implementation, streamline construction permits and customs-clearance procedures.
- Access to finance (MEFP, ¶29):
  - Prior steps: passage of the Secured Transactions Law; amendments to the Insolvency Law and by-laws; provision of credit scores by the new Private Credit Bureau. Jordan now ranks 4th globally on Doing Business “access to credit”.
  - 2020 actions: implement new insolvency framework—train licensed insolvency practitioners and judges, establish the Insolvency Committee, operationalize an electronic insolvency registry.
  - CBJ established a division to promote financial inclusion and published a Financial Inclusion Strategy for 2018-20.
  - In early 2020: commission a study on financial inclusion to be completed by end-2020 (structural benchmark) to inform an updated strategy for 2021-23.
- Labor market and job creation (MEFP, ¶30):
  - Encourage formality by exploring flexible social-security contribution arrangements for youth and new hires; a temporary lower contribution rate initially for agricultural and ICT sectors to be expanded to all sectors by end-June 2020 (structural benchmark).
  - Gender equality measures: amendments to the Labor Law for flexible work arrangements; removal of discriminatory gender references in Ministry of Labor instructions; amended by-laws that previously restricted women’s working hours.
  - Labor Law mandates firms with more than 20 parent employees provide daycare for children under five; by-laws and instructions to clarify obligations will be approved and circulated by end-June 2020 (structural benchmark).
  - Authorities are working to enhance public transport quality and reliability.
- Public procurement (MEFP, ¶32):
  - 2019 enactment of a new Unified Public Procurement By-law providing for a fully independent central policy and oversight unit and an independent complaints-handling unit; these units to be set up in 2020.
  - Develop procurement criteria to ensure bidders use only formal employees/subcontractors and plan to set aside procurement quotas for SMEs.
  - Rollout of an integrated e-procurement system to cover all ministerial-level public institutions and municipalities by end-December 2021.
- Asset disclosure and anti-corruption (MEFP, ¶33):
  - By end-December 2020: propose amendments to the Illicit Gains Law to require disclosures be submitted to JIACC; maintain disclosures within an electronic database shareable across relevant agencies; allow more public access to basic financial disclosure information by public officials (structural benchmark).

### Program Financing and Modalities
- Program length and conditionality:
  - Staff proposes a four-year extended arrangement under the EFF, with semi-annual reviews.
  - Performance criteria for end-June and end-December 2020; indicative targets for end-September 2020 and end-March 2021.
  - Structural benchmarks phased in line with implementation capacity; program flexible to accommodate COVID-19 related spending pressures.
- Financing commitments:
  - Fund access: normal access of 270 percent of quota (SDR 926.37 million or about US$1.3 billion). Disbursements evenly spaced across eight program review. Fund purchases will be on-lent to the government.
  - Additional financing from donors expected to fully finance external financing needs over the first twelve months, with prospects thereafter for additional loans (partly concessional) and grants.
  - Issuances of non-guaranteed Eurobonds in 2020 and 2022 expected to rollover maturing guaranteed Eurobonds.
- External financing table highlights (2020–24, in million of U.S. dollars):
  - Financing gap and official financing entries (sample):
    - 12 months from EFF start / 2020 / 2021 / 2022 / 2023 / 2024 / 2025: Financing gap line shows 2,660 2,689 1,462 867 767 517 (table rows as presented).
  - Identified official public external financing examples:
    - World Bank: 1,129 1,146 331 843 626 (as shown).
    - European Union: 336 336 227 0 0 0.
    - Japan: 200 200 100 100 100 0.
    - Others: 711 724 518 396 343 345.
  - Memorandum item: Eurobond issuance 1,000 1,000 0 1,000 0 0.
- Program risks and contingency plans:
  - Risk of fiscal slippages; mitigated by significant prior actions and contingent fiscal measures (notably a willingness to increase excises).
  - Donor support may need to step up if COVID-19 causes economic disruption; program may be adapted if impact prevents meeting targets.
- Prior actions to demonstrate commitment:
  - Enactment of the 2020 general budget consistent with program understandings.
  - Cabinet decision to prohibit use of treasury cash resources other than in budgeted allocations and previously identified advances, including COVID-19-related emergency outlays and medical supplies and equipment.
  - Issue a tender, based on TOR prepared in consultation with IMF staff, for an international accounting, consulting or legal firm to undertake a comprehensive review of the most significant PPA.
- Capacity to repay the Fund:
  - Fund credit outstanding will peak in 2024 at 2.6 percent of GDP.
  - EFF repurchases peak at 0.9 percent of exports of goods and non-factor services and 1.1 percent of gross usable reserves in 2028.

### Staff Appraisal — Key Findings and Policy Recommendations
- Economic context:
  - Since the Arab Spring Jordan has maintained economic stability but experienced low growth (around 2 percent in recent years) and rising unemployment, especially among youth; public debt has continued to grow partly due to fiscal slippages.
- Structural reforms essential to raise growth without sacrificing stability:
  - Simplify procedures to attract investment; undertake energy sector reforms to reduce business costs; increase access to labor markets and credit for women and young people.
- Fiscal policy recommendations:
  - Continue fiscal adjustment focused on improved tax collection and targeted subsidies.
  - Revenue mobilization should emphasize broadening the tax base, reducing tax exemptions, and leveling the playing field between formal and informal sectors.
  - Overhaul the investment incentives framework, particularly reform of the 2014 Investment Law, and strengthen tax administration.
  - Improve collection of electricity and water tariffs and concentrate subsidies on those most in need.
  - Use IMF technical assistance for tax administration and subsidy targeting; implement high-quality fiscal measures with the political will to confront entrenched interests.
- Governance recommendations:
  - Improve tax administration and public financial management to increase public trust.
  - Conduct an independent review of costly decisions in the electricity sector.
  - Increase openness in the asset disclosure process for public officials to promote transparency and reduce corruption vulnerability.

*Source: IMF staff report excerpt, as provided in the supplied content.*

### 53.      The staff supports the authorities’ request for a four-year arrangement under the EFF.

### 1jorea2020001 - 53.      The staff supports the authorities’ request for a four-year arrangement under the EFF.

### Program support and risks
- The staff supports the authorities’ request for a four-year arrangement under the EFF.
- Risks to the program:
  - Social discontent that causes economic disruption and policy missteps.
  - Adverse global and regional developments.
- Risk mitigants:
  - The authorities’ strong commitment to the program, evidenced by the completion of prior actions.
  - Broad support of the international community for Jordan.
  - Continued strong efforts by the authorities and support from Jordan’s partners will be essential to the success of the program.

### Article IV consultation timing
- It is proposed that the next Article IV consultation with Jordan take place on a 24-month cycle in accordance with the Decision on Article IV Consultation Cycles (Decision No. 14747-(10/96), as amended).

### Macroeconomic policies, fiscal performance, and public financial management (Box 1: Past Fund Staff Advice and Implementation)
- Overall assessment:
  - Macroeconomic policies were implemented with delays but broadly in line with past staff advice.
  - Fiscal consolidation fell short of expectations due to sizable revenue shortfalls and public financial management deficiencies.
- Causes of revenue shortfalls:
  - Widespread weaknesses in tax administration.
  - Low-quality measures.
  - Delays in implementation.
  - Some tax policy reversals.
- Consequences:
  - Reliance on low-quality measures, including cuts to capital spending and postponing the clearance of domestic arrears.
  - Delayed structural reforms undermined growth.
- Measures and progress:
  - Improving the tax framework:
    - Reduction of sales-tax exemptions and amendments to the income tax law strengthened the tax policy framework.
    - Persistent weaknesses in tax administration, inability to tackle tax evasion and smuggling, and some tax policy reversals contributed to sizable revenue slippages over 2018-19.
  - Containing fiscal losses from utilities:
    - The automatic electricity tariff adjustment mechanism has curbed NEPCO’s losses since end-2017, while protecting vulnerable people, but it has been unevenly implemented.
    - The recently-approved Roadmap Towards Financial Sustainability of the Power Sector aims to support NEPCO’s financial sustainability and to reform Jordan’s cross-subsidized tariff structure.
    - Implementation of the water-sector action plan has somewhat contained losses; delays and higher electricity costs suggest the need for refinements.
  - Monetary and financial stability:
    - CBJ maintained an appropriate monetary policy stance geared toward ensuring adequate reserve coverage.
    - The banking sector remained well capitalized, provisioned, and profitable despite a prolonged slowdown in economic activity.
- Structural reforms and social policies:
  - Business environment:
    - Passage of the inspection, insolvency and secured lending laws (albeit with delays).
    - Fully operational credit bureau to help facilitate access to finance for SMEs.
  - Social safety net and female labor force participation:
    - A three-year program developed with the World Bank expanded the National Aid Fund’s cash-transfer program and improved targeting.
    - Recent regulations promoted flexible work arrangements and access to childcare services to boost female participation.
  - Payroll taxes:
    - Recent amendments to the Social Security Law paved the way for implementing a temporary reduction in contribution rates for targeted groups (long-timed recommended by staff).

### Electricity sector challenges and prospects (Box 2)
- Cross-subsidies and tariff structure:
  - Since 2011, electricity tariffs increases by sector:
    - Tripled for mining and for the banking sector.
    - Increased by 165 percent for telecommunication.
    - Increased by 154 percent for water pumping.
    - Increased by 100 percent for large industries.
  - Households:
    - Tariffs left unchanged for the first four tranches of consumption (up to 600 kWh per month; or about 70 percent of households).
    - Increased by 50 percent for the largest consumption tranche.
  - High electricity tariffs are a binding constraint for growth; businesses face electricity costs higher than those prevailing in the rest of the world.
  - Cross-subsidies amounted to 1.3 percent of GDP in 2018, with household cross-subsidies at 1.0 percent of GDP.
  - Businesses providing the highest cross-subsidies include:
    - Commercial sector (0.3 percent of GDP).
    - Telecommunication (0.1 percent of GDP).
    - Large industries, mining, hospitals, and ports (a total of 0.1 percent of GDP).
  - At present, all households regardless of their income receive subsidies for part of their electricity consumption.
- NEPCO’s outlook and measures:
  - NEPCO’s costs are projected to significantly increase due to the coming on stream of an oil-shale PPA.
  - Staff estimates that the PPA will add costs to NEPCO amounting to about 0.7 percent of GDP every year.
  - Projected NEPCO losses:
    - Losses amounting to 0.5 percent of GDP in 2020.
    - Losses amounting to 0.4 percent of GDP over the medium term.
  - NEPCO’s measures to contain losses over the medium term:
    - Regional export agreements.
    - Increased bill collection.
    - Renewable connection fees.
    - Containment of operational costs via cost-savings from LNG regasification and storage capacity.
    - Optimization of PPA contracts.
    - Implementation of its debt optimization plan.

### Public sector coverage and debt sustainability implications (Box 3)
- General considerations:
  - Appropriate coverage of public debt is pivotal for assessing risks to public debt sustainability.
  - Under existing Fund guidance, coverage in the DSA should be as broad as possible, subject to availability and frequency of fiscal data.
  - Coverage at the general government level (GG) is most commonly used in DSAs for market-access countries; GG as defined in GFSM 2014 includes government units and non-market non-profit institutions controlled by government units.
- Historical program coverage:
  - The 2016 EFF monitored fiscal operations at an expanded central government level (central government plus selected government units: NEPCO, WAJ, and water distribution companies).
  - Lack of fiscal data frequency prevented inclusion of some public sector units (e.g., the Social Security Corporation).
- 2020 EFF coverage change:
  - The 2020 EFF expands coverage of public debt by consolidating the holdings of government debt of the Social Security Corporation, aligning coverage closer to the general government concept.
  - The program will continue monitoring fiscal targets at the expanded central government level.
- Social Security Corporation (SSC) specifics:
  - The SSC is a fully state-owned corporation running a contributory, defined-benefit pension plan; assets are managed by the Social Security Investment Fund (SSIF).
  - Contribution rates have increased from 16.5 percent in 2011 to 21.75 percent currently.
  - SSC has a high ratio of contributors to beneficiaries (about 10 to 1) and is running an annual surplus of about 3½ percent of GDP.
  - Pension fund assets amount to 35 percent of GDP, with holdings of Jordanian government debt representing 19 percent of GDP in 2019.
  - SSIF’s investment guidelines cap investment in government debt at 60 percent of its total portfolio; the ratio is now at 55 percent.
  - Actuarial projections under existing pension parameters:
    - Contribution income would equal total expenses in 2034.
    - Contribution and investment income would equal total expenses in 2041.
    - Pension fund assets would start declining thereafter.

*IMF staff report content.*

### Box 3. Jordan: Implications of Expanding the Public Sector Coverage

### Box 3. Jordan: Implications of Expanding the Public Sector Coverage

### Implications of the new debt coverage
- The new consolidated debt concept for DSA purposes would better reflect Jordan’s sustainability risks.1
- The consolidation of the SSC’s operations would help reflect the underlying debt sustainability risks and liquidity pressures over the near- and medium-term.
- The consolidated presentation would allow for comparability and evenhanded reporting of Jordan’s debt burden with market-access countries, most of which report at the GG level.

### Program monitoring and fiscal targets
- Program targets will continue to focus on the expanded central government coverage.
- Fiscal effort under the program will continue to be monitored and measured by the adjustment at the central government level, NEPCO and the government-owned water sector.
- Rationale: this coverage is more under the direct control of the authorities.
- Policy implication: achieving targeted improvements in central government balances are essential for the central government to be able to meet its long-term obligations with the SSC.

### Data compilation and availability
- Efforts continue in order to compile financial data from other government units and local governments at a high frequency, with support of Fund and donor technical assistance.
- The authorities have made available SSC financial data at the frequency needed for program purposes.

*International Monetary Fund — Box 3. Jordan: Implications of Expanding the Public Sector Coverage (concluded).*

### Annex I. Debt Sustainability Analyses

### Annex I. Debt Sustainability Analyses

### Summary assessment
- Jordan’s public debt is assessed as sustainable, contingent on:
  - the fiscal adjustment and growth-enhancing reforms envisaged under the new Fund-supported program;
  - the ability to mobilize committed donor and market financing.
- Public debt (consolidated gross direct and guaranteed debt of the central government and the state-owned Social Security Corporation) is projected to:
  - peak at 80 percent of GDP in 2020;
  - decline to 74 percent of GDP by 2025 (above the 70 percent high-risk MAC DSA benchmark).
- External debt is projected to reach 73 percent of GDP by 2021 and remains vulnerable to current account and real exchange rate shocks.
- Key mitigating factors: concessional financing committed under the Jordan Compact and the London Initiative, overall gross financing needs below the high-risk benchmark.
- Key conditionality: steadfast implementation of program commitments and timely disbursements of external financing.

### Assumptions — Macro
- GDP growth:
  - projected to increase to 2.1 percent in 2020;
  - gradually reach 3.3 percent over the medium term.
- Inflation (GDP deflator): expected to gradually converge to 2½ percent over the medium term.
- Current account deficit (excluding grants): projected to narrow from 7 percent of GDP in 2020 to 5 percent over the medium term.
- Financing sources for the current account and reserves: gradual recovery of FDI inflows, continued market access, Fund financing, concessional financing under the Jordan Compact and the 2019 London Initiative.

### Assumptions — Fiscal and financing
- Combined public deficit: projected to decline from 5.1 percent of GDP in 2019 to 0.8 percent by 2025, including NEPCO’s additional costs stemming from an oil-shale PPA project.
- Cumulative fiscal effort required at the central government level: about 4 percent of GDP during 2020–24.
- Budget grants:
  - past five years: $5.8 billion (partly buoyed by an agreement with GCC members for $3¼ billion);
  - committed budget grants over 2020–24: expected to decline to about $4½ billion.
- Sovereign yields and interest burden:
  - EMBIG spread average since end-2015: about 390 basis points (standard deviation of 38 bps);
  - interest burden (central government level) increased from 3 percent of GDP on average during 2016–18 to about 4 percent in 2019.
- Maturity and rollover assumptions:
  - domestic debt average maturity (excluding treasury bills) has almost doubled to six years since 2018;
  - external public debt maturity at issuance typically more than five years;
  - U.S. guaranteed Eurobonds maturing in 2020 and 2022 and domestic FX bonds maturing during 2021–23 are assumed to be rolled-over on market terms prevailing at the respective due dates (with expected issuance terms of 10-year maturity and 7 percent interest rate).

### Gross financing needs and sources (2020–21)
- Gross Financing Needs (A1+A2):
  - 2020: 6,256 US$ Million; 13.7 Percent of GDP
  - 2021: 6,340 US$ Million; 13.3 Percent of GDP
- A1. Overall deficit (after grants):
  - 2020: 367 US$ Million; 0.8 Percent of GDP
  - 2021: 931 US$ Million; 1.0 Percent of GDP
  - Central government:
    - 2020: 1,378 US$ Million; 3.0 Percent of GDP
    - 2021: 1,637 US$ Million; 3.4 Percent of GDP
  - NEPCO:
    - 2020: 222 US$ Million; 0.5 Percent of GDP
    - 2021: 307 US$ Million; 0.6 Percent of GDP
  - WAJ and distribution companies:
    - 2020: 489 US$ Million; 1.1 Percent of GDP
    - 2021: 381 US$ Million; 0.8 Percent of GDP
  - Social Security Corporation:
    - 2020: -1,723 US$ Million; -3.8 Percent of GDP
    - 2021: -1,832 US$ Million; -3.8 Percent of GDP
- A2. Debt amortization:
  - 2020: 5,889 US$ Million; 12.9 Percent of GDP
  - 2021: 5,847 US$ Million; 12.2 Percent of GDP
- Gross Financing Sources (B1+B2+B3):
  - 2020: 6,256 US$ Million; 13.7 Percent of GDP
  - 2021: 6,340 US$ Million; 13.3 Percent of GDP
- B1. Issuance of domestic debt:
  - 2020: 2,292 US$ Million; 5.0 Percent of GDP
  - 2021: 4,636 US$ Million; 9.7 Percent of GDP
  - Central government domestic issuance:
    - 2020: 1,501 US$ Million; 3.3 Percent of GDP
    - 2021: 3,775 US$ Million; 7.9 Percent of GDP
  - Guaranteed domestic debt:
    - 2020: 791 US$ Million; 1.7 Percent of GDP
    - 2021: 861 US$ Million; 1.8 Percent of GDP
- B2. Identified external financing:
  - 2020: 3,964 US$ Million; 8.7 Percent of GDP
  - 2021: 1,704 US$ Million; 3.6 Percent of GDP
  - Bilateral:
    - 2020: 1,408 US$ Million; 3.1 Percent of GDP
    - 2021: 988 US$ Million; 2.1 Percent of GDP
  - Multilateral:
    - 2020: 1,556 US$ Million; 3.4 Percent of GDP
    - 2021: 716 US$ Million; 1.5 Percent of GDP
  - Eurobond issuance:
    - 2020: 1,000 US$ Million; 2.2 Percent of GDP
    - 2021: 0 US$ Million; 0.0 Percent of GDP

### Public sector DSA — Coverage and baseline trajectory
- Coverage of public debt in the DSA includes:
  - central government direct debt;
  - government-guaranteed debt of public entities (NEPCO, WAJ, and other public entities);
  - CBJ’s liabilities to the IMF.
- Central government direct and guaranteed debt is consolidated with the SSC’s holdings of government debt (about 20 percent of GDP).
- Baseline public debt projections:
  - 2019: public debt increased to 79 percent of GDP;
  - 2020: projected increase to 80 percent of GDP;
  - 2025: projected decline to 74 percent of GDP, assuming a cumulative fiscal effort of 4 percent of GDP during 2020–24 and growth recovery.

### Public debt stock composition (2019 preliminary)
- Public and publicly guaranteed debt: JD 24.7 Billion / US$ 34.8 Billion / 79.4 Percent of GDP / 100.0 Percent of total
- Domestic debt: JD 13.6 Billion / US$ 19.2 Billion / 43.7 Percent of GDP / 55.1 Percent of total
  - Direct debt: JD 10.7 Billion / US$ 15.1 Billion / 34.5 Percent of GDP
  - Guaranteed debt: JD 2.9 Billion / US$ 4.0 Billion / 9.2 Percent of GDP
  - Held by commercial banks: JD 12.1 Billion / US$ 17.1 Billion / 38.4 Percent of total
  - Held by CBJ: JD 0.3 Billion / US$ 0.4 Billion / 0.9 Percent of total
  - Held by non-banks: JD 1.2 Billion / US$ 1.7 Billion / 3.9 Percent of total
  - Local currency: JD 11.7 Billion / US$ 16.5 Billion / 37.7 Percent of GDP / 47.5 Percent of total
  - Foreign currency: JD 1.9 Billion / US$ 2.6 Billion / 6.0 Percent of GDP / 7.6 Percent of total
- External debt: JD 11.1 Billion / US$ 15.6 Billion / 44.9 Percent of GDP / 44.9 Percent of total
  - External direct debt: JD 10.4 Billion / US$ 14.7 Billion / 42.2 Percent of GDP
  - Multilateral: JD 3.2 Billion / US$ 4.6 Billion / 10.4 Percent of GDP
    - of which: IMF: JD 0.4 Billion / US$ 0.5 Billion / 1.2 Percent of GDP
    - of which: World Bank: JD 2.2 Billion / US$ 3.0 Billion / 6.9 Percent of GDP
  - Bilateral: JD 2.6 Billion / US$ 3.6 Billion / 8.3 Percent of GDP
  - Guaranteed Eurobonds: JD 2.2 Billion / US$ 3.0 Billion / 6.9 Percent of GDP
  - Non-guaranteed Eurobonds: JD 2.4 Billion / US$ 3.4 Billion / 7.9 Percent of GDP
- External guaranteed debt: JD 0.7 Billion / US$ 0.9 Billion / 2.1 Percent of GDP
  - Multilateral: JD 0.6 Billion / US$ 0.8 Billion / 1.9 Percent of GDP
  - Bilateral: JD 0.1 Billion / US$ 0.1 Billion / 0.2 Percent of GDP
- Memorandum item: SSC's holdings of government debt: JD 6.1 Billion / US$ 8.6 Billion / 19.7 Percent of GDP

### Public debt risks, fan charts, and stress tests
- Heat map and fan charts indicate significant risks to debt sustainability; debt level breaches the high-risk benchmark under the baseline throughout the projection period.
- Near-term risks are particularly acute given elevated debt level and relatively high gross financing needs (GFNs), though GFNs are covered by committed concessional financing and rollovers from domestic investors.
- Fan-chart methodology:
  - Symmetric distribution: upside and downside risks to macro variables treated as equally likely.
  - Asymmetric (restricted) distribution: shocks to the primary balance restricted to the negative side to reflect limits of fiscal effort; shows heightened risks if fiscal consolidation falls short.
- Stress-test outcomes (selected scenarios):
  - Growth shock: cumulative growth decline of 1½ percentage points in 2021–22 → cumulative primary balance deterioration of about 1 percent of GDP → debt-to-GDP ratio would reach 83 percent of GDP in 2021.
  - Real exchange rate shock: calibrated to close the upper-bound of estimated overvaluation (6 percent) → debt ratio would reach 83 percent of GDP by 2021.
  - Higher borrowing costs: increase of 200 bps → debt-to-GDP ratio would be 79 percent of GDP by 2025.
  - Combined macro-fiscal shock (aggregation of shocks to real growth, interest rates, primary balance and exchange rate) → public debt would reach about 90 percent of GDP over the medium term.

### External sector DSA — Coverage and projections
- Coverage includes:
  - public and publicly guaranteed external debt;
  - external liabilities of the banking sector and private corporations (private external debt coverage likely underestimated due to data limitations).
- Public external debt:
  - expected to rise from 36 percent of GDP in 2019 to about 38-40 percent of GDP by 2024.
  - composition favorable owing to sizable share of concessional borrowing, including pledges under the Jordan Compact and the 2019 London Initiative.
- Private external debt:
  - expected to remain moderate at about 30 percent of GDP.
  - as of end-2018, 77 percent of total private external debt was owed by banks (mostly non-resident deposits), remainder by non-financial corporations.
  - over the medium term, corporate share expected to gradually increase to about a third of total private external debt.
- External financing requirements:
  - remain sizable over the program period and gradually decline thereafter, reflecting persistent near-term current account deficits and amortizations of U.S. guaranteed Eurobonds maturing during 2020–22 (assumed to be rolled-over on market terms).
- External debt vulnerabilities:
  - a large and permanent real depreciation shock would raise external debt-to-GDP well above baseline;
  - sensitivity to current account and combined shocks is relatively low;
  - interest rate and real growth shocks have marginal impact on external debt burden.
- Assumptions underlying moderate external risk: FDI inflows gradually pick up, continued international market access, accumulation of additional external buffers under the program.

### Policy implications and priorities (as identified in the analysis)
- Steadfast implementation of program commitments and timely disbursements of external financing are necessary to ensure debt sustainability.
- Full implementation of the energy-reform roadmap is critical to fiscal sustainability.
- Continued fiscal consolidation (cumulative 4 percent of GDP during 2020–24) is necessary to place public debt on a declining trajectory.
- Maintenance of market access and securing concessional financing (Jordan Compact, London Initiative, multilaterals, official bilateral creditors) are important to mitigate rollover and financing risks.
- Continued shift to longer-term domestic issuance and official financing to reduce gross financing needs and rollover risk.

*Italic: IMF staff.*

### 3.5 percent of

### 3.5 percent of

### Public Sector Debt Sustainability Analysis (DSA) — Baseline Scenario (selected indicators)
- Nominal gross public debt: 71.8 (2018), 76.3 (2019), 79.4 (2020), 79.9 (2021), 79.7 (2022), 78.7 (2023), 78.7 (2024), 75.8 (2025), 73.6 (2025)
- Of which: guarantees: 9.8 (2018), 11.2 (2019), 10.1 (2020), 9.5 (2021), 9.4 (2022), 9.1 (2023), 9.0 (2024), 8.2 (2025), 7.7 (2025)
- Public gross financing needs: 26.5 (2018), 17.9 (2019), 14.4 (2020), 13.7 (2021), 13.3 (2022), 13.4 (2023), 12.6 (2024), 10.7 (2024), 11.5 (2025)
- Real GDP growth (in percent): 2.7 (2018), 1.9 (2019), 2.0 (2020), 2.1 (2021), 2.3 (2022), 2.6 (2023), 2.9 (2024), 3.1 (2025), 3.3 (2025)
- Inflation (GDP deflator, in percent): 4.2 (2018), 1.8 (2019), 1.6 (2020), 1.9 (2021), 2.5 (2022), 2.5 (2023), 2.5 (2024), 2.5 (2025)
- Nominal GDP growth (in percent): 7.0 (2018), 3.7 (2019), 3.6 (2020), 4.0 (2021), 4.9 (2022), 5.2 (2023), 5.5 (2024), 5.7 (2025), 5.9 (2025)
- Effective interest rate (in percent): 4.9 (2018), 4.2 (2019), 4.5 (2020), 4.4 (2021), 4.5 (2022), 4.5 (2023), 4.6 (2024), 4.5 (2025), 4.6 (2025)
- Change in gross public sector debt (cumulative): 2.0 (2018), -1.0 (2019), 3.1 (2020), 0.6 (2021), -0.2 (2022), -1.0 (2023), -1.0 (2024), -2.0 (2025), -2.2 (2025), -5.7 (cumulative)
- Identified debt-creating flows: 2.5 (2018), -0.4 (2019), 1.9 (2020), -0.3 (2021), -0.3 (2022), -1.0 (2023), -1.0 (2024), -2.0 (2025), -2.1 (2025), -6.7 (cumulative)
- Primary deficit (percent of GDP): 3.3 (2018), -1.8 (2019), -0.4 (2020), -2.1 (2021), -1.9 (2022), -2.3 (2023), -2.1 (2024), -2.8 (2025), -2.6 (2025), -13.8 (cumulative)
- Revenues and grants (percent of GDP): 35.7 (2018), 38.6 (2019), 36.9 (2020), 39.4 (2021), 38.7 (2022), 38.6 (2023), 37.7 (2024), 37.7 (2025), 37.2 (2025), 229.3 (cumulative)
- Primary expenditures (percent of GDP): 39.0 (2018), 36.8 (2019), 36.5 (2020), 37.2 (2021), 36.9 (2022), 36.2 (2023), 35.6 (2024), 34.9 (2025), 34.6 (2025), 215.5 (cumulative)
- Automatic debt dynamics (percent of GDP): -1.2 (2018), 0.9 (2019), 1.2 (2020), 0.3 (2021), 0.2 (2022), -0.1 (2023), -0.2 (2024), -0.4 (2025), -0.5 (2025), -0.7 (cumulative)
  - Of which: real interest rate: 0.6 (2018), 2.4 (2019), 2.7 (2020), 1.9 (2021), 1.9 (2022), 1.9 (2023), 1.9 (2024), 1.9 (2025), 11.4 (cumulative)
  - Of which: real GDP growth: -1.8 (2018), -1.4 (2019), -1.4 (2020), -1.6 (2021), -1.8 (2022), -2.0 (2023), -2.2 (2024), -2.3 (2025), -2.4 (2025), -12.1 (cumulative)
- Other identified debt-creating flows: 0.4 (2018), 0.4 (2019), 1.1 (2020), 1.5 (2021), 1.4 (2022), 1.4 (2023), 1.3 (2024), 1.2 (2025), 1.0 (2025), 7.8 (cumulative)
- Privatization Receipts (negative): -0.1 (2018), 0.0 (2019), -0.2 (2020), 0.0 (2021), 0.0 (2022), 0.0 (2023), 0.0 (2024), 0.0 (2025), 0.0 (2025), 0.0 (cumulative)
- Residual, including asset changes: -0.5 (2018), -0.6 (2019), 1.1 (2020), 0.8 (2021), 0.1 (2022), 0.1 (2023), 0.0 (2024), 0.0 (2025), -0.1 (2025), 1.0 (cumulative)
- Public sector definition note: consolidated central government, NEPCO, WAJ, water distribution companies, and Social Security Corporation; includes public guarantees of NEPCO, WAJ, and other public entities.

### Composition of Public Debt and Alternative Scenarios (key assumptions)
- Baseline underlying assumptions (selected years):  
  - Real GDP growth: 2.1 (2020), 2.3 (2021), 2.6 (2022), 2.9 (2023), 3.1 (2024), 3.3 (2025)  
  - Inflation: 1.9 (2020), 2.5 (2021), 2.5 (2022), 2.5 (2023), 2.5 (2024), 2.5 (2025)  
  - Primary Balance: 2.1 (2020), 1.9 (2021), 2.3 (2022), 2.1 (2023), 2.8 (2024), 2.6 (2025)  
  - Effective interest rate: 4.4 (2020), 4.5 (2021), 4.5 (2022), 4.6 (2023), 4.5 (2024), 4.6 (2025)
- Historical scenario assumptions (selected):  
  - Real GDP growth: 2.1 (2020), 2.4 (2021), 2.4 (2022), 2.4 (2023), 2.4 (2024), 2.4 (2025)  
  - Primary Balance: 2.1, -2.2, -2.2, -2.2, -2.2, -2.2
- Constant Primary Balance Scenario assumption: Primary Balance = 2.1 (2020) and 2.1 for subsequent years
- Charts presented: Gross Nominal Public Debt (in percent of GDP), Public Gross Financing Needs (in percent of GDP), By Maturity (Short-term / Medium and long-term), By Currency (Local currency-denominated / Foreign currency-denominated)

### Stress Tests (macro-fiscal scenarios and outcomes)
- Stress test scenarios (selected assumptions and impacts):
  - Primary Balance Shock: Real GDP growth (2020–2025): 2.1, 2.3, 2.6, 2.9, 3.1, 3.3; Inflation: 1.9, 2.5, 2.5, 2.5, 2.5, 2.5; Primary balance: 2.1, -0.2, 0.3, 2.1, 2.8, 2.6; Effective interest rate: 4.4, 5.2, 5.4, 5.6, 5.7, 5.7
  - Real GDP Growth Shock: Real GDP growth: 2.1, 1.6, 1.9, 2.9, 3.1, 3.3; Inflation: 1.9, 2.3, 2.3, 2.5, 2.5, 2.5; Primary balance: 2.1, 1.6, 1.7, 2.1, 2.8, 2.6; Effective interest rate: 4.4, 5.2, 5.3, 5.5, 5.5, 5.6
  - Real Interest Rate Shock: Effective interest rate increases (selected): 4.4 (2020), 5.2 (2021), 5.7 (2022), 6.2 (2023), 6.5 (2024), 6.7 (2025)
  - Real Exchange Rate Shock: Inflation spike 1.9 (2020), 4.5 (2021), 2.5 thereafter; Effective interest rate responses shown in table
  - Combined Shock: Aggregated adverse movements; Effective interest rate: 4.4 (2020), 5.4 (2021), 5.6 (2022), 6.1 (2023), 6.5 (2024), 6.7 (2025)
- Stress test metrics presented: Gross Nominal Public Debt (in percent of GDP), Gross Nominal Public Debt (in percent of Revenue), Public Gross Financing Needs (in percent of GDP) under alternative shocks

### External Debt Sustainability: Bound Tests and External DSA (selected figures)
- Baseline external debt (percent of GDP): 63.6 (2014), 65.1 (2015), 66.3 (2016), 69.6 (2017), 69.0 (2018), 68.6 (2019), 71.9 (2020), 72.6 (2021), 71.4 (2022), 69.7 (2023), 67.2 (2024)
- Of which: Public and Publicly Guaranteed External Debt: 31.0 (2014), 34.8 (2015), 37.0 (2016), 39.9 (2017), 37.2 (2018), 35.5 (2019), 39.5 (2020), 41.1 (2021), 40.8 (2022), 40.0 (2023), 38.3 (2024)
- Change in external debt: -0.4 (2014), 1.5 (2015), 1.2 (2016), 3.3 (2017), -0.6 (2018), -0.4 (2019), 3.3 (2020), 0.7 (2021), -1.3 (2022), -1.6 (2023), -2.6 (2024)
- Identified external debt-creating flows (4+8+9): -2.9 (2014), 1.8 (2015), 3.8 (2016), 3.4 (2017), 2.2 (2018), -0.4 (2019), -0.4 (2020), -0.5 (2021), -1.0 (2022), -1.8 (2023), -2.5 (2024)
- Current account deficit, excluding interest payments (percent of GDP): 6.3 (2014), 8.3 (2015), 8.8 (2016), 9.4 (2017), 5.1 (2018), 1.0 (2019), 1.3 (2020), 1.5 (2021), 1.4 (2022), 1.4 (2023), 1.0 (2024)
- Deficit in balance of goods and services: 26.2 (2014), 22.8 (2015), 21.2 (2016), 21.5 (2017), 18.5 (2018), 13.7 (2019), 13.1 (2020), 11.6 (2021), 10.7 (2022), 9.8 (2023), 9.0 (2024)
- Exports (percent of GDP): 43.1 (2014), 37.2 (2015), 34.5 (2016), 35.1 (2017), 35.7 (2018), 37.3 (2019), 37.7 (2020), 38.0 (2021), 38.3 (2022), 38.5 (2023), 38.6 (2024)
- Imports (percent of GDP): 69.3 (2014), 60.1 (2015), 55.7 (2016), 56.6 (2017), 54.3 (2018), 51.0 (2019), 50.8 (2020), 49.6 (2021), 49.1 (2022), 48.3 (2023), 47.6 (2024)
- Net non-debt creating capital inflows (negative): -5.8 (2014), -4.2 (2015), -4.0 (2016), -5.0 (2017), -2.3 (2018), -2.0 (2019), -2.2 (2020), -2.5 (2021), -2.8 (2022), -3.4 (2023), -3.6 (2024)
- Automatic debt dynamics (percent): -3.4 (2014), -2.3 (2015), -1.1 (2016), -1.1 (2017), -0.6 (2018), 0.6 (2019), 0.5 (2020), 0.5 (2021), 0.4 (2022), 0.2 (2023), 0.0 (2024)
  - Contribution from nominal interest rate: 0.9 (2014), 0.9 (2015), 1.1 (2016), 1.3 (2017), 1.9 (2018), 1.9 (2019), 1.9 (2020), 2.1 (2021), 2.2 (2022), 2.1 (2023), 2.1 (2024)
  - Contribution from real GDP growth: -2.0 (2014), -1.6 (2015), -1.3 (2016), -1.4 (2017), -1.3 (2018), -1.3 (2019), -1.4 (2020), -1.6 (2021), -1.8 (2022), -2.0 (2023), -2.0 (2024)
- External debt-to-exports ratio (in percent): 147.6 (2014), 174.7 (2015), 192.0 (2016), 198.1 (2017), 193.2 (2018), 184.1 (2019), 190.7 (2020), 191.0 (2021), 186.0 (2022), 181.0 (2023), 173.9 (2024)
- Gross external financing need (in billions of US dollars): 4.9 (2014), 6.2 (2015), 7.2 (2016), 6.9 (2017), 5.8 (2018), 4.3 (2019), 5.6 (2020), 5.8 (2021), 4.4 (2022), 5.5 (2023), 5.6 (2024)
  - in percent of GDP: 13.7 (2014), 16.3 (2015), 18.4 (2016), 16.9 (2017), 13.7 (2018), 9.8 (2019), 12.2 (2020), 12.1 (2021), 8.7 (2022), 10.4 (2023), 10.1 (2024)
- Scenario with key variables at their historical averages (3-Year, 10-Year): 68.6 (3-Year), 76.7 (10-Year), 82.6, 87.1, 92.0, 96.5, -5.1 (debt-stabilizing non-interest current account)

### External Sector Assessment (Annex II) — Key findings and policy implications
- Overall assessment (2019): Jordan’s external sector position is assessed to be moderately weaker than warranted by medium-term fundamentals and desirable policy settings.
- Reserve adequacy: International reserves are currently slightly below the lower bound of the recommended range for the Fund’s reserve adequacy metric.
- Outlook under policies supported by the new EFF arrangement:
  - External position, competitiveness and reserve coverage are expected to improve with the exchange rate peg as an anchor, and planned fiscal consolidation and structural reforms.
- Exchange rate, current account, and NIIP observations:
  - REER has appreciated since 2014; since 2017 REER appreciated by 1.6 percent.
  - NEER and REER have remained within 10 percentage points from their 10-year moving averages.
  - Overall current account deficit narrowed to 2.7 percent of GDP at end-September 2019 (4-quarter moving sums); projected to reach 2.9 percent of GDP for 2019 (annual).
- Drivers of recent current account improvement (2018–2019:Q3):
  - Strong recovery of tourism, re-opening borders with Iraq and Syria, resumption of gas imports from Egypt, contraction of non-energy imports, decline in price of energy imports, and pick-up in external grants.
- Medium-term current account outlook:
  - Current account deficit excluding grants projected to gradually decline to around 5 percent of GDP over the medium term, subject to heightened uncertainty.
  - Main forecast assumptions: stable geopolitical climate, positive momentum from US FTA and EU rules-of-origin relaxation, fiscal consolidation under the new EFF, decompression of private saving-investment gap.
- Model-based estimates and uncertainty:
  - CA regression model: current account balance is 2.7 percentage points of GDP weaker than estimated norm (-1.4 percent of GDP), implying REER overvaluation of around 8 percent.
  - External sustainability approach: Jordan should reduce CA deficit by 3.9 percentage points of GDP to stabilize NIIP at -107 percent of GDP, implying REER overvaluation around 12 percent.
  - REER regression model suggests JD undervaluation of around 7 percent, but this result is discounted due to anomalous contribution from old-age dependency ratio.
  - Staff adjusted assessment: CA gap in 2019 assessed in range [-1;    -2] percent of GDP, implying REER overvaluation in range [3; 6] percent.
- Policy emphasis: With exchange rate peg as anchor, planned fiscal consolidation and structural reforms under the new EFF arrangement are critical to reduce external imbalances and improve competitiveness.

*Source: IMF staff (as of February 20, 2020).*

### 5.   Jordan has a large negative net international investment position (NIIP) that is

### 5.   Jordan has a large negative net international investment position (NIIP) that is

### Net international investment position (NIIP)
- NIIP projected at minus 106 percent of GDP at end-2019.
- Post-2014 widening of the NIIP driven by:
  - decline in the ratio to GDP of reserve assets; and
  - increase in the relative size of foreign liabilities of both the public and the private sectors.
- Since 2016, the stock of foreign direct investment has leveled off in the range of 82–84 percent of GDP.
- While Jordan’s negative NIIP is large, vulnerabilities are mitigated by the expected build-up of the reserve buffer under the economic policies supported by the new EFF arrangement.

### Non-price external competitiveness
- Jordan’s non-price competitiveness remains weaker than in top-performing regional peers, though improvement over the past year has brought Jordan closer to the frontier.
- Jordan was among the top three countries that improved their rankings the most in the 2020 World Bank Doing Business report.
- Notable improvements:
  - improved access to credit due to establishment and expansion of coverage of the Credit Bureau;
  - new secured transactions and insolvency laws improving the regulatory framework for securitized credit against movable property and easing the burden of continued operations of debtors during insolvency proceedings.
- Persistent weaknesses relative to top regional peers in:
  - resolving insolvency;
  - enforcing contracts; and
  - protecting minority investors.

### Assessment of reserve adequacy
- International reserves remained slightly below the lower bound of the Fund’s reserve adequacy metric (RAM) in 2019.
  - This shortfall reflected the decision not to roll over maturing Eurobonds and delays in implementation of the government reform agenda that resulted in some re-phasing of external financial support.
- Medium-term outlook:
  - projected narrowing of the current account deficit;
  - continued external financing support under the new EFF arrangement; and
  - expected recovery in FDI;
  - together expected to raise the RAM toward the midpoint of its recommended range.
- International reserves projected to remain comfortable compared to import needs, at over 8 months of total imports of goods and services, providing an important buffer against shortfalls in import financing or adverse terms‑of‑trade shocks.

### Authorities’ views
- Authorities broadly agreed with the assessment.
- They emphasized that the slight overvaluation of the real effective exchange rate is expected to be self-correcting and occur alongside improvement in non-price competitiveness and reserve coverage under the economic policies supported by the proposed new EFF arrangement.

### Risk Assessment Matrix — selected risks and policy responses
- Rising protectionism and retreat from multilateralism
  - Likelihood: High; Time Horizon: Short to Medium Term; Impact: Low/Medium
  - Policy responses:
    - Implement policies to reduce the import-intensity of domestic demand;
    - Maintain reform momentum to increase the share of services in national exports;
    - Implement structural reforms to improve competitiveness.
- Sharp rise in risk premia exposing financial vulnerabilities
  - Likelihood: Medium; Time Horizon: Short to Medium Term; Impact: Low/Medium
  - Policy responses:
    - Maintain appropriate monetary policy to preserve adequate level of reserves;
    - Implement structural reforms to improve competitiveness;
    - Carry out planned economic reforms and fiscal consolidation to lower public debt and idiosyncratic country risk premium.
- Intensified geopolitical tensions and security risks
  - Likelihood: High; Time Horizon: Short Term; Impact: Medium/High
  - Policy responses:
    - Appeal for higher grants from donors to meet refugee needs;
    - Continue planned economic reforms and fiscal consolidation;
    - Maintain adequate reserve buffers;
    - Explore alternative trade routes and markets;
    - Continue diversification of Jordan’s energy mix.
- Weaker-than-expected global growth and related regional risks
  - Likelihood and impact vary by region; common policy response: accelerate structural reforms to improve competitiveness.
- Large swings in energy prices
  - Likelihood: High; Time Horizon: Short to Medium Term; Impact: High
  - Policy response: Continue diversification of Jordan’s energy mix.
- Coronavirus outbreak (noted as a high-risk with high impact)
  - Policy responses:
    - Prioritize health response within existing budget and, if needed, widen the fiscal deficit for higher health expenditures;
    - Seek additional external grants for domestic and refugee populations;
    - If prolonged disruption occurs, consider targeted measures (direct transfers, loan restructuring, deferral of tax payments for most affected companies).
- Domestic risks highlighted include:
  - Social discontent causing economic disruption (Likelihood: Medium/High; Time Horizon: Short Term; Impact: High)
    - Policy responses: proactive stakeholder outreach; continue gradual fiscal consolidation with protections for the vulnerable.
  - Donor fatigue (Likelihood: High; Time Horizon: Medium Term; Impact: High)
    - Policy responses: continue reforms; develop contingency plans for stronger domestic revenue mobilization; accelerate structural reforms; third-party appeal to donors.
  - Shift in capital flows pressuring foreign exchange reserves (Likelihood: Medium; Time Horizon: Medium Term; Impact: Medium/High)
    - Policy responses: maintain appropriate monetary policy to preserve reserves; carry out planned reforms and fiscal consolidation to instill confidence.

### Letter of Intent — program objectives and financing request (selected points)
- The government requests IMF financial support through a new extended arrangement under the Extended Fund Facility (EFF) for a period of 48 months in the amount of SDR 926.37 million (270 percent of quota).
- Program aims:
  - reduce unemployment (particularly for youth and women);
  - increase growth while starting to stabilize and reduce the high level of public debt;
  - rebuild fiscal and external buffers;
  - preserve monetary stability and support the exchange-rate peg;
  - enhance competitiveness by reducing business costs (particularly on labor and energy);
  - protect the vulnerable through social safety nets and improve public services and governance.
- Monitoring and safeguards:
  - implementation monitored through semi-annual quantitative performance criteria, structural benchmarks, and quarterly indicative targets; eight semi-annual reviews by the Fund.
  - commitment to complete a safeguards assessment by the first review of the EFF.

### Background — recent macroeconomic performance and outlook (selected figures)
- Growth:
  - growth remained soft at about 2 percent (recent years);
  - expected growth of 2.1 percent in 2020;
  - expected to reach 3¼ percent over the medium term, supported by structural agenda reducing energy and labor costs.
- Unemployment and labor market:
  - unemployment (excluding foreign labor) reached 19.1 percent in the third quarter, up from 18.6 percent in the same period of 2018;
  - youth unemployment: 44.4 percent;
  - female unemployment: 27.5 percent.
- Inflation:
  - headline inflation was subdued at under 1 percent (y/y) in 2019, down from 3–3½ percent during 2017–18;
  - core inflation eased to 1¼ percent in 2019, compared to an average of 2½ percent over 2017–18;
  - expectation that core and headline inflation converge to 2½ percent over the medium term.
- External imbalances:
  - current account deficit (including grants) narrowed from an average of about 9 percent of GDP over 2016–18 to a projected 2.9 percent in 2019.
- Refugee burden and financing needs:
  - hosting 1.3 million Syrian refugees noted as an important context for budget and donor support.

*Source: IMF staff report text provided in the content unit.*

### 4.      The improved current account deficit in 2019 has helped prompt a significant

### 1jorea2020001 - 4.      The improved current account deficit in 2019 has helped prompt a significant

### Reserves and monetary policy
- CBJ’s net international reserve (NIR) position was a comfortable $12.8 billion at end-2019 (corresponding to a gross reserve coverage of 98 percent of the Fund’s ARA Metric).
- This was about $300 million below the level anticipated at the time of the last review under the 2016 EFF—owing to delayed donor disbursements and a postponed Eurobond issuance—but nonetheless represented a marked improvement compared to 2018.
- Reserve position increased by almost $950 million in 2019, compared to a drop of $1.2 billion in 2018.
- CBJ increased its policy rate by 250 basis points between 2016 and 2018; deposit dollarization declined from 21.2 percent at end-2018 to 20.6 percent as of end-2019.
- Starting in late 2019, CBJ lowered interest rates by 75 bps in response to a loosening of U.S. policy.
- Credit to the private sector eased from around 5 percent in 2018 to 4 percent in 2019.

### Fiscal performance and public debt
- Combined public sector deficit (defined under the 2016 EFF as the central government primary deficit, excluding grants, plus NEPCO’s operational deficit and the water-sector overall losses):
  - Declined from 7 percent of GDP in 2015 to 3 percent in 2017.
  - Reversed to 5.1 percent in 2019.
- Causes of deterioration in 2018-19:
  - Severe hampering of tax collection due to sizable contraction of non-energy imports and increased cigarette smuggling.
  - Administrative delays in rolling-out the new income tax law.
  - Need to attend unbudgeted expenditures.
- Public debt, net of SSC’s holdings of government debt:
  - Contracted from about 80 percent of GDP in 2015 to 77 percent in 2017, but then reversed to 79 percent in 2019.

### NEPCO operational and reform outcomes in 2019
- NEPCO secured operational balance in 2019 despite earlier expectations of losses amounting to more than JD70 million.
- Revenue and cost measures implemented:
  - Increased intakes of less-expensive gas from Egypt.
  - Achieved efficiencies and cost savings in LNG tanker handling services.
  - Optimized nominations on contracted LNG deliveries.
  - Increased bulk tariffs charged to electricity distribution companies and increased domestic sales during November and December.
  - Decreased the fuel clause from 24 to 10 fils, yielding an average reduction in electricity tariffs of about 8 percent during the first two months of 2019.
  - Imposed a moratorium on signing new generation contracts to limit power generation overcapacity.
  - Hired financial and legal advisors to study options to reduce costs under the PPA portfolio.
- Working capital and arrears:
  - In 2018, more than 60 percent of electricity sector’s receivables (about 2 percent of GDP) were owed by public sector entities.
  - Implemented a one-time-settlement of intra-governmental liabilities across electricity distribution companies, NEPCO and the Ministry of Finance.
  - Adopted and implemented an electricity bill recovery mechanism to enable NEPCO to recover timely electricity bill payments from public agencies through the Ministry of Finance.
- Debt optimization:
  - Contracted a financial advisor to conduct a comprehensive debt management plan for NEPCO with goals to: (i) replace expensive short-term commercial debt with long-term blended finance; (ii) ensure long term financial sustainability of the electricity sector and NEPCO; and (iii) effectively manage long term contingent liabilities arising from electricity sector contractual obligations guaranteed by the GoJ.

### Donor support and refugee-related financing
- Donor support—particularly grants and concessional financing—is instrumental in helping Jordan face the refugee crisis and its associated fiscal and social costs.
- In 2019, the shortfall between requested and received donor financing to address the needs of refugees increased to $1.4 billion from an average of $1 billion in 2017–18.
- Funding for the Jordan Response Plan to the Syrian Refugee Crisis was less than half of its required amount in 2019.

### Policies for safeguarding macroeconomic stability (overview)
- Fiscal and monetary policies aim to reduce fiscal and external vulnerabilities while ensuring fiscal viability through strategic investments and policies that create equitable growth.
- A gradual and steady fiscal consolidation, and policies to contain NEPCO’s and WAJ’s losses, are intended to help stabilize and start to reduce public debt over the program period while preserving space for social and capital spending.
- Monetary policy will continue to be anchored by the exchange rate peg and the need to preserve an adequate buffer of foreign-exchange reserves.
- Improvements in tax collection are emphasized to ensure collected funds do not detract from living standards of tax-compliant citizens.

### Fiscal policy — Central Government (2020 budget and medium term)
- 2020 budget aims to return the primary deficit to a downward path:
  - Primary deficit target of 2.3 percent of GDP for 2020, down from 3.8 percent of GDP in 2019.
  - Expected additional revenues of about 1¼ percent of GDP reflecting: full impact of new income tax law; actions to prevent losses from excises on cigarettes; non-renewal of cabinet-approved tax exemptions; restructuring of customs duties and fees to incentivize compliance.
  - Measures to contain expenditure pressures following decisions to increase public sector wages and pensions in 2020 include compressing non-priority current expenditure, a buy-out civil service scheme, and a cabinet decision to prohibit use of treasury cash resources other than in budgeted allocations and unforeseen tax refunds.
- COVID-19 adjustor:
  - Program includes an adjustor to accommodate potential exceptional unbudgeted COVID-19-related expenditures funded through exceptional treasury advances.
  - If such treasury advances for COVID-19-related purposes exceed ½ percent of GDP, Jordan will consult with Fund staff on program adaptation.
- Medium-term fiscal consolidation:
  - Committed to sustained and gradual consolidation to place public debt (net of SSC’s holdings) on a firmed downward path below 77 percent of GDP by 2024.
  - Implement additional fiscal measures yielding a cumulative 2.4 percent of GDP by 2024.
  - Measures distribution over four years; balance of revenue and expenditure measures.
  - Revenue-side measures focus on: i) strengthening tax and customs administration; ii) arresting tax arbitrage and transfer pricing abuses in special economic zones; iii) redesigning investment incentives away from tax exemptions; iv) revisiting property taxation framework; v) adjusting excises, if needed.
  - Expenditure-side measures include: i) arresting accumulation of fuel and health arrears; ii) targeting nominal annual growth of the public-sector wage bill (excluding education and health) at no more than the previous-year’s inflation rate over the medium term; iii) securing efficiency gains in public health service provision; iv) further rationalizing non-priority current expenditures as warranted.
  - Commitment to clear the legacy stock of domestic arrears by end-2023.

### Social safety net and targeting
- Conduct a comprehensive review of social spending envelope and publish and implement an action plan to enhance effectiveness and efficiency in coordination with the World Bank and UNICEF by end-September 2020.
- Implement a three-year program to strengthen the social safety net by almost doubling coverage of the National Aid Fund (NAF)’s cash transfer program.
- Bring the National Unified Registry (NUR) online as single gateway for all Jordanians seeking social assistance by end-June 2020.
- Program will include a revised definition of social spending (indicative target) consisting of: (i) non-wage components of education and health sectors’ current expenditure envelope; (ii) NAF’s social protection programs; and (iii) the school feeding program.

### Electricity-sector reform strategy and actions (timing and targets)
- Reform objectives:
  - Reduce costs of electricity for businesses to improve competitiveness while designing well-targeted subsidies for households.
  - Simplify electricity tariff structure and move towards economically efficient pricing, with business tariffs closer to cost of service.
- Action plan:
  - Develop and adopt an action plan by end-June 2020 (benchmark) to identify measures and sequencing to gradually reduce cost of electricity for businesses to ensure average electricity tariff for businesses fully converges to average system-wide supply cost per kWh.
  - Plan will design a program to direct household subsidies only to those who need them.
  - Measures to be implemented in equal phases over three years during the program period, in a budget-neutral manner for NEPCO.
  - Tariffs for business sector based on average system cost-of-service, with priority to cut tariffs in key sectors that yield most impact on competitiveness, employment, and growth.
  - Plan will define targeting criteria for household subsidies by mapping household electricity consumption to household income using data from distribution companies, NAF, ISTD and DOS; could draw from other subsidy-targeting mechanisms in Jordan.
  - Address distorted incentives created by existing tariffs that discourage consumption when system marginal costs are low.

### Electricity reforms and measures in 2020 (benchmarks and expected yields)
- 2020 implementation:
  - Implement first steps of action plan to reduce cost of electricity for businesses without incurring additional NEPCO losses and by directing subsidies only to households who need them (benchmark).
  - Already adopted reduction in marginal tariff for additional consumption of electricity for key businesses.
  - Reduced electricity prices for small to medium industries, telecoms, hospitals and water pumping starting 2020.
  - For households in 2020: impose connection fees for rooftop solar owners, and apply a flat tariff based on cost-of-service price for electricity purchased from the grid by these households.
  - These household measures are expected to yield about JD 45 million.
  - By end-October 2020, implement additional measures to reduce electricity tariffs for businesses and better target subsidies for households to achieve further reductions of one third (on an annualized basis) of the required adjustments—based on understandings with IMF staff (benchmark). This constitutes the first third of the overall remaining adjustments currently estimated to be around JD 225 million.
  - By end-June 2020, establish a robust communication plan to explain the purpose of the cross-subsidy reform and its expected impact on growth and employment.

### NEPCO 2020 containment measures
- Anticipation of sizable NEPCO losses in 2020 due to the coming on stream of an oil shale PPA under unchanged policies and prevailing tariff structure.
- Measures to contain 2020 losses:
  - Revenue-enhancing:
    - Cabinet decision to reduce marginal tariffs on electricity charged to productive sectors: a tariff of 75 fils per kWh will be charged for every additional kWh of electricity consumed by businesses, relative to their 2019 consumption.
    - Introduce a fixed fee for renewable energy systems connected to the grid.
    - Seek agreements to export electricity to neighboring countries.
    - Install electricity meters for every house connected to the grid to reduce illegal connections and increase bill collection.
    - Further tariff adjustments may be needed and will be assessed by the Energy and Mineral Resources Commission as part of its quarterly review of tariffs.
  - Cost-saving:
    - Continue switching gas supplies from more expensive LNG to less expensive gas from Egypt and the Mediterranean in 2020, and further optimize LNG usage after 2020.
    - Implement additional measures to reduce costs of LNG storage and regasification.
    - Explore options to optimize costs related to existing and future PPA commitments which impose large capacity charges on NEPCO.
  - Debt optimization:
    - Cabinet will approve NEPCO’s debt optimization plan in 2020 and implement its recommendations aimed at reducing NEPCO’s interest burden.

### PPA external review
- Launch an external review of the most significant PPA:
  - Issue a tender for an international accounting, consulting or legal firm to undertake a comprehensive review of the most significant PPA (prior action), with the firm to be hired by end-June (benchmark) and its review completed by end-September 2020 and shared with Fund staff (benchmark).
  - Review based on terms of reference prepared in consultation with IMF staff and designed to: i) assess whether the project was in line with international best practices for negotiating and contracting PPAs, identify any governance concerns related to the process, and confirm consistency with Jordanian law; and ii) ascertain the contracts’ financial implications on NEPCO.
  - All relevant contracts will be made available for the review.

### Water sector reforms and commitments
- Continue and scale up reforms to address structural challenges associated with refugees and water security under climate change.
- 2020 plans and commitments:
  - Implement transfer of the Water Authority of Jordan (WAJ) into the general budget to help control costs and strengthen finances.
  - Ensure WAJ continues publishing its financial reports independently for effective monitoring.
  - Monitor electricity consumption of the three water distribution companies (Aqaba, Miyahuna, and Yarmouk) and reassess their budgets by mid-2020 to ensure they do not accumulate new arrears.
  - Conduct a comprehensive audit of existing water sector infrastructure based on international standards to estimate maintenance cost needs for each water facility to inform budgeting.
  - Continue implementing the “Action Plan to Reduce Water Sector Losses” and issue regular progress reports to monitor implementation.

*International Monetary Fund — Jordan: Selected sections from the program document excerpt*

### 15.      To reduce water-sector losses, we will prioritize measures to contain costs. Our

### 1jorea2020001 - 15.      To reduce water-sector losses, we will prioritize measures to contain costs.

### Water-sector cost containment and energy efficiency
- Prioritize measures to contain costs in the water sector, with emphasis on containing energy costs through a cabinet-approved action plan designed and implemented by the Ministry of Energy and the Ministry of Water.
- Action plan to include a multi-year strategy of mutually-consistent policies that arrests the accumulation of arrears, including a ceiling on electricity tariffs charged to the water sector.
- Study the possibility to connect water sector facilities directly to NEPCO, instead of to electricity distribution companies.
- Assess potential for joint projects, such as pump storage or the development of renewable energy for the water sector.

### Revenue increases and loss reduction (non-tariff measures)
- Implement projects for properly measuring non-revenue water to enhance monitoring of progress in reducing non-revenue water and assess improvements in cost-recovery ratios.
- Use best practice procurement processes to generalize the use of performance-based contracts at the local level to reduce physical losses.
- Adopt measures to drastically reduce commercial losses arising from households, industry, and agriculture.
- Install meters across houses and businesses to cut down on non-revenue water.
- Strengthen enforcement against illegal wells across the country.
- Develop a study of the needs and financial impacts of water costs per sector to ensure long-run sustainability of non-renewable water resources stressed by changing climate patterns.

### Public–private partnerships (PPPs) and public investment oversight
- Continue to closely monitor the development of PPPs in the water sector.
- Progress with the “Water Sector Capital Investment Program 2016–2025” to improve access to and quality of water and wastewater services while safeguarding water security.
- Contribute to central planning and oversight of public investment.
- Follow up-to-date tendering processes for the development and operation of mega projects.
- Continuously estimate the impact that new PPPs may have on operational costs, particularly electricity consumption.

### Structural fiscal reforms: revenue administration and anti-evasion
- Implement ongoing compliance improvement projects and other revenue initiatives at ISTD and Jordan customs, supported by IMF technical assistance.
- Established new directorates at ISTD to monitor sectors with poor compliance: (i) establishments in development zones and free zones; (ii) professionals; and (iii) employees and payroll deductions.
- Revamped ISTD’s audit function with strengthened risk-based practices and specialized audit teams for high-risk sectors in the large taxpayer directorate (LTD).
- Recruit 100 qualified staff to enhance ISTD’s technical capacity, to be distributed across the LTD and three new directorates, in two phases: 50 by end-June 2020 and 50 by end-December 2020 (benchmark).
- Roll out compliance improvement campaigns for professional groups by end-December 2020 following January 2020 FAD TA recommendations.
- Implement a digital track and trace system to monitor cigarette production by end-December 2020 (benchmark) to arrest smuggling and illegal brand trading.
- Put in place an e-invoicing framework by end-December 2020 to strengthen monitoring of economic activities, disincentivize under-invoicing through a random enforcement mechanism, and strengthen the audit function of the sales-tax framework.

### Reforming investment incentives, tax and customs governance
- End the co-existence of two parallel tax administrations and two parallel customs services: ISTD and Jordan Customs, and the Aqaba Special Economic Zone Authority (ASEZA).
- Pass legislation to impose a single tax administration and a single customs service in Jordan, bringing ASEZA participants under ISTD and Customs national control by end-December 2020 (benchmark).
- Introduce Economic Substance Regulations for all special economic zones by end-December 2020 (benchmark) to arrest letter-box company practices.
- Submit to Parliament amendments to the 2014 Investment Law by end-September 2020 (benchmark) to: arrest tax arbitrage and transfer pricing abuses; rationalize investment incentives away from tax incentives toward reduced business costs; and harmonize different sales tax and customs duties regimes across the country.

### Public financial management, arrears, and off-budget expenditures
- Commit to end the flow of new arrears and off-budget expenditures.
- Arrears measures: (i) pass a cabinet decision to prohibit issuance of medical exemptions other than through the existing mechanism at the Royal Court within well-established eligibility rules and budgeted allocation; (ii) reassess appropriateness of the budget allocation for medicine procurement in light of actual commitments by mid-2020; (iii) implement a monitoring mechanism of public sector consumption of oil products from the refinery.
- Off-budget expenditure measures: (i) secure a cabinet decision to prohibit the use of treasury advances to pay for unbudgeted expenditures (prior action); (ii) conduct a comprehensive review of underlying trust accounts, beneficiary ministries, and use of resources by end-September 2020, while limiting and monitoring their use pending this review (benchmark).
- Conduct a mid-year review of the general budget and, with IMF technical assistance, reassess the structure and scope of the 2017 draft organic budget law and submit an amended draft law to Parliament by end-December 2020.

### Managing fiscal risks from PPPs and SOEs
- Undertake a comprehensive review of PPPs and PPAs to take stock of underlying fiscal risks.
- With USAID support, a third party will conduct a study to identify and quantify fiscal commitments and contingent liabilities by end-December 2020.
- Restructure the macro-fiscal unit at the Ministry of Finance with IMF technical assistance to support monitoring of fiscal risks.

### Monetary policy and financial sector resilience
- Monetary policy anchored by firm commitment to the exchange rate peg; CBJ will monitor domestic and external developments and be ready to increase interest rates if reserves pressures emerge to ensure reserve targets are met.
- Ensure a strong and effective prudential and supervisory framework: aggregate capitalization of 17 percent at end-June 2019 is above the regulatory minimum of 12 percent.
- Liquidity buffers remain comfortable and profitability is strong.
- Non-performing loans increased from 4.9 percent in 2018 to 5.2 percent in mid-2019.
- Stress tests and sensitivity analysis in the Financial Stability Report (2018) indicate broad ability to withstand severe shocks to NPLs, equity prices, interest rates, and the exchange rate.
- CBJ will monitor asset quality, credit to households, and exposure to the real-estate sector; will employ macroprudential tools if credit risks increase excessively.

### Strengthening bank regulation, supervision, and AML/CFT
- Continued comprehensive review and amendments to banking and financial legislation.
- 2018 amendments to the Deposit Insurance Corporation law to establish a robust bank resolution framework in line with the FSB Key Attributes.
- Transition to IFRS9 covered classification and measurement, expected credit loss/impairment, and hedge accounting, with revised governance requirements; preliminary results show only a modest impact on NPL classification, provisioning, and capital adequacy.
- 2019 Banking Law amendments: (i) strengthened corporate governance; (ii) enhanced resolution regime; (iii) strengthened legal framework for Islamic banks; (iv) advanced use of electronic means/transactions.
- 2019 CBJ instructions issued regarding large exposure limits; new liquidity standards instructions to be approved and circulated early in 2020.
- Completed a National Risk Assessment for AML/CFT with Fund assistance; expect amendments to AML/CFT law to be finalized and passed in early 2020.
- Regulatory agencies, including CBJ, have amended regulations to conform with FATF standards.
- Implemented a risk-based framework for offsite and onsite supervision of banks, money-exchange firms, and other financial/nonfinancial institutions, as well as Non-Profit Organizations.
- MENAFATF second-round mutual evaluation proceeded in 2018 with plenary discussion concluding in October 2019; findings are being discussed and will inform AML/CFT law amendments.

### Nonbank financial sector development and financial inclusion
- Transfer of supervision of the insurance sector to the CBJ delayed; law before Parliament expected to be passed early in 2020, allowing completion of the transfer by end-June 2020 and implementation of regulatory reforms in line with IMF TA.
- Nine microfinance institutions licensed under the Microfinance By-law of 2015; CBJ to continue developing supervision and monitoring instructions for the microfinance sector.
- Financial inclusion objectives tied to SMEs: close financial inclusion gap, boost growth and jobs, support financial stability.
- Jordan’s Doing Business improvement: ranks 4th globally on “access to credit”.
- Credit bureau operational since 2016; covers all banks and progressively extended to insurance and leasing companies, microfinance institutions, public utilities, and telecommunication companies; provided credit scores since 2019.
- Initiatives to improve SME access to finance:
  - CBJ and commercial banks co-financed a $50 million fund, managed by Jordan Loan Guarantee Corporation (JLGC), to provide loan guarantees to SME start-ups.
  - In December 2017, a $100 million equity fund (“Innovative Startups and SMEs Fund” (ISSF)) established, to be managed by JLGC to provide capital to start-ups.
  - An export guarantee fund managed by JLGC provided capital in the form of a JD100 million loan from the CBJ.
- May 2018 secured transactions law allows SMEs to use movable assets as collateral; associated bylaws enacted October 2018 and a Collateral Registry for movable assets launched.
- 2018 amendments to the Insolvency Law with bylaws enacted January 2019; in 2020 move to train licensed insolvency practitioners and judges, establish the Insolvency Committee, and operationalize an electronic insolvency registry by end-December 2020.
- CBJ established a new division in the payments department for financial inclusion and payment options; Financial Inclusion Strategy for 2018-20 published in 2017 with an action plan finalized in June 2018 and a monitoring and evaluation framework.
- For 2020: publish a Financial Inclusion Report outlining progress; commission a further study on the state of financial inclusion in Jordan to be completed by end-2020 (benchmark), which may inform an updated strategy for 2021-23.

*Source: IMF mission document excerpt provided in the content unit.*

### 30.      We will promote job creation through broad-based labor market reforms, with a focus

### 30.      We will promote job creation through broad-based labor market reforms, with a focus

### Labor-market reforms and reducing segmentation
- Measures underway to support youth and female employment; addressing structure, flexibility, and performance of the labor market, including labor market segmentation.
- By-law on Flexible Work approved by the Council of Ministers in 2019, redefining the minimum wage on an hourly basis rather than a monthly basis.
- Since 2017, MoITS, MoMA, and GAM coordinated to amend the legislative and institutional system regulating home-based businesses: new framework covers all Jordanian governorates and a wider range of professions, reducing licensing costs and facilitating registration of home-based employment activities.
- Commitment to better align private-sector salaries with public-sector wages:
  - Recent studies suggest a public sector salary is on average 21 percent higher than one in the private sector.
  - The public-sector premium increased substantially since 2007, when it was around 6½ percent.
  - With World Bank assistance, a focused study on the public-sector premium will be completed by end-December 2020 to identify concrete reform options.

### Access to formal employment and refugees
- Increased issuance of work permits to Syrian refugees, mostly in agriculture, construction and manufacturing.
- In 2017 Jordan extended flexible work permits for Syrian refugees to cover construction sector (under Jordanian General Federation of Trade Unions); permits allow movement between employers and self-employment.
- November 2018: Ministry of Labor issued a decree allowing Syrians to operate home-based businesses in select sectors (food processing, handicrafts and tailoring).
- Policy aim: promote formalization of Jordan’s workforce by reviewing identification and registration requirements for Jordanians and non-Jordanians to better ensure equal footing.

### Incentives for formality and youth hiring
- Considered flexible social security contributions for youth and new hires (e.g., temporarily reducing employer contributions when a start-up hires a new entrant).
- Social Security Law amended to allow reduced contributions for start-ups hiring young workers; lower rates introduced in the Agricultural and ICT sectors.
- Benchmark: expand reduced rates to all economic sectors by end-June 2020.

### Guest workers and labor flow management
- Since June 2016, largely halted addition of new low-skilled guest workers.
- Adopted flexible approach to renewal of work permits for guest workers already in Jordan; eased mobility between sectors; provided steep discounts or waivers for permit fees.

### Gender equality, childcare, and public transport
- Removed gender-discriminatory references in Ministry of Labor instructions; amended by-laws that restricted working hours for females.
- Adopted by-laws removing potential discrimination between mothers and fathers regarding daycare requirements; established paternity leave; labor law mandates firms with more than 20 parent employees provide daycare for children under five.
- By-laws and instructions clarifying acceptable modalities for firm-provided care to be approved and circulated by end-June 2020 (benchmark).
- Quality daycare is recognized in the National Strategy for Human Resource Development as critical for female participation and long-run workforce skills.
- Public transport improvements to enhance female labor participation:
  - Recent studies show 47 percent of women reported turning down or giving up job opportunities owing to the current state of public transportation, with harassment a main concern.
  - Developed and adopted a Code of Ethics and Professional Conduct for the transport sector to regulate conduct and tackle harassment; Code is under implementation with certification criteria, training, and complaints processes in development.
  - Consolidating individual bus ownership into companies (initial focus on Jerash and Amman) under the 2017 Public Transport Law; revising Public Transport Strategy for Irbid, Madaba, Zarqa and Salt; consultations have started.
  - Bus fleet consolidation and modernization should be complete by end-2022.
  - GAM developing Jordan’s first Bus Rapid Transit (BRT) system, which should start operations within Amman by mid-2021.
  - Complementary interurban BRT connecting Amman and Zarqa should start operations in 2022.

### TVET, National Service, and NEEP (youth employment programs)
- Streamlining and enhancing technical and vocational education and training (TVET); working on legislation to bring initiatives under a single umbrella and stepping up enforcement of certification regulations.
- Launched in 2019 a new “National Service” program: a three-month non-mandatory course offering youth key skills and career opportunities in targeted sectors.
  - Aim: train 20,000 participants through this program over a two-year cycle.
- National Empowerment and Employment Program (NEEP), launched March 2019: promotes on-the-job training, offsets upfront training cost for a new hire (for six months) conditional on employee retention for three years.
  - Program will be expanded over the next 2–3 years, potentially reaching over 30,000 job seekers.
- Combined, TVET, National Service and NEEP efforts are expected to boost job creation significantly.

### Competitiveness, transport, and logistics
- Transport and logistics sector important for competitiveness, growth, and job creation.
- 2015 Long-Term National Transport Strategy and Action Plan highlighted concerns in the trucking industry: fragmentation and access restrictions at Aqaba port.
- Recognize need for reform despite transitory oversupply of trucking services due to disruption of Jordan’s traditional trade route.
- Will seek World Bank support to design, develop, and implement measures to reduce market distortion and define an incentive mechanism to reduce, renew or consolidate the truck fleet to enhance efficiency of cargo transport for containers for the Aqaba-Amman corridor.

### Governance, public procurement, and anti-corruption
- Enacted new Unified Public Procurement By-law in 2019 providing for establishment of an independent central policy and oversight unit, and an independent complaints-handling unit; by-law includes provisions on framework agreements, electronic Government Procurement (e-GP), and alignment of SOE procurement practices with the By-law.
- Will establish in 2020 an independent Central Policy and Oversight Unit together with an independent Complaints-Handling Mechanism, autonomous from procuring entities.
- By end-December 2020 will finalize issuance of all regulations and standard bidding documents needed to support implementation of the by-law.
- Units will monitor and guide procurement system development to empower SMEs, women, and youth:
  - By end-December 2020 the Units will develop and clarify procurement criteria that ensure bidding companies use only formal employees/subcontractors, and will develop a plan to set aside public procurement quotas for SMEs.
- Roll out integrated e-procurement system and digitized procurement cycle (JONEPS):
  - Endorsement of JONEPS enhancement strategy in 2019.
  - Expand system to cover all public institutions at ministerial level as well as municipalities by end-December 2021.

### Financial-disclosure and anti-corruption measures
- Amended the Illicit Gains Law by expanding employees subject to financial-disclosure requirements to include heads and members of ad-hoc municipal councils, executive directors of municipalities, and heads and members of governorate councils.
- Will strengthen role of JIACC in monitoring and oversight.
- Benchmark: by end-December 2020 propose amendments to the Illicit Gains Law (prepared in consultation with Fund staff) to:
  - require all disclosures be submitted to the Commission;
  - ensure all disclosure information is maintained within an electronic database shareable across relevant government agencies;
  - allow more public access to basic financial disclosure information by public officials.

### Program monitoring and safeguards
- Progress monitored through semi-annual reviews, quantitative performance criteria (PCs), indicative targets, and structural benchmarks (detailed in Tables 1 and 2 and the attached TMU).
- Quantitative targets for June and December 2020 are PCs.
- IMF disbursements will be on-lent to the government during the program period.
- Will update the Memorandum of Understanding between the CBJ and the Ministry of Finance on responsibilities for servicing financial obligations to the IMF.
- Recognize importance of completing a safeguards assessment by the first review of the EFF; necessary documentation provided and will receive a safeguards mission from the IMF as necessary.

### Key quantitative indicators and program targets (as presented)
- Table 1 entries as presented in the source:
  - Primary fiscal deficit of the central government, excluding grants and net transfers to NEPCO and WAJ, in JD million (flow, cumulative ceiling)32048674353
  - Combined public deficit in JD million (flow, cumulative ceiling)5759191,302221
  - Net International Reserves of the Central Bank of Jordan in USD million (stock, floor)13,06012,75314,46214,317
  - Ceiling on accumulation of external debt service arrears 2/0000
  - Indicative Targets: Social spending by the central government in JD million (flow, cumulative floor) 257385514141
  - Public debt in JD million (stock, ceiling) 3/25,62326,17825,82526,261
  - Net Domestic Assets of the Central Bank of Jordan in JD million (stock, ceiling)-1,054-746-1,642-1,473
  - SSC net financing to the central government (flow, ceiling)318384485234
  - Memo items: Foreign budgetary grants and loans received by the central government (JD millions, flow)1091621,0200
  - Foreign budgetary grants and loans received by the Central Bank of Jordan (USD millions, flow, cumulative from end-December 2019)1,3401,4153,8943,894
  - Programmed stock of the combined health and energy arrears (JD millions)280245230210
  - Stock of checks issued by the central government but not yet cashed by the beneficiary (JD millions)......200...
  - IMF purchases under the EFF (JD millions, flow, cumulative from end-December 2019)100201201302

### Structural benchmarks for 2020 (selected)
- Cost of Doing Business:
  - Adopt a multi-year plan – budget neutral for NEPCO – to reduce electricity tariffs of key sectors so that average electricity tariffs on corporates aligns with the average supply cost per kWh, and household subsidies are re-directed to only those who need it by end-2024. (June, 2020)
  - Implement measures in 2020, in addition to those already taken, equal to JD75 million (on an annualized basis) to permit a reduction in tariffs paid by businesses. (October, 2020)
- Labor market:
  - Issue by-laws and/or instructions aimed at increasing access to affordable childcare. (June, 2020)
  - Expansion of targeted temporary reductions in social-security contributions to all new startups. (June, 2020)
- Financial Development:
  - Publication of a regular Financial Inclusion Report and a follow-on Financial Inclusion Action plan for 2020-21. (December, 2020)
- Governance:
  - Hire an international accounting, consulting or legal firm to undertake a comprehensive review of the most significant PPA. (June, 2020)
  - Completion of the comprehensive review of the most significant PPA by an international accounting, consulting or legal firm, with the review shared with Fund staff. (September, 2020)
  - Submit to parliament amendments to existing legislation to allow greater public access to basic financial disclosure information by public officials. (December, 2020)
- Fiscal reforms (selected):
  - Recruit 100 qualified staff (two phases: 50 by end-June and 50 by end-December), including new auditors, to be distributed across the large taxpayer directorate and newly-created ISTD directorates monitoring: (i) establishments in special economic zones; (ii) professionals; and (iii) employees and payroll deductions. (June, 2020 first phase; December, 2020 second phase)
  - Conduct a comprehensive review of the underlying trust accounts, beneficiary ministries, and use of resources, and its consistency with budget needs and practices, while limiting and monitoring their use pending this review. (September, 2020)
  - Submit to Parliament an amended Investment Law that addresses tax arbitrage opportunities and transfer pricing abuses, and rationalizes investment tax incentives. (September, 2020)
  - Implement the Digital Volume Verification System (track and trace system) to monitor tobacco production and reduce cigarette smuggling. (December, 2020)
  - Pass legislation to impose a single tax administration and a single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control. (December, 2020)
  - Pass legislation to introduce Economic Substance Regulations for all special economic zones. (December, 2020)

*Source: IMF — Jordan program documents and related tables and benchmarks as provided in the supplied content.*

### 2. The program performance criteria and indicative targets are reported in Table 1 attached to

### 1jorea2020001 - 2. The program performance criteria and indicative targets are reported in Table 1 attached to

### Program exchange rates and valuation
- Exchange rates and gold price for program measurement are those that prevailed on December 31, 2019.
- Jordanian dinar to U.S. dollar: JD 0.709 = $1.
- Gold price for program measurement: JD 1046.52 per fine troy ounce.
- Program cross exchange rates (Jordanian Dinar per unit of foreign currency):
  - British Pound: 0.911106
  - Japanese Yen: 0.006505
  - Euro: 0.786889
  - Canadian dollar: 0.538721
  - SDR: 0.975744

### Monitoring framework and definitions
- Any developments that could lead to a significant deviation from quantitative program targets will prompt discussions between the authorities and staff on an appropriate policy response.
- For program monitoring purposes, "debt" is defined as in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107), adopted December 5, 2014.
- The program monitors performance criteria and indicative targets in Table 1 attached to the MEFP, with monitoring frequency and measurement basis specified per instrument.

### Quantitative performance criteria and indicative targets (overview)
- The quantitative performance criteria and indicative targets specified in Table 1 attached to the MEFP include:
  - A performance criterion (ceiling) on the primary fiscal deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector.
  - A performance criterion (ceiling) on the combined primary deficit of the central government, the operational loss of NEPCO, the overall deficit of WAJ, and the overall deficit of Aqaba, Miyuna, and Yarmouk water companies ("combined public deficit").
  - A performance criterion (floor) on the net international reserves (NIR) of the Central Bank of Jordan (CBJ).
  - A continuous performance criterion (zero ceiling) on the accumulation of external debt service arrears.
  - An indicative target (floor) on social spending by the central government.
  - An indicative target (ceiling) on public debt, net of SSC’s holdings of government debt.
  - Indicative targets (ceilings) on the domestic payment arrears of NEPCO, WAJ, and Aqaba, Miyuna, and Yarmouk Water Companies.
  - An indicative target (ceiling) on the net domestic assets (NDA) of the CBJ.
  - An indicative target (ceiling) on the Social Security Investment Fund’s net financing to the central government.

- Monitoring cadence and measurement basis:
  - Central government primary fiscal deficit, combined public deficit, and social spending are monitored semi-annually (with indicative targets for other quarters) on a cumulative basis from the beginning of the calendar year.
  - NIR, public debt, short-term public debt, domestic payment arrears of NEPCO/WAJ/Aqaba-Miyuna-Yarmouk, and NDA of the CBJ are monitored semi-annually (with indicative targets for other quarters) in terms of stock levels.
  - Accumulation of external debt service arrears is monitored on a continuous basis.

### Ceiling on the primary deficit of the central government (excluding grants and net transfers to NEPCO and state-owned water sector)
- Central government scope and measurement:
  - Defined as the budgetary central government covered by the annual General Budget Law (GBL); operations measured on a cash basis.
- Primary deficit definition (sum of):
  - (i) net external financing of the central government;
  - (ii) receipts from the sale of government assets received during the relevant period;
  - (iii) net domestic bank financing of the central government;
  - (iv) net domestic nonbank financing of the central government;
  - (v) grants received from abroad by the central government, including grants from the Gulf Cooperation Council;
  - less (vi) domestic and foreign interest payments by the central government;
  - and (vii) net transfers from the central government to NEPCO and the state-owned water sector.
- Component definitions:
  - Net external financing: cash external debt disbursements received by the central government less external debt repayments paid by the central government (covers debts of the central government and foreign debts channeled through the central government).
  - Receipts from sale of government assets: transfers of monies from sale of shares, sale of non-financial assets, leases, and sale of licenses or exploration rights with duration of 10 years and longer.
  - Net domestic bank financing: change in the banking system’s claims in Jordanian dinars and in foreign currency on the central government, net of the balance of the General Treasury Account with the CBJ.
  - Net domestic nonbank financing: central government borrowing from, less repayments to, the non-bank sector (including the nonfinancial public sector and the Social Security Investment Fund), and cumulative change from level existing on December 31 of the previous year in stocks of government securities held by nonbanks and in the float.
  - Net transfers to NEPCO and state-owned water sector: (i) direct transfers from the central government to NEPCO and state-owned water sector (or payments on their behalf) including subsidies, cash advances, and payment of debt or government guarantees if called, minus (ii) any transfers of cash from NEPCO and the state-owned water sector to the central government (including repayments of debt, arrears or cash advances).

### Adjustors to the primary deficit ceiling
- Ceiling will be adjusted:
  - Downward by the extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period fall short of the levels specified in Table 1 of the MEFP up to a maximum of 75 percent of the shortfall.
  - Downward by the extent to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation (such as write-off of intra-governmental claims).
  - Downward by the extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million (the programmed stock as specified in Table 1 of the MEFP) in case of the end-year indicative target or performance criterion.
  - Upward by the equivalent amount of unbudgeted spending directly related to efforts to prevent, detect, control, treat and/or contain the spread of COVID-19, covering emergency outlays and medical supplies and equipment. These expenditures:
    - Will be authorized by cabinet resolution and funded through exceptional treasury advances (therefore not funded and reported as part of 2020 budget allocations).
    - Amounts and nature of expenses will be reported to staff monthly.
    - If treasury advances for these purposes exceed ½ percent of GDP, the authorities will consult Fund staff on how the program could be adapted to ensure objectives remain achievable while ensuring needed COVID-19-related spending.

### Ceiling on the combined public deficit
- Definition for monitoring: sum of:
  - (i) the primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (as defined above);
  - (ii) the operational loss of NEPCO;
  - (iii) the overall deficit of the state-owned water sector.
- NEPCO operational loss definition:
  - Difference between total operating revenues and total costs for normal operations as reported in the unaudited income statement.
  - Total operating revenues: (i) sales of operating power; and (ii) all other revenue, excluding proceeds from central government transfers or payments of NEPCO’s obligations on NEPCO’s behalf.
  - Total costs: (i) purchase of electric power including fuel costs, capacity and energy charges, and all costs related to electricity generation to be borne by NEPCO; (ii) fuel transportation costs; (iii) depreciation costs; (iv) all other maintenance and operating expenses including wages, remuneration of board, and provisions; and (v) interest expense and any other financial costs.
- State-owned water sector overall balance definition:
  - Difference between total revenues and current and capital expenditures.
  - Total revenues: (i) sales of goods and services; (ii) property income; and (iii) all other revenue, excluding grants and proceeds from central government transfers or payments of WAJ, Aqaba, Miyuna or Yarmouk water companies’ obligations on their behalf.
  - Current and capital expenditures: (i) salaries, wages and allowances; (ii) social security contributions; (iii) use of goods and services, including energy costs; (iv) interest payments on domestic and foreign loans; (v) any other expenses, including pensions; and (v) capital expenditures.
- Adjustors to the combined public deficit:
  - Downward by the extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period fall short of the levels specified in Table 1 of the MEFP up to a maximum of 75 percent of the shortfall.
  - Downward by the extent to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation.
  - Downward by the extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million in case of the end-year indicative target or performance criterion.
  - Upward by the equivalent amount of unbudgeted COVID-19-related spending as described for the primary deficit adjustor, with the same reporting and consultation requirements if treasury advances exceed ½ percent of GDP.

### Floor on the Net International Reserves (NIR) of the CBJ
- NIR definition: foreign assets of the CBJ minus its foreign liabilities, measured in U.S. dollars.
- Foreign assets of the CBJ include: foreign exchange (foreign currency cash, deposits with foreign correspondents, holdings of foreign securities), monetary gold, IMF reserve position, and SDR holdings.
  - Exclusions from foreign assets: assets pledged, collateralized, or encumbered; CBJ’s claims on resident banks and nonbanks; claims on subsidiaries or branches of Jordanian commercial banks located abroad; claims in foreign exchange arising from derivatives vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid swaps.
  - Excluded from foreign assets is the outstanding balance of bilateral accounts with the Central Bank of Iraq of USD 1,081.67 million.
- Foreign liabilities of the CBJ: all foreign exchange liabilities to residents and nonresidents, including commitments to sell foreign exchange arising from derivatives and Jordan’s outstanding liabilities to the IMF.
  - Exclusions from reserve liabilities: government foreign exchange deposits with the CBJ; deposits from public institutions and government departments with independent budgets; commercial companies with state participation; deposits from donors (including grants received from the GCC and donor term deposits with the CBJ with remaining maturity not less than 360 days); the two technical swaps with Citibank Jordan for USD 88.5 million; and amounts received under any SDR allocations received after March 31, 2016.
- Valuation and baseline:
  - Stock of foreign assets and liabilities of the CBJ shall be valued at program exchange rates.
  - As of December 31, 2019, the stock of NIR amounted to USD 12,756.1 million (at program exchange rates).
- Adjustors to NIR floors:
  - Floors on the NIR will be adjusted upward (downward) by the extent to which the sum of foreign budgetary grants and foreign budgetary loans—excluding programmed guaranteed and non-guaranteed Eurobonds—received by the CBJ (as specified in Table 1) during the relevant period exceeds (falls short of) the levels specified in Table 1 of the MEFP within any calendar year.
  - For the end-year floor on the NIR, the downward adjustment will be capped at 75 percent of the aforementioned shortfall.
  - Given uncertainty on timing of Eurobond issuances (assumed under the program in the second and fourth quarter of 2020 for $500 million each), the floor of the NIR for end-June 2020 will be adjusted downward by the programmed amount if delayed to the second half of 2020.
  - Floors will be adjusted upward by the amount that the outstanding balance of bilateral accounts with the Central Bank of Iraq is repaid, including both principal and interest payments.

### Ceiling on the accumulation of external debt service arrears
- Definition: external debt service arrears are debt service payments (principal and interest) arising in respect of obligations to non-residents incurred directly or guaranteed by the central government or the CBJ, that have not been made at the time due, taking into account any contractual grace periods.
- Performance criterion: a continuous performance criterion (zero ceiling) on the accumulation of external debt service arrears.

### Floor on social spending by the central government
- Social spending is defined as central government spending on:
  - (i) non-wage components of the education and health sectors’ current expenditure envelope;
  - (ii) NAF’s social protection programs; and
  - (iii) the school feeding program.
- The social spending indicator is an indicative target (floor).

### Ceiling on public debt
- Public debt is defined as the sum of:
  - (i) central government direct debt (including off-budget project loans);
  - (ii) central government guarantees extended to NEPCO, WAJ and other public entities;
  - (iii) the stock of the CBJ’s liabilities to the IMF not lent on to the central government;
  - minus the Social Security Corporation (SSC) holdings of government debt.
- For the program, a guarantee of a debt arises from any explicit legal obligation of the central government, or any other agency acting on its behalf, to service such a debt in the event of nonpayment by the recipient (involving payments in cash or in kind), or from any implicit legal or contractual obligation to finance partially or in full any shortfall incurred by the debtor.
- The ceiling on public debt will be adjusted as specified in the MEFP (adjustor details continue beyond provided text).

*Source: MEFP text as provided in the content unit.*

### 47.      Downward by the extent to which the cumulative disbursements under the EFF during the

### 1jorea2020001 - 47.      Downward by the extent to which the cumulative disbursements under the EFF during the

### H. Ceiling on the Domestic Payment Arrears of NEPCO
- Definition:
  - Domestic payment arrears by NEPCO are defined as the belated settlement of a debtor’s liabilities that are due under obligation (contract) for more than 60 days, or the creditor’s refusal to receive a settlement duly offered by the debtor.
- Arrears to be covered include:
  - outstanding payments on wages and pensions;
  - social security contributions;
  - tax payments;
  - obligations to banks and other private companies and suppliers.
- Exclusions:
  - Arrears exclude obligations to the central government arising from net transfers as specified in paragraph 12.

### I. Ceiling on the Domestic Payment Arrears of WAJ, and Aqaba, Miyahuna, and Yarmouk Distribution Companies
- Definition:
  - Domestic payment arrears by WAJ, and Aqaba, Miyahuna, and Yarmouk Distribution Companies are defined as the belated settlement of a debtor’s liabilities that are due under obligation (contract) for more than 60 days, or the creditor’s refusal to receive a settlement duly offered by the debtor.
- Arrears to be covered include:
  - outstanding payments on wages and pensions;
  - social security contributions;
  - tax payments;
  - obligations to banks and other private companies and suppliers.
- Exclusions:
  - Arrears exclude obligations to the central government arising from net transfers as specified in paragraph 12.

### J. Ceiling on the Net Domestic Assets of the CBJ
- Reserve money of the CBJ is defined as the sum of:
  - (i) currency in circulation (currency outside banks and commercial banks’ cash in vaults); and
  - (ii) non-remunerated deposits of licensed banks with the CBJ in Jordanian dinars.
- For program monitoring purposes:
  - The net domestic assets of the CBJ are defined as the difference between the reserve money of the CBJ and its NIR as defined in Section D.
- Adjustors to the ceilings on the NDA of the CBJ:
  - Upward (downward) by the extent to which the floors on the net international reserves of the CBJ are adjusted downward (upward).
  - Downward (upward) by the extent to which the CBJ decreases (increases) reserve requirements on Jordanian dinar deposits of the banking system.
    - The adjustment will equal the change in the required reserve ratio multiplied by the stock of deposits with licensed banks at the start of the first month when the new reserve requirement ratio applies that are:
      - (i) denominated in Jordanian dinars and;
      - (ii) subject to reserve requirements.

### DATA PROVISION — Information the government will provide to the IMF (Division B of the Middle East and Central Asia Department)
- Related to the ceiling on the primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (paragraphs 56–58):
  - Standard fiscal data tables prepared by the ministry of finance covering detailed information on: revenue (including expanded information on revenues from oil derivatives, vehicles, and cigarettes, as agreed with IMF staff); expenditure; balances of government accounts with the banking system; foreign grants; domestic and external amortization and interest; net lending; debt swaps with official creditors; and monthly change in the stocks and the monthly value of stocks of uncashed checks and trust accounts.
  - Government financing information from the Treasury account, as agreed by both the Ministry of Finance and the Central Bank of Jordan, and any potential discrepancy between the government financial data and the monetary survey data (monthly).
- Related to transfers and arrears (paragraphs 59–66):
  - Gross transfers to and from NEPCO and WAJ detailing amounts paid or received in connection with debt transactions, transfers to cover losses, and any amount directed to repay any outstanding arrears of NEPCO or WAJ (monthly).
  - Stock of all pending bills of the central government that have not been paid for more than 60 days at the end of each quarter (quarterly), including those of the health insurance fund, to distribution electricity companies, and to the Jordan Petroleum Refinery Company.
  - Value and quantity of fuel products consumed by public sector entities from the Jordan Petroleum Refinery Company (monthly).
  - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days (quarterly) for NEPCO to compute the PC on NEPCO net loss, prepared by NEPCO’s accounting department.
  - Latest audited income statement signed by the auditor (usually available twice yearly with a six-month delay) with full explanation of any changes made to the unaudited version transmitted to the IMF, as soon as it becomes available to NEPCO’s management.
  - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by WAJ’s Directorate of Finance and Accounting.
  - Full unaudited income statements and the stocks of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by each of the water distribution companies (Aqaba, Miyahuna, and Yarmouk) and WAJ’s Directorates of Finance.
  - Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the central government (quarterly).
- Energy and trade flows (paragraphs 70–71):
  - Monthly gas flows from Egypt in million cubic meters (quarterly).
  - Monthly Liquefied Natural Gas (LNG) flows in the LNG terminal in Aqaba in million British Thermal Units and their average price, and breakdown of these flows between local use and re-exports to Egypt (quarterly).
- Related to the floor on NIR of the CBJ and ceiling on its NDA (paragraphs 72–76):
  - CBJ’s foreign exchange reserves and preliminary data on dollarization (weekly).
  - Data on CD auctions (following each auction).
  - Monetary statistics (monthly).
  - The outstanding balance of bilateral accounts with the Central Bank of Iraq (monthly).
- Related to continuous performance criteria and public debt (paragraphs 77–83):
  - Details of official arrears accumulated on interest and principal payments to non-resident creditors. External arrears data will be provided using actual exchange rates and on a daily basis.
  - Fiscal tables on the central government’s domestic and external debt (monthly).
  - Tables on the stock of debt guarantees extended to NEPCO, WAJ, and other public entities (monthly).
  - Data on short-term public debt (monthly).
  - Table on the amount of central government spending on each of the components of the social spending definition under the program (monthly).
- Other economic data (paragraphs 85–89):
  - Interest rates and consumer prices; and exports and imports; travel receipts and tourist arrivals; remittances; outstanding balance of non-resident purchases of domestic treasury bills and bonds; and GCC grants received by the CBJ and grants transferred by the CBJ to the Ministry of Finance (monthly).
  - Balance of payments (current and capital accounts) and external debt developments (quarterly).
  - List of short-, medium- and long-term public and publicly-guaranteed external loans contracted during each quarter, identifying, for each loan: the creditor, the borrower, the amount and currency, the maturity and grace period, interest rate arrangements, and the amortization profile (quarterly).
  - National accounts statistics (quarterly).
- Reporting lags and timeliness (paragraph 90 and following):
  - Weekly data and data on CD auctions should be sent to the Fund with a lag of no more than one week.
  - Monthly and quarterly data should be sent within a period of no more than six weeks (for the monetary and fiscal variables), and within a period of no more than eight weeks for other data (three months for national accounts statistics and balance of payments and external debt statistics).
  - Data related to the continuous performance criterion should be sent within one week after the date when the arrear was incurred.
  - Any revisions to previously reported data should be communicated to the staff in the context of the regular updates.

### DEFINITIONS OF THE PRINCIPAL CONCEPTS AND VARIABLES
- Any variable mentioned for the purpose of monitoring a performance criterion, and that is not explicitly defined herein, shall be defined in accordance with the Fund’s standard statistical methodology, such as the Government Financial Statistics.
- For variables omitted from the TMU but relevant for program targets, the authorities of Jordan shall consult with the staff on appropriate treatment based on the Fund’s standard statistical methodology and program purposes.

*Source: STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION AND REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY—INFORMATIONAL ANNEX (prepared by the Middle East and Central Asia Department), March 11, 2020.*

### 2010. The country uses an SDDS flexibility option

### 1jorea2020001 - 2010. The country uses an SDDS flexibility option

### Data reporting and quality
- The country uses an SDDS flexibility option on the periodicity and timeliness of the labor market wages/earnings data.
- Data ROSC update was published in February 2004.
- Common Indicators Required for Surveillance (As of March 3, 2020) — selected timing and quality notes from the table:
  - Exchange rates: Date of Latest Observation Feb 2020; Date Received March 2020; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting M.
  - International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation Aug 2019; Date Received Nov 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting M.
  - Reserve/base money: Date of Latest Observation Aug 2019; Date Received Nov 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - Broad money: Date of Latest Observation Aug 2019; Date Received Nov 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - Central bank balance sheet: Date of Latest Observation Aug 2019; Date Received Nov 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - Consolidated balance sheet of the banking system: Date of Latest Observation Aug 2019; Date Received Oct 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - Interest rates: Date of Latest Observation Aug 2019; Date Received Oct 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1W.
  - Consumer price index: Date of Latest Observation Nov 2019; Date Received Dec 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - Revenue, expenditure, balance and composition of financing—general government: Date of Latest Observation 2017; Date Received May 2018; Frequency of Data A; Frequency of Reporting A; Timeliness of Reporting 7M.
  - Revenue, expenditure, balance and composition of financing—central government: Date of Latest Observation Dec 2019; Date Received Feb 2020; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - Stocks of central government and central government-guaranteed debt: Date of Latest Observation 2018; Date Received Oct 2019; Frequency of Data A; Frequency of Reporting A; Timeliness of Reporting A.
  - External current account balance: Date of Latest Observation Q1 2019; Date Received Aug 2019; Frequency of Data Q; Frequency of Reporting Q; Timeliness of Reporting 1Q.
  - Exports and imports of goods and services: Date of Latest Observation Q1 2019; Date Received Aug 2019; Frequency of Data Q; Frequency of Reporting Q; Timeliness of Reporting Q.
  - GDP/GNP: Date of Latest Observation 2018; Date Received Jan 2019; Frequency of Data A; Frequency of Reporting A; Timeliness of Reporting A.
  - Gross external debt: Date of Latest Observation Q1 2019; Date Received Apr 2019; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1M.
  - International Investment Position: Date of Latest Observation Q1 2019; Date Received Aug 2019; Frequency of Data Q; Frequency of Reporting Q; Timeliness of Reporting Q.

### COVID-19 outbreak — health and containment measures
- Timeline and cases:
  - First case announced on March 2.
  - Number of cases increased to 69 since then, without fatalities yet (as reported).
  - More than 5,000 people are currently in quarantine.
- Containment and public-health measures implemented:
  - Full closure of air space and borders.
  - Prohibition of movement of people across governorates and cities.
  - Mandatory quarantines.
  - Imposition of a state of emergency and activation of the Defense Law for enforcement.
  - Suspension of public and private sector operations, except for critical sectors.
  - Extensive public communication and awareness campaign to limit spread and inform public on examination and treatment facilities.

### COVID-19 — economic mitigation measures
- Central Bank of Jordan (CBJ) actions:
  - Reduced policy interest rates by 150 basis points.
  - Injected liquidity into the system for about 1.8 percent of GDP through a cut in reserve requirements (from 7 to 5 percent).
  - Allowed rescheduling of retail loans to ease losses by businesses and help individual borrowers.
- Fiscal and other measures:
  - Ministry of Finance established an emergency fund to cover emergency outlays and medical supplies and equipment for up to ½ percent of GDP (using program adjuster).
  - Donations in the Private Sector and Civil Society Fund would allow additional health spending.
  - Exemption of key medical supplies from sales taxes.
  - Temporary cash-flow relief to companies by allowing delayed payments of sales taxes and customs duties within the year.
  - Electricity bills allowed to be paid in installments.
  - Social security contributions curtailed for three months — temporary contribution rate cut from 21.75 to 5.25 percent.
  - Half of maternity insurance revenues in 2020 will be channeled to provide in-kind and material assistance to the elderly and sick.

### Macroeconomic context, program objectives, and risks
- Macroeconomic context and outcomes:
  - Economy expanded at average rate of about 2 percent since 2012.
  - Unemployment rate hovered around 19 percent, with higher rates for youth and female unemployment.
  - Public debt-to-GDP ratio increased from 77 percent of GDP in 2015 to 79 percent of GDP in 2019.
  - Jordan continues to host over 1¼ million Syrian refugees (about one-fifth of Jordan’s population).
- Program aims and priorities:
  - Increase growth and stimulate job creation.
  - Strengthen external and fiscal stability and put debt on a sustainable and downward path.
  - Remove impediments to business competitiveness, including high electricity costs, and promote employment.
- Risks noted:
  - Broader economic impact of COVID-19 uncertain; near-term growth and balance of payments under pressure from lockdown, reduced tourism and remittances, shrinking external demand, and lower FDI and portfolio inflows.
  - Offsetting forces include significantly lower oil prices, reduced outward travel, and government policy response.
  - Risks could arise from adverse global and regional developments and from uncertainties related to a large energy project with significant balance of payments and fiscal implications.
  - Staff will reassess the macroeconomic framework at the time of the first review and adapt the program if warranted.

### Fiscal policies and budget measures
- 2020 budget and fiscal stance:
  - The 2020 general budget was passed in late January in line with program understandings.
  - Budget aims to reduce the primary fiscal deficit from 3.8 percent of GDP in 2019 to 2.3 percent of GDP.
  - Revenue measures include additional revenues from the new income tax law, measures to prevent losses from excises on cigarettes, non-renewal of cabinet-approved tax exemptions, and restructuring of customs duties and fees to incentivize compliance.
  - Expenditure measures focus on compressing non-priority current spending, reducing the public sector wage bill through a buy-out civil service scheme, rationalizing services and transfers, improving targeting of social assistance, and strengthening public procurement.
- Tax administration and revenue risks:
  - Emphasis on improvements in tax administration, addressing weaknesses in registration, filing and audit, tax arrears, compliance, tax arbitrage from special economic zones, and smuggling.
  - Authorities wary of effectiveness of additional tax rate increases due to tax evasion and smuggling; political and social resistance to tax rate increases was noted.
  - Authorities prepared to take compensatory measures if revenues fall below projections and are tracking revenues closely.

### Social protection priorities
- Protection of poor and vulnerable:
  - Budget allocations preserve spending on education and health, the National Aid Fund (NAF), and the school feeding program.
  - Efforts to enhance targeting of the social safety net with World Bank and UNICEF cooperation.
  - Coverage of the NAF’s cash transfer program will be significantly expanded.
  - The National Unified Registry online will become the single gateway for all Jordanians seeking social assistance.

### Structural reforms and competitiveness
- Reform agenda and expected benefits:
  - Wide structural reform agenda based on the Five-Year Reform Matrix launched at the 2019 London Initiative.
  - Reforms target business costs and environment (including access to finance), competitiveness, the labor market, and governance to promote physical and human capital accumulation and productivity.
  - Reforms have benefitted from expertise of international organizations including the World Bank and ILO.
- Energy sector reform:
  - Electricity sector reform central to growth agenda to reduce overall generation costs and lower costs for businesses, complemented by well-targeted subsidies for households.
  - Jordan is the world’s lowest cost producer of solar energy, currently at 2.4 cents per kilowatt hour.
  - Barriers to fully exploiting solar advantage include generating overcapacity and existing fuel supply contracts, notably a domestic oil shale project.
  - Authorities exploring avenues to lower average energy generating costs including through exports.
- Business environment and employment measures:
  - Measures to reduce cost of starting and operating businesses: simplify procedures, eliminate red tape, strengthen investor protection.
  - Measures to facilitate employment for youth and women: flexible working arrangements, removal of gender differentiation in labor regulations, provision of child daycare.
  - Financial inclusion for small- and medium-sized enterprises prioritized to support growth and job creation.
  - Jordan’s Doing Business improvements: ranked among top three business climate improvers with a jump of 29 ranks in the 2020 Doing Business rankings; ranks 4th globally for “access to credit.”

### Financial sector and monetary policy
- Central Bank of Jordan (CBJ) policy and stability:
  - CBJ anchor: peg to the US dollar.
  - By the end of 2019, CBJ reached a reserve coverage of 98 percent of the Fund’s ARA Metric.
  - CBJ has been a net buyer of foreign exchange since early 2019.
  - CBJ interventions aimed at maintaining monetary stability and reserve targets.
- Banking system soundness:
  - Capitalization of the banking system well above the regulatory minimum of 12 percent and among the highest in the region.
  - Liquidity buffers remain comfortable; profitability is strong.
  - CBJ expected to take over supervision of the insurance sector by mid-2020 after approval of the law currently before Parliament.
  - CBJ to continue developing supervision and monitoring of the microfinance sector and initiatives to develop the nonbank financial sector.

### Foreign assistance, refugees, and external financing needs
- Refugee-related financing gap and implications:
  - London Initiative (February 2019) helped Jordan access budget grants and concessional financing, but a shortfall remains.
  - Annual US$1 billion shortfall in donor financing to fully address refugee-related pressures.
  - In 2017 and 2018, Jordan received US$1 billion less in support under the Jordan Response Program each year relative to annual funding requirement of about US$2.5-2.7 billion.
  - These shortfalls have added to Jordan’s debt burden and hampered program implementation under the Jordan Compact.
  - Full implementation of international commitments under the Jordan Compact and 2019 London Initiative, and continued support in form of budget grants, are key to helping Jordan cope with the refugee crisis and support reforms.
  - Need for assistance has become more urgent to ensure adequate containment of COVID-19, including among refugee communities.

*International Monetary Fund — Staff Report supplement (March 20, 2020) and Statement by Sami Geadah, Alternate Executive Director for Jordan (March 25, 2020).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1jorea2020001.pdf_