## 1jorea2021001

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---

### Executive Summary — context and recent developments
- Timely containment, a large monetary stimulus, and targeted fiscal measures helped save lives and livelihoods during the first COVID-19 wave, but a significant second wave is still unfolding.
- Real GDP is expected to decline by 3 percent in 2020.
- Unemployment has surged to record levels: 23 percent overall and 50 percent for youth.
- Tourism receipts are forecast to contract by 74 percent.
- Remittances are projected to decline by 12 percent in 2020.
- Revenues of the central government and of other public sector entities have dropped, raising public debt to 90 percent of GDP (net of SSC holdings projected at 89 percent of GDP at end-2020 in some assessments).
- By end-November, cumulative infections and deaths had reached 19,000 and 232 per million, respectively (COVID-19 cumulative figures as of end-November).
- A new government and parliament have been ushered in, with continuity in reform commitment.

### Policy response and program recalibration
- Adjustments and waivers:
  - Severity of the crisis rendered some 2020 EFF quantitative targets untenable; significant recalibration warranted.
  - Staff supports the authorities’ request for waivers of nonobservance of primary and combined fiscal balance targets.
  - Structural conditionality has been stretched and is proposed to be rephased.
- Authorities’ commitments:
  - Resume a gradual, growth-friendly and equitable fiscal consolidation anchored in tax reforms.
  - Ensure monetary and financial stability to underpin the peg.
  - Accelerate reforms in electricity and water sectors while protecting the most vulnerable.
  - Enhance labor market, business climate, and governance reforms.
- Prior actions to signal commitment:
  - Submission to parliament of a 2021 budget consistent with the fiscal program (prior action).
  - Hiring of a firm to undertake a review of the most significant power purchase agreement (prior action).

### Financing and Fund access
- Pandemic increased Jordan’s funding needs; continued multilateral and bilateral financing critical, including support for Syrian refugees.
- Staff proposes bringing forward some Fund disbursements into 2021–22.
- Completion of this review will make available SDR 102.93 million (about USD 0.2 billion), bringing total Fund disbursements in 2020 to SDR 497.41 million (USD 0.7 billion); includes a SDR 291.55 million (about USD 0.4 billion) RFI purchase in May.
- Jordan issued a successful USD 1.75 billion Eurobond in July.

### Macroeconomic outlook and key statistics
- Growth and inflation:
  - Output expected to contract by 3 percent in 2020.
  - Assuming pandemic abates in 2021, growth expected to reach 2.5 percent in 2021 and around 3 percent thereafter.
  - Headline inflation expected to drop to historic lows of 0.1 percent on average in 2020 and to rebound to about 1.5 percent in 2021.
- External sector:
  - Current account deficit expected to widen to around 7 percent of GDP in 2020.
  - Exports expected to decline year-on-year by 8 percent in 2020.
  - International reserves—although below the level envisaged at program approval—have been buoyed by external borrowing; Jordan’s EMBIG spread remains among the lowest in the region.
- Public finances and debt:
  - Public debt (net of SSC holdings) projected to rise to 89 percent of GDP at end-2020.
  - Domestic revenues expected to come in around 9 percent lower relative to 2019.
  - Discretionary fiscal measures expected to be small at 0.55 percent of GDP (of which 0.11 percent are revenue measures).
  - Domestic arrears to the tune of 1 percent of GDP surfaced and are being cleared.

### COVID-19 fiscal package (percent of GDP)
- Health equipment and supplies: 0.10
- Rental of hotels for quarantine: 0.02
- COVID-related security costs: 0.05
- Cash transfer to the unemployed: 0.27
- Cuts in tourism-related taxes: 0.10
- Tax deferrals: 0.01
- Total: 0.55

### Monetary and financial measures
- CBJ actions and liquidity:
  - CBJ cut the policy rate by 150 basis points (shadowing the U.S. Federal Funds rate).
  - CBJ injected 8 percent of GDP in liquidity by:
    - reducing the reserve requirement from 7 to 5 percent (JD 550 million to banks);
    - conducting outright purchases of government securities (JD 254 million);
    - undertaking repo operations (JD 850 million);
    - expanding support for subsidized lending schemes, especially SMEs (JD 800 million).
- CBJ subsidized lending schemes:
  - New JD 500 million program for SME lending: CBJ provided four-year zero-cost money to banks; banks lend to SMEs at no more than 2 percent.
  - 85 percent of these subsidized loans are guaranteed by the Jordan Loan Guarantee Corporation (JLGC).
  - CBJ lent JLGC JD 300 million at 2 percent interest for onward investment in government securities to build a buffer.
  - By end-September, about JD 450 million had been disbursed through the program, of which JD 127 million was used for salaries.

### Recent policy achievements and implementation challenges
- Achievements:
  - Submission to parliament of legislative amendments allowing greater public access to basic financial disclosure information by public officials.
  - Extension of temporary reductions in social-security contributions to all firms.
  - Anti-tax evasion drive uncovered around 2 percent of GDP in under-reporting of income tax liabilities.
  - Majority of tax services shifted online; dispute resolution procedure introduced for settling outstanding income and sales taxes.
  - Jordan signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in late September.
- Delays and slippages:
  - Reforms on electricity tariffs, track-and-trace monitoring for cigarettes, and Investment Law amendments were delayed and proposed to be rephased as new structural benchmarks.
  - End-June performance criteria for the primary fiscal deficit and the combined public deficit, and several fiscal indicative targets were missed.

### Fiscal targets, medium-term consolidation, and 2021 budget framework
- Near-term targets:
  - Primary central government deficit ceiling (excluding grants) reset to 6 percent of GDP—3.7 ppt relaxation relative to EFF approval target.
  - Combined public sector deficit target for 2020 relaxed to 7.7 percent of GDP.
- Medium-term consolidation objective:
  - Fiscal program target: debt/GDP ratio of no more than 80 percent by 2025.
  - Planned gradual fiscal consolidation of 4 percent of GDP over program period, including:
    - 0.7 percent of GDP in 2021.
    - 1.1 percent of GDP each year during 2022–24.
- 2021 budget prior action:
  - Draft budget law for 2021 consistent with a primary deficit target of JD 1,180 million (3.7 percent of GDP) will be submitted to Parliament (prior action).
  - Target implies a 2.3 ppts. of GDP y-o-y narrowing in the primary deficit in 2021:
    - 0.7 percent of GDP from new discretionary measures.
    - 1.6 percent of GDP from post-COVID rebound and partial unwind of 2020 measures.

### Measures to broaden the tax base and improve revenue (MEFP ¶12)
- Bulk of consolidation in 2021 (0.5 percent of GDP) to be underpinned by:
  - Closing tax loopholes, simplifying the tax system, widening the tax base, and arresting tax fraud/evasion.
- Specific actions and timelines (selected exact items):
  - Submit to parliament amendments to the 2014 Investment Law to eliminate preferential tax treatment (reformulated proposed SB for end-March 2021).
  - Enact legislation to strengthen transfer pricing rules (new proposed SB for end-March 2021).
  - Introduce “place-of-taxation” rules in the GST Law (new proposed SB for end-April 2021).
  - Introduce Economic Substance Regulations for all SEZs (EFF end-December SB, proposed reset to end-February 2021).
  - Sign agreement with three largest cigarette companies to implement track-and-trace (new proposed end-February 2021); system implemented for largest company by end-July 2021; full sector implementation by end-December 2021.
  - Pass legislation to introduce a single tax administration and single customs service (delayed SB proposed reset to end-March 2021).
  - Authorities hiring 50 new auditors (end-December 2020 SB), on top of 50 already hired.

### Non-priority spending cuts and efficiency measures
- Remaining effort of 0.2 percent of GDP expected from reducing non-priority expenditures:
  - Postpone non-priority expenditures and improve procurement practices (competitive bidding and e-procurement).
  - Continue public wage bill savings by hiring freeze on new positions in non-essential sectors until end-2021 while accommodating delayed teacher wage increase from December 2020.
  - Better target transfers and subsidies, removing duplicate and inefficient programs.

### Social protection and COVID flexibility
- Program protects priority social spending and provides flexibility for unanticipated COVID-related spending.
- Support includes increasing coverage of the National Aid Fund cash transfer program and enhancing its targeting and transparency.
- Authorities will bring the National Unified Registry online as a single gateway for all Jordanians seeking social assistance by end-December 2020 and publish an action plan in early 2021.
- Fiscal targets subject to an adjustor of 0.5 percent of GDP for unbudgeted COVID-related spending.

### NEPCO and water sector — losses and roadmaps
- NEPCO:
  - Broke even in 2019.
  - Expected modest loss of 0.15 percent of GDP in 2020.
  - Expected to return to sizable annual losses of around 1 percent of GDP starting in 2021, partly due to coming on stream of an oil shale PPA.
  - Estimated PPA cost impact: about 0.4 percent of GDP in 2021 and 0.7 percent of GDP per year over the medium term.
  - Authorities to prepare an update of NEPCO’s Financial Roadmap for Financial Sustainability by end-April 2021.
  - Short-run measures: lower marginal tariffs for businesses on additional consumption; boost exports (agreements with Iraq); optimize gas imports and LNG infrastructure; implement debt optimization plan.
  - Adopt and announce a three-year electricity tariff reform plan starting in 2021 to:
    - Redirect electricity subsidies to those most in need.
    - Use part of savings to reduce electricity tariffs for key business sectors while containing NEPCO losses.
    - Simplify tariff structure and develop means-tested methodology to target household subsidies.
- Water sector:
  - WAJ and water distribution companies expected to run combined deficit of 1.6 percent of GDP (0.4 percent higher than envisaged at EFF approval).
  - COVID-19 increased costs (more frequent deliveries) and worsened bill collection; WAJ continued to incur arrears to water sector PPPs.
  - Prepare Financial Sustainability Roadmap for the water sector in consultation with World Bank; actions include budget allocations, regularizing cash transfers to WAJ, and adherence to PPP law.
  - Roadmap to focus on increasing revenues (bill collection, reducing non-revenue water) and containing costs (electricity consumption).

### Tax system diagnosis and reform priorities (Annex II highlights)
- Tax-to-GDP ratio: 16 percent.
- Authorities’ tax expenditures assessments: 10.6 percent of GDP for 2017 and 10.0 percent of GDP for 2018.
- USAID estimate (2013) of revenue foregone: 7 percent of GDP.
- Corporate tax fragmentation (as of 2020): effectively nine differentiated corporate tax segments outside economic zones; combined rates vary from 15 to 38 percent.
  - Table AII.2 effective combined tax rates (selected exact items):
    - Banks: CIT 35; NSC 3; Total 38
    - Telecommunications: CIT 24; NSC 2; Total 26
    - Statutory rate: CIT 20; NSC 1; Total 21
    - Industrial activities: CIT 15; NSC 1; Total 16
    - Pharmaceuticals and textile: CIT 14; NSC 1; Total 15
- Economic zones:
  - 55 in total (44 Free Zones and 12 Development Zones).
  - Development Zones: profit taxed at 10 percent; transformational industrial activities with at least 30 percent local value-added taxed at 5 percent.
  - Aqaba Special Economic Zone levies income tax at rate of 5 percent on profits realized inside ASEZ.
- GST structural issues:
  - GST underperforms due to exclusions, reduced rates and low compliance; GST brings around 4 percent of GDP per annum.
  - GST base narrow; multiple rates historically applied; place-of-taxation rules missing.
  - GST data (2019, ISTD-based IMF staff calculations — exact table values):
    - Turnover ranges; Exempt Sales as a Share of Turnover (%); Ratio of GST to Total Turnover; Share of Total Collected GST (%):
      - 0 – 50,000: 2.33 — 14.94 — 0.98
      - 50,000 – 100,000: 2.92 — 12.76 — 1.40
      - 100,000 – 2,500,000: 5.76 — 10.57 — 23.61
      - 2,500,000 – 5,000,000: 5.57 — 6.88 — 8.55
      - > 5,000,000: 13.47 — 5.30 — 65.46
      - Averages / Total: 6.01 — 6.25 — 100.00
- Commitments:
  - Enact transfer pricing legislation (new proposed SB for end-March 2021).
  - Introduce place-of-taxation rules in GST (new proposed SB for end-April 2021).
  - Submit amended Investment Law to eliminate preferential tax treatment (Mar-21 SB).

### Monetary stability, reserves, and banking sector resilience
- Exchange rate peg to the U.S. dollar to continue as key nominal anchor.
- Revised NIR path keeps reserves above 100 percent of the Fund’s ARA metric (authorities’ operational target for reserve adequacy).
- CBJ stimulus amount: 8 percent of GDP.
- Credit growth: 6 percent year-on-year during January–August.
- Banking system status (selected exact figures):
  - NPLs increased to 5.4 percent by June 2020 from 5 percent in December 2019.
  - Capital adequacy ratio (CAR) declined from 18.3 to 17.9 percent by June 2020; regulatory minimum is 12 percent.
  - CBJ required banks not to pay out dividends in 2020.
- Supervisory and legal strengthening:
  - Since 2018, banks compliant with IFRS9.
  - New instructions on liquidity standards issued in early 2020.
  - CBJ Board to approve guidelines to implement Emergency Liquidity Assistance (ELA) framework (SB proposed reset to June-2021).
  - CBJ to reexamine legal provisions impeding IFRS compliance; study and recommendations to be submitted by end-August 2021.
- AML/CFT:
  - National Risk Assessment completed with Fund assistance.
  - Draft amendments to AML/CFT law approved by government in March 2020; expected to pass by mid-2021.
  - Authorities requested a Financial Sector Assessment Program (FSAP) update in 2022.

### Debt sustainability, DSA findings, and stress tests (Annex I)
- Public debt projections and targets:
  - Public debt projected to reach 89 percent of GDP in 2020 and peak at 90.9 percent of GDP in 2021 in some projections, then decline below 80 percent of GDP by 2025 under baseline.
  - Public-sector DSA projects nominal gross public debt series (selected values reported in source DSA charts/tables):
    - 2018: 70.3; 2019: 75.1; 2020: 78.0; 2021: 89.2; 2022: 90.9; 2023: 90.3; 2024: 88.3; 2025: 84.2; 2025: 79.8 (as presented).
- External debt metrics (selected exact series from Table A1.1):
  - External debt (percent of GDP): 2015: 63.9; 2016: 65.1; 2017: 68.4; 2018: 67.9; 2019: 68.0; 2020: 75.2; 2021: 78.0; 2022: 77.5; 2023: 75.4; 2024: 72.4; 2025: 68.7.
  - Public and Publicly Guaranteed External Debt (percent of GDP): 2015: 34.2; 2016: 36.3; 2017: 39.2; 2018: 36.6; 2019: 35.0; 2020: 41.3; 2021: 45.0; 2022: 45.5; 2023: 44.3; 2024: 42.4; 2025: 39.8.
  - External debt-to-exports ratio (percent): 2015: 174.7; 2016: 191.3; 2017: 198.1; 2018: 193.2; 2019: 187.0; 2020: 305.4; 2021: 258.8; 2022: 214.9; 2023: 204.7; 2024: 193.6; 2025: 182.5.
- Stress tests and scenarios:
  - Baseline and shock outcomes show vulnerabilities under deeper or prolonged shocks, with combined shock scenarios raising external debt substantially (e.g., Combined shock 3/ scenario value 99 vs Baseline 69 in figure annotations).
  - A one-time real depreciation of 30 percent considered in a real depreciation shock scenario.
- GFNs (Gross Financing Needs) reported (percent of GDP, selected series):
  - 2018: 24.6; 2019: 17.6; 2020: 14.6; 2021: 22.0; 2022: 17.9; 2023: 17.7; 2024: 17.0; 2025: 13.6; 2025: 16.1 (as shown).
- DSA policy implications:
  - Maintain momentum on growth-friendly fiscal consolidation, accelerate structural reforms, and mitigate SOE/PPP contingent liabilities.

### Program modalities, conditionality, financing assurances, and monitoring
- Program adaptations:
  - Request waivers of nonobservance of end-June PCs for central government primary and combined public deficits; re-phasing and reformulation of pending SBs and new proposed SBs.
  - Staff supports waivers and proposes PCs and ITs for end-December 2020, end-June 2021, and indicative targets for end-March and end-September 2021.
- Financing assurances and composition (selected exact figures from financing table, in million USD):
  - Financing needs: 2,031 (2020), 2,169 (12 months from First EFF review), 1,259 (2022), 817 (2023), 99 (2024).
  - IMF (Purchases under the RFI in 2020 and EFF): 687 (2020), 412 (12 months from First EFF review), 326 (2022), 198 (2023), 99 (2024).
  - Identified official public external financing: 1,344 (2020), 1,757 (12 months), 933 (2022), 618 (2023), 0 (2024).
  - World Bank: 414 (2020), 430 (12 months), 287 (2022), 105 (2023), 0 (2024).
  - European Union: 302 (2020), 553 (12 months), 0 (2022), 0 (2023), 0 (2024).
  - Japan: 200 (2020), 100 (12 months), 100 (2022), 100 (2023), 0 (2024).
  - Others: 429 (2020), 674 (12 months), 546 (2022), 414 (2023), 0 (2024).
  - Memorandum: Eurobond issuance: 1,750 (2020); 0 (12 months); 1,000 (2022).
- Capacity to repay:
  - Fund credit outstanding will peak in 2023 at 3.4 percent of GDP, equivalent to around 9 percent of exports of goods and non-factor services and gross usable reserves.
  - EFF repurchases and charges peak at 1.5 percent of exports of goods and services and 1.7 percent of gross usable reserves in 2024.
- Monitoring and data provision (selected items):
  - Detailed reporting requirements on Treasury account, CBJ reserves, NEPCO and WAJ unaudited income statements, domestic arrears, external debt details, and social spending component tables with specified reporting lags (weekly, monthly, quarterly) and timetables.
  - Program exchange rate for monitoring: JD 0.709 = $1; gold price JD 1046.52 per fine troy ounce.

### Risks, contingency planning, and policy guidance under downside scenarios
- Key downside risks:
  - Sustained second wave into 2021 delaying recovery and tourism return; larger external financing needs and reserve pressures.
  - Large-scale lockdowns widening budget deficits and amplifying financing needs and debt.
  - Contingent liabilities from national air carrier, General Amman Municipality, utilities.
  - High unemployment and public wage demands could foment social discontent given limited fiscal space.
  - Regional geopolitical uncertainty and potential military escalation raising borrowing costs.
- Mitigants:
  - Authorities’ commitment to EFF objectives, continued donor support, pro-poor fiscal adjustment, and a well-capitalized banking system.
- Policy priorities in worse-than-baseline scenario:
  - Preserve macro-financial stability and debt sustainability while minimizing scarring.
  - Monetary policy: further targeted support may be helpful, subject to safeguarding the peg and reserves; remain data-driven.
  - Fiscal policy: balance cyclical support and sustainability; preserve medium-term debt anchor of 80 percent of GDP by maintaining discretionary consolidation in 2021 budget; re-prioritize spending toward essential areas and leverage program adjustors if additional financing available.
  - Mobilize additional concessional financing; step up donor support if recovery is protracted.
- Authorities to remain in close consultation with the Fund ahead of the second review as the second wave unfolds.

*IMF staff report: Executive Summary (November 30, 2020).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and recent developments
- Timely containment, a large monetary stimulus, and targeted fiscal measures helped save lives and livelihoods during the first COVID-19 wave, but a significant second wave is still unfolding.
- Real GDP is expected to decline by 3 percent in 2020.
- Unemployment has surged to record levels: 23 percent overall and 50 percent for youth.
- Tourism and remittances have declined.
- Revenues of the central government and of other public sector entities have dropped, raising public debt to 90 percent of GDP.
- A new government and parliament have been ushered in, with welcome continuity in reform commitment.
- By end-November, cumulative infections and deaths had reached 19,000 and 232 per million, respectively (COVID-19 cumulative figures as of end-November).

### Policy response and program recalibration
- Program recalibration and policies:
  - The severity of the crisis rendered some of the 2020 EFF quantitative targets untenable, warranting a significant recalibration.
  - Staff supports the authorities’ request for waivers of nonobservance of primary and combined fiscal balance targets.
  - Structural conditionality has been stretched and is now proposed to be rephased.
  - Authorities remain committed to:
    - resume a gradual, growth-friendly and equitable fiscal consolidation—anchored in tax reforms that seek to close loopholes and enhance compliance—as the recovery takes hold;
    - ensure monetary and financial stability to underpin the peg;
    - accelerate reforms in the electricity and water sectors, while protecting the most vulnerable;
    - enhance labor market, business climate, and governance reforms to entrench jobs-rich, inclusive and durable growth.
  - To signal commitment to the program, the authorities have submitted to parliament a 2021 budget consistent with the fiscal program, and have hired a firm to undertake a review of the most significant power purchase agreement (prior actions).

### Financing
- The pandemic has significantly increased Jordan’s funding needs, underscoring the criticality of continued multilateral and bilateral financing, including to support Syrian refugees.
- In the event of a more protracted recovery, donor support may need to be stepped up to protect debt sustainability.
- Staff is proposing to bring forward some Fund disbursements into 2021–22.
- Completion of this review will make available SDR 102.93 million (about USD 0.2 billion) in Fund financing, bringing total Fund disbursements in 2020 to SDR 497.41 million (USD 0.7 billion); this includes a SDR 291.55 million (about USD 0.4 billion) RFI purchase in May.
- Jordan issued a successful USD 1.75 billion Eurobond in July.

### Macroeconomic outlook and key statistics
- Growth and inflation:
  - Output is expected to contract by 3 percent in 2020.
  - Assuming the pandemic gradually abates in 2021, growth is expected to reach 2.5 percent in 2021 and around 3 percent thereafter supported by structural reforms.
  - Headline inflation is expected to drop to historic lows of 0.1 percent on average in 2020 and to rebound to about 1.5 percent in 2021.
- External sector:
  - The current account deficit is expected to widen to around 7 percent of GDP in 2020.
  - Exports are expected to decline year-on-year by 8 percent in 2020.
  - Tourism receipts are forecast to contract by 74 percent.
  - Remittances are projected to decline by 12 percent in 2020.
  - International reserves—although below the level envisaged at program approval—have been buoyed by external borrowing; Jordan’s EMBIG spread remains among the lowest in the region.
- Public finances and debt:
  - The shock to GDP and associated rise in fiscal and combined public deficits will cause public debt (net of SSC holdings) to rise to 89 percent of GDP at end-2020, in line with the May RFI projection, but still 9 ppts of GDP higher than expected at EFF approval.
  - Domestic revenues are expected to come in around 9 percent lower relative to 2019.
  - Discretionary fiscal measures are expected to be small at 0.55 percent of GDP (of which 0.11 percent are revenue measures).
  - Domestic arrears to the tune of 1 percent of GDP surfaced and are being cleared.
- Monetary and financial measures:
  - The Central Bank of Jordan (CBJ) cut the policy rate by 150 basis points (shadowing the U.S. Federal Funds rate).
  - CBJ injected 8 percent of GDP in liquidity by reducing the reserve requirement from 7 to 5 percent (JD 550 million to banks); conducted outright purchases of government securities (JD 254 million); undertaking repo operations (JD 850 million); and expanding support for subsidized lending schemes, especially SMEs (JD 800 million).

### COVID-19 fiscal package (percent of GDP)
- Health equipment and supplies: 0.10
- Rental of hotels for quarantine: 0.02
- COVID-related security costs: 0.05
- Cash transfer to the unemployed: 0.27
- Cuts in tourism-related taxes: 0.10
- Tax deferrals: 0.01
- Total: 0.55

### Recent policy achievements and implementation challenges
- Achievements:
  - Submission to parliament of legislative amendments allowing greater public access to basic financial disclosure information by public officials.
  - Extension of temporary reductions in social-security contributions to all firms.
  - Hiring of an external consulting firm to review the most significant PPA (with slight delay).
  - Anti-tax evasion drive that uncovered around 2 percent of GDP in under-reporting of income tax liabilities.
  - Majority of tax services shifted online; dispute resolution procedure introduced for settling outstanding income and sales taxes.
  - Jordan signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in late September.
- Delays and rephasing:
  - Adoption of a plan to reform electricity tariffs; implementation of digital track-and-trace monitoring system to reduce cigarette smuggling; and submission to parliament of amendments to the Investment Law to address tax arbitrage and transfer pricing abuses were delayed and are proposed to be rephased and reformulated as new structural benchmarks.
- Implementation slippages:
  - End-June performance criteria (PCs) for the primary fiscal deficit and the combined public deficit, and several fiscal indicative targets (ITs) were missed.

### Risks and contingencies
- Downside risks are considerable:
  - A sustained second wave into 2021 could delay recovery and, in particular, delay the return of tourism, raising external financing needs and pressuring reserves.
  - Large-scale lockdowns would hit government revenues further and increase COVID-related spending, widening the budget deficit and amplifying financing needs and debt.
  - Risk of contingent liabilities from the broader public sector (national air carrier, General Amman Municipality, utilities).
  - High unemployment and pre-existing demands for public wage increases could foment social discontent given limited fiscal space.
  - Regional geopolitical uncertainty and potential military escalation could raise Jordan’s borrowing costs.
- Mitigating factors:
  - Authorities’ strong commitment to EFF objectives, continued donor support, pro-poor fiscal adjustment, and a well-capitalized banking system.

### Fiscal administration and compliance measures
- Tax administration strengthening:
  - Anti-tax evasion drive uncovered around 2 percent of GDP in under-reporting of income tax liabilities.
  - Majority of tax services moved online.
  - Risk-based approach to audits, better coordination and data sharing between tax and customs agencies.
  - Establishment of a “gold list” of tax-compliant companies entitling them to special privileges.
- Discretionary measures to offset fiscal deterioration:
  - Suspension of bonuses to civil servants, postponement of non-priority capital investment and planned public wage increases to end-2020, and a hiring freeze for new positions.

*IMF staff report: Executive Summary (November 30, 2020).*

### 10.      To support the authorities’ efforts to protect lives and jobs, the end-2020 fiscal targets

### 10. To support the authorities’ efforts to protect lives and jobs, the end-2020 fiscal targets have been adjusted

### Fiscal targets and near-term adjustments
- Primary central government deficit ceiling (excluding grants) reset to 6 percent of GDP, a 3.7 ppt of GDP relaxation relative to the target set at the time of EFF approval.
- Combined public sector deficit target for 2020 relaxed by the same 3.7 ppt of GDP, to 7.7 percent of GDP.
- Utilities balances expected to remain unchanged relative to the EFF, as the negative effect of the shock is offset by the delay in the coming on line of the oil shale PPA and the drop in LNG prices.

### Medium-term consolidation and debt objectives
- Debt approaching 90 percent of GDP in 2020–21.
- Fiscal program target: debt/GDP ratio of no more than 80 percent by 2025.
- Planned gradual fiscal consolidation of 4 percent of GDP over the program period, including:
  - 0.7 percent of GDP in 2021.
  - 1.1 percent of GDP each year during 2022–24.
- Expected drivers of the medium-term consolidation: tightening sizable tax expenditures, rationalizing current spending (including studies on public sector size and compensation), and protecting the most vulnerable.
- Continued robust donor support and planned adjustment in 2021–24 are expected to help ensure debt falls below 80 percent of GDP by end-2025.

### 2021 budget framework and primary deficit target
- A draft budget law for 2021 consistent with a primary deficit target of JD 1,180 million (3.7 percent of GDP) will be submitted to Parliament (prior action).
- The target implies a 2.3 ppts. of GDP y-o-y narrowing in the primary deficit in 2021, of which:
  - 0.7 percent of GDP is due to new discretionary measures.
  - 1.6 percent of GDP on account of the post-COVID rebound, including a partial unwind of discretionary measures introduced in 2020.

### Measures to broaden the tax base and improve revenue (MEFP ¶12)
- Bulk of consolidation in 2021 (0.5 percent of GDP) underpinned by:
  - Closing tax loopholes.
  - Simplifying the tax system and reducing fragmentation.
  - Widening the tax base to ensure all earners contribute.
  - Arresting outright tax fraud/evasion.
- Specific intended actions:
  - Submit to parliament amendments to the 2014 Investment Law to eliminate all articles related to preferential tax treatment; reduce scale of preferential corporate income tax (CIT) regimes; broaden bases for General Sales Tax (GST) and Special Sales Tax (SST) over time (reformulated proposed SB for end-March 2021).
  - Enact effective legislation to strengthen transfer pricing rules in line with international standards and IMF staff advice (new proposed SB for end-March 2021).
  - Introduce “place-of-taxation” rules in the GST Law in line with international best practices (new proposed SB for end-April 2021).
  - Introduce Economic Substance Regulations for all SEZs (EFF end-December SB, proposed to be reset to end-February 2021).
  - Sign an agreement with the three largest cigarette companies to implement the track-and-trace monitoring system to reduce cigarette smuggling (new proposed end-February 2021 SB). Implementation timeline:
    - System to be implemented for the largest cigarette company by end-July 2021 (delayed and reformulated SB from end-December 2020).
    - Full implementation in the rest of the sector by end-December 2021 (MEFP ¶16).
  - Pass legislation to introduce a single tax administration and a single customs service, bringing ASEZA participants under ISTD and Jordan Customs (delayed SB from end-December 2020, proposed to be reset to end-March 2021).
- Administrative support and capacity building:
  - Strengthen risk-based audit practices; improve compliance for taxpayers in the “professionals” groups; enhance technical capacity and reform governance within ISTD.
  - Authorities hiring 50 new auditors (end-December 2020 SB), on top of 50 already hired.
- Note: Measures are in addition to potential collections from under-reporting uncovered by the authorities’ ant-tax evasion drive; expected yields based on experiences of other countries.

### Non-priority spending cuts and efficiency measures
- Remaining effort of 0.2 percent of GDP expected from reducing non-priority expenditures:
  - Postpone non-priority expenditures and improve procurement practices (broader use of competitive bidding and e-procurement).
  - Continue public wage bill savings by extending hiring freeze on new positions in non-essential sectors until end-2021 while ensuring adequate staffing of hospitals; partially offset by accommodating, from December 2020, the wage increase for teachers agreed last year but delayed due to COVID-19.
  - Better target transfers and subsidies to the most vulnerable, including removing duplicate and inefficient programs.

### Social protection and COVID flexibility
- Program continues to protect priority social spending and provide flexibility to accommodate unanticipated COVID-related spending.
- Support for strengthening the social safety net, including increasing coverage of the National Aid Fund cash transfer program and enhancing its targeting and transparency.
- Authorities will bring the National Unified Registry online as a single gateway for all Jordanians seeking social assistance by end-December 2020 and will conduct a comprehensive review of social spending envelope and publish an action plan in early 2021.
- Fiscal targets are subject to an adjustor of 0.5 percent of GDP for unbudgeted spending to prevent, detect, control, treat and/or contain the spread of COVID-19.

### Structural fiscal reforms to improve the fiscal framework (MEFP ¶16)
- Prevent accumulation of new arrears:
  - Cabinet decision to prohibit issuance of medical exemptions other than within well-established eligibility rules and budgeted allocation.
  - Implement monitoring mechanism of public sector consumption of oil products from the refinery by end-2020.
  - Cabinet decision to prohibit use of treasury advances to pay for unbudgeted expenditures.
  - Carrying out comprehensive review of trust accounts (delayed end-September SB, proposed to be reset to end-January 2021).
  - With IMF TA, reassess 2017 draft organic budget law and submit amended draft law by end-December 2020.
- Enhance fiscal transparency:
  - Authorities requested a comprehensive Fiscal Transparency Evaluation (FTE).
  - With Fund TA, aim to gradually move to full general government reporting.
- Limit incurrence of fiscal risks from SOEs and PPPs:
  - Comprehensive review of fiscal commitments and contingent liabilities from major SOEs and PPPs with Fund TA.
  - Pursue measures: (i) fully implement new PPP law; (ii) adequately staff PPP Unit at the Prime Minister’s office, the Fiscal Commitments and Contingent Liabilities unit at the MOF and the PIM Unit at MOPIC; (iii) monitor financial performance of largest public corporations in the energy, water and transport sector and subnational governments.
  - Staff emphasized that government support to public enterprises or local government should be measured and conditional on credible plans to increase operational efficiency.
- Strengthen capacity for fiscal policy formulation and forecasting:
  - Establish new project management unit and a macro-fiscal unit in the MOF.

### Monetary stability and financial sector resilience
- Exchange rate and reserves:
  - Exchange rate peg to the U.S. dollar to continue as key nominal anchor.
  - Pressures on the peg subsided since September; reserves replenished due to the RFI, a frontloaded U.S. grant, and issuances of FX-denominated bonds domestically and internationally.
  - End-June NIR PC and end-September IT were met.
  - Revised NIR path still keeps reserves above 100 percent of the Fund’s ARA metric, the authorities’ operational target for reserve adequacy.
  - Authorities committed to further strengthening reserve buffers in subsequent years.
- Monetary stimulus and credit:
  - CBJ’s sizable and timely stimulus should be maintained for now and gradually unwound once the recovery takes hold.
  - Monetary stimulus amount: 8 percent of GDP.
  - Credit growth: 6 percent year-on-year during January-August.
  - ITs on net domestic assets (NDA) of the CBJ for June and September were breached.
  - Once recovery holds, CBJ to gradually unwind crisis measures to slow credit growth and prevent pressures on current account and reserves.

### CBJ subsidized lending schemes and quasi-fiscal operations
- New JD 500 million program for SME lending:
  - CBJ provided four-year zero-cost money to banks on condition banks lend to SMEs at no more than 2 percent (even this 2 percent interest is covered by the government, if the funds are used to pay salaries).
  - 85 percent of these subsidized loans are guaranteed by the Jordan Loan Guarantee Corporation (JLGC), which is owned 45 percent (55 percent) by the CBJ (commercial banks).
  - CBJ lent JLGC JD 300 million at 2 percent interest rate for onward investment in government securities; interest rate differential to help build a buffer.
  - By end-September, about JD 450 million had been disbursed through the program, of which JD 127 million was used for salaries.
- CBJ modified an existing lending program to support productive economic sectors (tourism, industry, renewable energy etc.).
- CBJ does not intend to renew the schemes once limits are exhausted; staff supports non-renewal, noting schemes represent quasi-fiscal activity that should be conducted by the government.

### Banking system soundness and regulatory measures
- Banking system status:
  - At end-2019, banks were well-capitalized (with over 90 percent of capital held as Tier 1), liquid and profitable.
  - NPLs increased to 5.4 percent by June 2020 from 5 percent in December 2019.
  - Capital adequacy ratio (CAR) declined from 18.3 to 17.9 percent by June 2020; regulatory minimum is 12 percent (itself above Basel limit of 10.5 percent).
  - CBJ required banks not to pay out dividends in 2020 to support capital position.
- Stress testing and supervisory expectations:
  - CBJ stress tests show system-wide CAR would remain above CBJ’s regulatory minimum of 12 percent even under a severe downside scenario.
  - Staff emphasized maintaining prudent accounting, reporting and provisioning standards.
  - CBJ should require weaker banks to prepare prudent but feasible capital restoration plans if downside risks materialize.
  - Staff recommended CBJ discourage banks from taking excessive credit risk.
- Strengthening legislative and regulatory framework:
  - Since 2018, Jordanian banks compliant with IFRS9 accounting standards.
  - New instructions on liquidity standards issued in early 2020.
  - CBJ board to approve detailed guidelines to implement Emergency Liquidity Assistance framework provided for in the CBJ Law (SB proposed to be reset to June-2021). Guidelines to define acceptable collateral, risk assessment instructions, and include draft contracts.
  - CBJ reexamining legal provisions impeding IFRS compliance; study and recommendations to be submitted to CBJ Board by end-August 2021.

### AML/CFT and financial sector assessment
- AML/CFT enhancements:
  - With Fund assistance, authorities completed a National Risk Assessment contributing to review of AML/CFT law to align with FATF standards and address practical issues and mutual evaluation recommendations.
  - Draft amendments to AML/CFT law approved by government in March 2020 and expected to be passed by parliament by mid-2021.
  - All regulatory agencies, including CBJ, amended regulations to ensure conformity with FATF standards.
  - Risk-based framework for offsite and onsite supervision of banks and money-exchange firms and other financial and nonfinancial institutions, as well as Non-Profit Organizations, has been put in place per IMF technical assistance.
- Authorities requested a Financial Sector Assessment Program (FSAP) update in 2022.

### Reforming the electricity and water sectors (NEPCO outlook)
- NEPCO financial outlook:
  - NEPCO broke even in 2019.
  - Expected relatively modest loss of 0.15 percent of GDP in 2020, due to resilient electricity consumption, COVID-related delays in coming on-stream of new PPAs, and a drop in LNG prices.
  - NEPCO expected to return to sizable annual losses of around 1 percent of GDP starting in 2021, partly due to coming on stream of an oil shale PPA.
  - Estimated PPA cost impact: about 0.4 percent of GDP in 2021 and 0.7 percent of GDP per year over the medium term.
  - Outlook also reflects post-COVID demand shortfalls and adjustment of the fuel clause to zero following the drop in oil prices below USD 55/bbl.

*Source: IMF staff projections and MEFP excerpts provided in the content unit.*

### 25.      Given the increased pressure on public finances, the urgency of containing NEPCO’s

### 1jorea2021001 - 25.      Given the increased pressure on public finances, the urgency of containing NEPCO’s

### NEPCO losses, short-run measures, and Financial Roadmap
- Short-run measures being taken:
  - Boost domestic demand by temporarily lowering tariffs for some businesses on additional consumption.
  - Boost international demand through export agreements with neighboring countries, notably Iraq.
  - Reduce costs by optimizing gas imports, LNG infrastructures, and implementing the debt optimization plan.
- Authorities commit to prepare an update of NEPCO’s Financial Roadmap for Financial Sustainability by end-April 2021, to:
  - Lay out a comprehensive strategy to restore NEPCO’s financial viability over the medium term, in light of the post-COVID conjuncture.
  - Include additional measures to bring costs down, including by exploring options to optimize costs related to existing PPA commitments which impose large capacity charges on NEPCO; and increase revenues.
- Projections mentioned: “Projections for NEPCO's Operational Balance” chart (2018–2025) with series for “Projected Losses” and “Without Oil Shale” shown as Percentage of GDP (years 2018–2025). (Chart source: IMF staff estimates.)

### Electricity tariff reform and targeting
- Authorities remain fully committed to end-user electricity tariff reforms (MEFP ¶28).
- They will adopt and announce a three-year plan with evenly-phased implementation starting in 2021 that will:
  - Redirect electricity subsidies only to those who most need them.
  - Use part of the realized savings to reduce electricity tariffs for key business sectors, while containing NEPCO’s losses (proposed to be reformulated and reset structural benchmark for March 2021).
  - Simplify the electricity tariff structure and reduce distortions.
  - Develop a means-tested methodology to target households eligible for electricity subsidies, based on detailed data on income and electricity consumption.
- The authorities will launch a robust communication plan to explain the purpose of the tariff reform and its expected impact on growth and employment.

### Power Purchase Agreements (PPAs)
- To avoid future incurrence of expensive PPAs:
  - Authorities hired an international firm (with slight COVID-19 delay) to undertake a comprehensive review of the most significant PPA (prior action, MEFP ¶29).
  - Completion of the review and sharing findings with Fund staff expected by end-March 2021 (reset SB).
  - The review is expected to help strengthen the framework for future contracting of PPAs.

### Water sector losses and Financial Sustainability Roadmap
- COVID-19 exacerbated water sector losses:
  - WAJ and water distribution companies expected to run a combined deficit of 1.6 percent of GDP (0.4 percent of GDP higher than envisaged at EFF approval).
  - Causes: rise in costs due to more frequent water deliveries during lockdown and significantly worsened bill collection.
  - WAJ has continued to incur arrears to water sector PPPs; water distribution companies have incurred new arrears to electricity distribution companies.
- Staff emphasis and authorities’ actions (MEFP ¶30):
  - Prepare a Financial Sustainability Roadmap for the water sector, in consultation with the World Bank and other stakeholders.
  - Following WAJ’s debt centralization, WAJ will be transferred under the Ministry of Water, while preserving WAJ’s independent accounting and reporting of financial statements.
  - Actions to arrest accumulation of arrears to water sector PPPs include providing adequate allocations to the water sector in the general budget, regularizing cash transfers from the MOF to WAJ, and looking into options to replenish buffer accounts designed to provision for payments to PPPs.
  - Water sector will fully adhere to the PPP law to mitigate fiscal risks.
- Roadmap objectives (footnote): provide comprehensive analysis and outline actions needed to:
  - Increase revenues – including through higher bill collection, a reduction in non-revenue water (both physical losses and thefts) and an analysis of the adequacy of water tariffs in all sectors.
  - Contain costs, including those related to electricity consumption.

### Reforms to strengthen employment, investment and governance
- Labor market reforms to mitigate COVID fallout and structural unemployment (MEFP ¶31):
  - Encourage formality and youth employment:
    - Amendments to the Social Security Law adopted to allow reduced contributions for start-ups hiring young workers; measures introduced for startups in some sectors and to be expanded to all sectors once temporary pandemic measures expire.
    - Continued streamlining and enhancement of vocational education and on-the-job training initiatives.
  - Enhance female labor force participation:
    - Finalize instructions to larger firms to provide childcare (delayed and proposed to be reset to end-December 2020 SB).
    - Draft amendments to the Labor Law submitted to parliament address harassment in the workplace and public spaces.
    - Adopted new nurseries licensing by-law to reduce procedures to obtain a nursery license.
    - Agreed to remove any gender bias from social security survivor benefits regime.
    - By June 2021, authorities will issue instructions for licensing of home-based childcare.
    - Implementing the Code of Ethics and Professional Conduct for the transport sector to address transportation barriers to female employment.
  - Public-private wage differentials:
    - Authorities preparing a civil service compensation reform plan, building on World Bank-supported analysis, to better align public sector wages to private sector compensation at all levels of seniority.
- Fostering investment and competition (MEFP ¶32):
  - Steps to reduce costs of starting and operating businesses, eliminate red tape, and strengthen investor protection.
  - “Investor’s Journey” program: simplify licensing procedures for businesses.
  - Abolish licensing requirements for bookshops, cultural centers, and the tourism sector by end-December 2020; amend regulations to abolish additional licenses that lack a clear legal basis, including judicial guarantee deposits for small businesses.
  - Modernize insolvency framework, streamline regulatory agencies, and strengthen market competition framework.
- Access to finance and financial inclusion (¶32):
  - Broaden coverage of Jordan’s credit bureau beyond banks to include insurance and leasing companies, microfinance institutions, telecommunication companies, and public utilities.
  - Publish financial inclusion report (delayed by pandemic; end December 2020 SB now proposed to be reset to end-March 2021).
- Governance reforms (¶33):
  - Amendments to the illicit gains law passed to improve effectiveness of anti-corruption bodies and increase transparency of asset disclosures by public officials; full implementation and strengthening asset disclosure system remains crucial.
  - Under RFI commitments, publishing contracts for COVID-related spending on MOF’s website and issuing circulars to facilitate continuous publication of procurement contracts, including beneficial ownership for COVID-19 emergency response spending above JD 25,000.
  - Commit to undertake ex-post audits of all crisis-mitigating inflows and spending and publish results (new proposed end-June 2021 SB).
  - By end-2020, issue all regulations needed to support implementation of the Unified Public Procurement By-law.

### Program modalities, conditionality, and financing assurances
- Authorities requested adjustments to program quantitative and structural conditionality in light of COVID-shock (¶34):
  - Request waivers of nonobservance of end-June PCs for the central government primary and combined public deficits; re-phasing and reformulation of pending SBs, and new proposed SBs (MEFP Table 2).
  - Staff supports waivers given corrective action to achieve fiscal consolidation and bring public debt to under 80 percent of GDP by 2025.
  - Staff proposes performance criteria for end-December 2020 and end-June 2021 and indicative targets for end-March and end-September 2021 (MEFP Table 1).
  - Program will accommodate, through PC adjustors, unbudgeted spending pressures related to COVID-19 and social protection spending financed by additional external budgetary grants (TMU ¶27 and ¶36).
  - Two prior actions: (i) Hiring of firm to review the most significant PPA; and (ii) submission to parliament of a budget law for 2021 consistent with a central government primary deficit target (excluding grants and transfers to NEPCO and WAJ) of no more than JD 1,180 million.
- Financing assurances and composition (¶35):
  - Firm commitments of financing assurances in place for 12 months following first EFF review, with good prospects thereafter.
  - Residual external financing needs over 12 months following first EFF review projected to be fully covered by concessional loans and grants from development partners.
  - 2020–24 public external financing, excluding the IMF, expected to remain in line with the 2019 London Initiative pledges.
  - Expected shortfalls in original pledges in 2020 to be offset by new sources of financing in 2021–22, including emergency pandemic support by the EU.
  - Issuance of non-guaranteed Eurobonds expected to rollover guaranteed Eurobonds of USD 1 billion maturing in 2022.
  - Staff supports reprofiling of the EFF purchases to shift one third of the 2023–24 tranches to 2021–22, within the overall envelope of 270 percent of quota (SDR 926.37 million or about $1.3 billion) (Table 5).
  - Purchases in 2020–21 will be on-lent to the government in JD and used for budget support as part of balance of payments needs for external payments.
- External Financing Needs and Funding Sources, 2020–24 (table excerpt, In million of U.S. dollars):
  - Financing needs: 2,031 (2020), 2,169 (12 months from First EFF review), 1,259 (2022), 817 (2023), 99 (2024).
  - Official financing: 2,031 (2020), 2,169 (12 months from First EFF review), 1,259 (2022), 817 (2023), 99 (2024).
  - IMF (1/ Purchases under the RFI in 2020 and EFF): 687 (2020), 412 (12 months from First EFF review), 326 (2022), 198 (2023), 99 (2024).
  - Identified official public external financing: 1,344 (2020), 1,757 (12 months from First EFF review), 933 (2022), 618 (2023), 0 (2024).
  - World Bank: 414 (2020), 430 (12 months), 287 (2022), 105 (2023), 0 (2024).
  - European Union: 302 (2020), 553 (12 months), 0 (2022), 0 (2023), 0 (2024).
  - Japan: 200 (2020), 100 (12 months), 100 (2022), 100 (2023), 0 (2024).
  - Others (2/ Financial support from Canada, France, Germany, Italy, GCC, EBRD, AIIB): 429 (2020), 674 (12 months), 546 (2022), 414 (2023), 0 (2024).
  - Memorandum item: Eurobond issuance: 1,750 (2020), 0 (12 months), 1,000 (2022), 0 (2023), 0 (2024).

### Risks, safeguards, and capacity to repay
- Risks of policy slippage in baseline (¶36):
  - COVID shock could have socio-political repercussions complicating reforms; capacity constraints in key government institutions.
  - Program design includes prior actions, phased structural conditionality, and support to strengthen institutional capacity in the finance ministry and other entities.
  - Continued TA engagement with the Fund and development partners in tax policy and administration, and the energy sector, to enable timely corrective action.
  - Discussions on contingent fiscal measures and need for robust donor support despite temporary setbacks.
- Capacity to repay the Fund (¶37):
  - Fund credit outstanding will peak in 2023 at 3.4 percent of GDP, equivalent to around 9 percent of exports of goods and non-factor services and gross usable reserves.
  - EFF repurchases and charges peak at 1.5 percent of exports of goods and services and 1.7 percent of gross usable reserves in 2024, well below corresponding values under past Fund-supported programs.
  - Despite increased debt sustainability risks, development partners’ commitment and strong market access are important safeguards.
- Safeguards assessment (¶38):
  - May memorandum of understanding between CBJ and MOF on servicing Jordan’s financial obligations to the Fund under the EFF.
  - CBJ to implement main recommendations of recent safeguards assessment:
    - By end-March 2021: CBJ Board to approve a unified investment policy covering hierarchy of objectives of foreign reserves; roles and responsibilities of CBJ units; rules for credit/concentration limits; method for determining composition of foreign reserves; process for handling limit breaches; and a reporting system.
    - CBJ Board will approve detailed guidelines to implement the Emergency Liquidity Assistance framework provided for in the CBJ Law (SB proposed to be reset to June-2021).
    - CBJ will reexamine legal provisions that impede compliance with IFRS and benchmark against practices in other central banks; resulting recommendations to be submitted to CBJ Board by end-August 2021.

### Contingency planning and downside scenario policy guidance
- Uncertainty and downside risks (¶39):
  - Vaccine developments encouraging, and Jordan is well-placed to roll out mass vaccination.
  - Downside scenario: pandemic continues unabated domestically or globally, delaying return of foreign tourism and further damaging hospitality, tourism and transport sectors; attendant impacts on unemployment, public finances and current account can be very significant (just a quarter of tourist receipts is about US$1 billion).
- Policy response priorities in a worse-than-baseline scenario (¶40):
  - Preserve key program objectives of macro-financial stability and debt sustainability, while minimizing scarring.
  - Monetary policy:
    - Further targeted monetary policy support may be helpful, subject to safeguarding the peg and reserve adequacy considerations.
    - Monetary policy should remain data-driven; targeted liquidity provision measures should support viable firms in cash-strapped conditions due to the crisis.
  - Fiscal policy:
    - Fiscal response must balance cyclical support and sustainability, taking account of financing availability.
    - Given elevated debt, preserve credibility of medium-term debt anchor of 80 percent of GDP by maintaining progress on discretionary consolidation measures included in the 2021 budget, expected to be growth-friendly and pro-poor.
    - Subject to availability of additional financing, fiscal policy should protect lives and livelihoods by re-prioritizing spending toward essential areas and leveraging program adjustors.
  - Mobilize additional concessional financing:
    - In the event of deeper contraction or protracted recovery, donor support needs to be stepped up to provide financing while protecting debt sustainability.
- Authorities to remain in close consultation with the Fund ahead of the second review on appropriate policy response as the second wave unfolds.

*Italic: IMF staff summary excerpted from the provided content unit.*

### 41.      The Jordanian authorities’ swift and decisive policy response to COVID-19 shock

### 41.      The Jordanian authorities’ swift and decisive policy response to COVID-19 shock

### Policy response and immediate outcomes
- Timely containment measures earlier in the crisis helped limit the impact of the first wave of the pandemic and allowed for a faster reopening of the economy than peers.
- An accommodative monetary policy stance, provision of liquidity support to banks, and subsidized lending programs targeting SMEs, coupled with targeted fiscal measures helped save jobs and protect the most vulnerable.
- The COVID-19 crisis is still unfolding and challenges ahead remain significant.

### Authorities’ commitment to program objectives and governance reforms
- While the crisis has led to temporary delays in some structural reforms, the authorities are vigorously pursuing their implementation.
- Actions taken:
  - Initiated a review of the most significant PPA (prior action).
  - Submitted to Parliament a strengthened Illicit Gains Law.
  - Published contracts for their COVID-related spending.
  - On track to adopt a new strategy for the electricity sector, including a multi-year plan for electricity tariff reforms that will protect the most vulnerable and reduce electricity costs for key businesses.
- The authorities’ targeted and measured fiscal response demonstrated resolve to safeguard public finances and has been rewarded with continued market access.
- Implementing high-quality tax measures to effect a gradual and growth-friendly fiscal consolidation starting in 2021, indicating strong commitment to arresting the rise in public debt and bringing it down below 80 percent of GDP by 2025.

### Fiscal policy, public financial management, and equity
- High-quality fiscal measures remain critical to improve the fairness and efficiency of public finances.
- Recommended measures include:
  - Broadening the tax base by closing tax loopholes and eliminating preferential tax treatment.
  - Fighting against tax evasion and strengthening tax administration.
  - Improving PFM, fully implementing the PPP law, enhancing fiscal transparency, and improving procurement practices to promote more efficient public spending and greater accountability.
- The authorities should be proactive to address emerging pressures in the broader public sector and ensure any support is tied to a credible restructuring plan for the entities.
- Conclusion: Jordan’s public debt is sustainable with continued strong policy implementation.

### Financial sector and utilities
- Financial sector:
  - Commercial banks’ indicators have remained sound thus far.
  - Capital adequacy appears to be preserved under CBJ stress tests.
  - Continued vigilance and agility in supervision are needed to ensure that a sharp deterioration in credit quality – including in the event of a more protracted recovery – does not decapitalize some banks.
- Energy and water sectors:
  - The crisis has widened the operational deficits of NEPCO, requiring renewed urgency to reduce operating costs, increase revenue, and optimize debt structure.
  - Directing electricity subsidies to only those who need them and reducing electricity tariffs for key businesses will reduce drain on public finance, resource misallocation, and the cost of doing business.
  - Comprehensive strategies for the electricity and water sectors should help operationalize the Financial Sustainability Roadmaps for NEPCO and the water sector.

### Labor market, inclusiveness, and structural reforms for growth
- The authorities are committed to addressing key obstacles to achieve durable, inclusive and jobs-rich growth.
- The crisis has exacerbated youth unemployment, high informality, and low female labor participation and will require urgent action to:
  - Promote vocational training and internships.
  - Improve access to childcare and public transportation.
  - Provide targeted support to startups.
- Additional reforms: Strengthening competition, streamlining cumbersome licensing requirements, and reducing the economic footprint of the state to promote entrepreneurship and private sector job creation.
- Recent progress on governance reforms is welcome, but sustained efforts will be needed to strengthen the anti-corruption framework.

### Risks, ownership, and external support
- Risks to the program include materially adverse global and domestic economic developments, social discontent complicating reform implementation, and capacity constraints.
- Mitigating factors:
  - Strong authorities’ commitment to the program, evidenced by actions such as hiring a firm to review the most significant PPA (prior action) and the expected submission of the 2021 budget consistent with program targets (also a prior action).
  - Close technical assistance engagement of the Fund and other development partners to facilitate timely corrective action.

### IMF staff position and requests supported
- Staff supports the authorities’ request for the completion of the First Review under the EFF.
- On the basis of the authorities’ commitments to safeguard program objectives, staff supports:
  - Waivers of nonobservance of PCs on the central government primary deficit and the combined public deficit (both excluding grants).
  - The modification of targets going forward and rephasing of structural conditionality.
  - The authorities’ request to frontload some of the available access into 2021.

*Source: 1jorea2021001 - 41.      The Jordanian authorities’ swift and decisive policy response to COVID-19 shock*

### 49.      Staff emphasizes the importance of robust and timely development partner support

### 1jorea2021001 - 49.      Staff emphasizes the importance of robust and timely development partner support

### Development partner support: core message
- Continued engagement and robust financial support of development partners remains critical to the success of the program.
- Grants and concessional financing are most helpful to protect debt sustainability.
- Support may need to be stepped up in the event of a more protracted recovery.

### Real sector developments and near-term outlook
- Severe lockdown measures helped contain the first wave of COVID-19, but a sizeable second wave is now unfolding.
- The lockdown measures severely affected production, transportation, wholesale and retail trade.
- Output is expected to contract by 3 percent this year.
- The crisis is adding to joblessness and hurting labor force participation.
- Developments are placing downward pressure on core inflation.

### Fiscal developments and risks
- COVID-19 containment measures resulted in a sharp decline in domestic revenues, with sales and non-tax revenues taking the biggest hit.
- Net income of the SSC has also taken a big hit.
- Primary balance will deteriorate, as will the combined public sector balance, leading to higher public debt ratio.
- Tables and figures in the source show large declines in domestic revenue flows and widening fiscal deficits in 2020 relative to 2019.

### External sector and external financing
- The US$ strength has led to JD appreciation since mid-2018, though the link has weakened during the COVID-19 pandemic.
- Prior to 2020, exports benefitted from rising prices of potash and phosphates and booming clothes exports; the pandemic put downward pressure on commodity prices, though export volumes have held up or increased for some items.
- The tourism sector, which benefitted from the 2018 entry of European low-cost airlines, ground to a halt during the COVID-19 pandemic.
- Current account pressures and sizable gross financing requirements underscore the importance of external support.

### Monetary and financial indicators
- The Central Bank of Jordan cut its policy rate in March 2020 in response to COVID‑19, contributing to easing in deposit and lending rates.
- Private sector credit growth has held up relatively well.
- Adequate reserves have helped keep dollarization in check.
- The CBJ expanded subsidized lending programs especially for SMEs.

### Key projections and indicators cited
- Output is expected to contract by 3 percent this year.
- (Source charts and tables present detailed fiscal, external, and monetary projections and stock-flow numbers for 2019–25, including projected declines in revenues and projected deteriorations in primary and combined public balances.)

### Policy implications and recommendations
- Step up development partner support, prioritizing grants and concessional financing to protect debt sustainability.
- Maintain continued engagement by development partners even if implementation is temporarily delayed.
- Prepare to scale up partner support if the recovery proves more protracted, to safeguard program objectives and external and fiscal stability.

*Source: IMF staff report (Jordan).*

### Annex I. Public and External Debt Sustainability Analysis

### Annex I. Public and External Debt Sustainability Analysis

### Overview and Key Assessment
- Although risks to debt sustainability have increased, Jordan’s public debt is assessed as sustainable with continued strong policy implementation.
- Baseline assumptions underlying this assessment:
  - the exchange rate peg is safe;
  - the COVID-19 pandemic will disappear by the second half of next year;
  - the authorities remain committed to the revised fiscal consolidation path under the program;
  - committed donor and planned market financing come through.
- Public debt (defined as the consolidated gross direct and guaranteed debt of the central government, NEPCO, WAJ, water distribution companies, and the state-owned Social Security Corporation) is:
  - projected to reach 89 percent of GDP in 2020;
  - projected to decline to below 80 percent of GDP by 2025.
- Risks to sustainability cited: COVID-induced scarring; further adverse shocks to growth and/or financing conditions; slippages in fiscal consolidation; materialization of contingent liabilities from the broader public sector.
- Mitigants cited: continued external market access; favorable debt structure with long maturities; substantial current and committed concessional financing.

### A. Public Sector DSA — Projections, Structure, and Financing
- Projection highlights:
  - Public debt is now projected to peak at 90.9 percent of GDP in 2021, and to decline to below 80 percent of GDP by 2025.
  - The 2021 rise in debt would have been higher if not for the SSC decision to hold more government bonds in the near term.
- Fiscal drivers:
  - COVID shock in 2020, somewhat higher deficits going forward, and weaker economic growth contribute to the higher debt-to-GDP profile.
  - Authorities intend to restart fiscal consolidation once pandemic effects abate; debt-to-GDP expected on a firmly downward trajectory after 2021.
- Public-sector (outside central government) pressures:
  - Issuance of “comfort letters” by the Ministry of Finance enabling Royal Jordanian to borrow up to JD 50 million is treated as a government guarantee, increasing the debt stock.
  - The SSC’s net income is projected to deteriorate by about 50 percent in 2020 compared to 2019 due to reductions in social security contributions, contracted economy, lower investment income (especially equities), and increased payouts.
- Debt structure and market access:
  - Foreign-currency denominated debt is less than half of total public debt.
  - The non-resident share of debt is relatively high, but mitigated by long maturity of external public debt (issuance typically in tenors exceeding five years).
  - A large part of foreign-currency debt is held by official, rather than private, creditors (linked to Jordan Compact and 2019 London Initiative pledges).
  - Domestic maturities lengthened: excluding treasury bills, average maturity has almost doubled to six years since 2018.
  - Jordan maintained external market confidence after the COVID shock: its $1.75 billion Eurobond issuance in June (attractive rates) was more than 6 times oversubscribed.
  - Recent domestic bond issuance has been significantly oversubscribed; Jordanian banks are adequately capitalized to absorb higher government domestic debt issuance.
  - Government bonds currently account for less than 57 percent of SSC’s investment portfolio; SSC cap raised from 60 to 65 percent of total investments.
- Gross financing needs (GFNs):
  - GFNs seem manageable and stress tests show GFNs are robust to shocks.
  - Factors supporting manageability: significant projected concessional financing; little private external debt maturing during the program; pre-COVID domestic debt maturity extension; strong market access indicators.
  - GFNs are projected to decline over the medium term, consistent with longer-term domestic issuance and envisaged fiscal consolidation under the EFF.

### A. Public Sector DSA — Risks, Stress Tests, and Scenarios
- Significant risks to debt sustainability:
  - longer lasting pandemic with deeper hysteresis effects;
  - weaker fiscal consolidation effort;
  - losses from SOEs and PPPs exceeding those captured in baseline projections.
- Stress test and scenario insights (summarized):
  - Baseline: Nominal gross public debt series (in percent of GDP) reported as: 70.3 (2018), 75.1 (2019), 78.0 (2020), 89.2 (2021), 90.9 (2022), 90.3 (2023), 88.3 (2024), 84.2 (2025), 79.8 (2025) as presented in the DSA charts and tables.
  - Public gross financing needs reported: 24.6 (2018), 17.6 (2019), 14.6 (2020), 22.0 (2021), 17.9 (2022), 17.7 (2023), 17.0 (2024), 13.6 (2025), 16.1 (2025) (in percent of GDP as shown in the DSA table).
  - Real GDP growth assumptions and projections referenced in the DSA: 2.8 (2018), 1.9 (2019), 2.0 (2020), -3.0 (2021), 2.5 (2022), 3.0 (2023), 3.1 (2024), 3.3 (2025) (in percent).
  - Stress tests include shocks to primary balance, real GDP growth, real interest rate, real exchange rate, and combined shocks; GFNs and debt remain broadly robust under the tested shocks, but vulnerabilities increase under deeper or prolonged adverse scenarios.
- Policy implications emphasized:
  - initiate and maintain momentum on growth-friendly fiscal consolidation once the pandemic abates;
  - accelerate structural reforms to protect the recovery and boost potential growth;
  - mitigate losses from the broader public sector (SOEs, PPPs, contingent liabilities).

### B. External Sector DSA — Coverage, Projections, and Risks
- Coverage:
  - external debt coverage includes: (i) public and publicly guaranteed external debt; and (ii) external liabilities of the banking sector and private corporations.
  - Due to data limitations, coverage of private external debt (especially non-banking sector) is likely underestimated.
- Public external debt projections:
  - public external debt expected to rise from 35 percent of GDP in 2019 to 46 percent in 2022, before falling back to 40 percent in 2025.
  - Composition remains favorable due to sizable share of concessional borrowing, including Jordan Compact and 2019 London Initiative pledges.
- Private external debt projections and composition:
  - private external debt expected to remain moderate in the 30–35 percent of GDP range.
  - as of end-2019, 77 percent of total private external debt was owed by banks (mostly non-resident deposits); remainder owed by non-financial corporations.
  - projections assume banks maintain exposure to non-residents and non-bank corporates finance part of needs with debt-creating flows.
  - share of firms’ external debt expected to increase from roughly a quarter to one third of total private external debt over the medium term.
  - given current information—moderate size of private external debt and healthy balance sheets of local banks—contingent liability risks to the public sector are expected to be contained.
- External financing requirements:
  - external financing requirements would remain sizable through mid-program and gradually decline thereafter.
  - elevated requirements reflect post-COVID widening of the current account deficit and its gradual correction, and amortizations of U.S. guaranteed Eurobonds falling due in 2022 (assumed rolled-over on market terms prevailing at that time).

*Source: IMF staff.*

### 10. The external debt trajectory is relatively robust to shocks. Standardized stress-test

### 10. The external debt trajectory is relatively robust to shocks. Standardized stress-test scenarios suggest that the sensitivity of external debt to current account and combined shocks is relatively low and interest rate and real growth shocks would only have a marginal impact on the external debt burden

### Key findings on external debt sustainability and stress tests
- Moderate risks to external debt sustainability hinge on the assumption that FDI inflows will gradually pick up on the back of structural adjustment, that international market access will continue to be sustained, and that the accumulation of additional external buffers under the program will help cushion against external shocks and anchor private expectations.
- A large and permanent real depreciation shock would bring the ratio of external debt to GDP well above the baseline projections, underscoring the importance of safeguarding the peg through prudent policies.
- Individual shocks in the standardized stress tests are permanent one-half standard deviation shocks (note in figure: "Individual shocks are permanent one-half standard deviation shocks").
- A one-time real depreciation of 30 percent occurs in the real depreciation shock scenario (note in figure: "One-time real depreciation of 30 percent occurs in 2020").

### Baseline and scenario averages and selected projections (figures and table)
- Historical and baseline external debt (in percent of GDP): Historical 94; Baseline 69 (figure top-left labels).
- Baseline: External debt 1/ reported in Table A1.1:
  - 2015: 63.9
  - 2016: 65.1
  - 2017: 68.4
  - 2018: 67.9
  - 2019: 68.0
  - 2020: 75.2
  - 2021: 78.0
  - 2022: 77.5
  - 2023: 75.4
  - 2024: 72.4
  - 2025: 68.7
- Of which: Public and Publicly Guaranteed External Debt (in percent of GDP):
  - 2015: 34.2
  - 2016: 36.3
  - 2017: 39.2
  - 2018: 36.6
  - 2019: 35.0
  - 2020: 41.3
  - 2021: 45.0
  - 2022: 45.5
  - 2023: 44.3
  - 2024: 42.4
  - 2025: 39.8
- Change in external debt (row 2, percent of GDP):
  - 2015: 1.7
  - 2016: 1.2
  - 2017: 3.3
  - 2018: -0.5
  - 2019: 0.1
  - 2020: 7.2
  - 2021: 2.9
  - 2022: -0.5
  - 2023: -2.1
  - 2024: -3.0
  - 2025: -3.6
- Identified external debt-creating flows (row 3, percent of GDP):
  - 2015: 2.0
  - 2016: 3.7
  - 2017: 3.3
  - 2018: 2.2
  - 2019: -1.2
  - 2020: 7.4
  - 2021: 2.9
  - 2022: -1.5
  - 2023: -2.4
  - 2024: -3.5
  - 2025: -3.5
- Current account deficit, excluding interest payments (row 4, percent of GDP): values shown in the table cells include 8.1, 8.6, 9.3, 5.0, 0.7, 5.0, 4.6, 1.2, 1.1, 0.8, 0.7 (note formatting in source text is compact).
- Deficit in balance of goods and services (row 5, percent of GDP):
  - 2015: 22.4
  - 2016: 20.8
  - 2017: 21.1
  - 2018: 18.2
  - 2019: 13.6
  - 2020: 18.3
  - 2021: 15.9
  - 2022: 11.3
  - 2023: 9.9
  - 2024: 8.9
  - 2025: 8.1
- Exports (row 6, percent of GDP):
  - 2015: 36.6
  - 2016: 34.1
  - 2017: 34.5
  - 2018: 35.2
  - 2019: 36.4
  - 2020: 24.6
  - 2021: 30.1
  - 2022: 36.1
  - 2023: 36.8
  - 2024: 37.4
  - 2025: 37.7
- Imports (row 7, percent of GDP):
  - 2015: 59.0
  - 2016: 54.8
  - 2017: 55.6
  - 2018: 53.4
  - 2019: 50.0
  - 2020: 42.9
  - 2021: 46.0
  - 2022: 47.4
  - 2023: 46.7
  - 2024: 46.3
  - 2025: 45.8
- Net non-debt creating capital inflows (row 8, negative) (percent of GDP):
  - 2015: -4.1
  - 2016: -3.9
  - 2017: -4.9
  - 2018: -2.2
  - 2019: -1.5
  - 2020: -1.6
  - 2021: -2.2
  - 2022: -2.8
  - 2023: -3.4
  - 2024: -4.0
  - 2025: -3.9
- Automatic debt dynamics (row 9) (percent of GDP):
  - 2015: -1.9
  - 2016: -1.1
  - 2017: -1.1
  - 2018: -0.5
  - 2019: -0.4
  - 2020: 4.0
  - 2021: 0.5
  - 2022: 0.0
  - 2023: -0.1
  - 2024: -0.3
  - 2025: -0.2
- Contribution from nominal interest rate (row 10, percent of GDP):
  - 2015: 0.9
  - 2016: 1.0
  - 2017: 1.3
  - 2018: 1.9
  - 2019: 2.0
  - 2020: 1.9
  - 2021: 2.2
  - 2022: 2.2
  - 2023: 2.2
  - 2024: 2.1
  - 2025: 2.0
- Contribution from real GDP growth (row 11, percent of GDP):
  - 2015: -1.5
  - 2016: -1.2
  - 2017: -1.3
  - 2018: -1.3
  - 2019: -1.3
  - 2020: 2.1
  - 2021: -1.8
  - 2022: -2.2
  - 2023: -2.2
  - 2024: -2.4
  - 2025: -2.3
- Residual, incl. change in gross foreign assets (row 13, percent of GDP):
  - 2015: -0.3
  - 2016: -2.5
  - 2017: -0.1
  - 2018: -2.7
  - 2019: 1.3
  - 2020: -0.2
  - 2021: 0.0
  - 2022: 1.0
  - 2023: 0.3
  - 2024: 0.5
  - 2025: -0.1
- External debt-to-exports ratio (in percent):
  - 2015: 174.7
  - 2016: 191.3
  - 2017: 198.1
  - 2018: 193.2
  - 2019: 187.0
  - 2020: 305.4
  - 2021: 258.8
  - 2022: 214.9
  - 2023: 204.7
  - 2024: 193.6
  - 2025: 182.5
- Gross external financing need (in billions of US dollars) (row 5/):
  - Historical values listed in table cells include 6.2, 5.7, 6.6, 5.3, 4.6, 6.4, 5.0, 4.6, 3.7, 3.8, 4.9 (source formatting compact).
- Gross external financing need (in percent of GDP):
  - 2015: 16.0
  - 2016: 14.4
  - 2017: 15.8
  - 2018: 12.2
  - 2019: 10.2
  - 2020: 14.8
  - 2021: 11.1
  - 2022: 9.7
  - 2023: 7.5
  - 2024: 7.1
  - 2025: 8.8

### Key macroeconomic assumptions underlying the baseline (exact figures)
- Real GDP growth (in percent):
  - Historical averages and baseline entries include: 2.5, 2.0, 2.1, 1.9, 2.0, 2.1; baseline projections: 3.0, 3.3, 2.5, 3.0, 3.1, 3.3, 3.3 (table formatting shows historical, average, deviation and series).
- GDP deflator in US dollars (change in percent):
  - Historical and baseline entries include: 2.2, 1.4, 1.7, 1.7, 1.7, 1.7; baseline projections: 1.3, 2.0, 2.5, 2.5, 2.5.
- Nominal external interest rate (in percent):
  - Historical and baseline entries include: 1.5, 1.7, 2.1, 2.8, 3.1, 2.2; baseline projections: 2.7, 3.1, 3.0, 3.0, 2.9, 2.9.
- Growth of exports (US dollar terms, in percent):
  - Historical and baseline entries include: -9.0, -3.8, 5.3, 5.5, 7.2, 1.0; baseline projections and shocks include -34.3, 27.1, 25.7, 7.9, 7.5, 6.7.
- Growth of imports (US dollar terms, in percent):
  - Historical and baseline entries include: -8.8, -4.0, 5.3, -0.5, -2.9, -2.2; baseline projections include 7.6, -16.7, 11.3, 8.1, 4.2, 4.9, 4.8.
- Current account balance, excluding interest payments (percent of GDP): entries include -8.1, -8.6, -9.3, -5.0, -0.7, -6.4; baseline projections include 3.5, -5.0, -4.6, -1.2, -1.1, -0.8, -0.7.
- Net non-debt creating capital inflows (percent of GDP): entries include 4.1, 3.9, 4.9, 2.2, 1.5, 3.3; baseline projections include 1.5, 1.6, 2.2, 2.8, 3.4, 4.0, 3.9.

### Stress-test scenario outcomes (figure annotations)
- CA shock scenario label shows scenario value 77 (presumably external debt in percent of GDP under current account shock) vs Baseline 69.
- Combined shock scenario label shows scenario value 74 vs Baseline 69.
- Combined shock 3/ scenario label shows scenario value 99 vs Baseline 69.
- Interest rate shock figure label shows i-rate shock 70 vs Baseline 69.
- Growth shock figure label shows Growth shock 69 vs Baseline 69.
- Real depreciation shock 4/ scenario label indicates "30% depreciation shock" and shows scenario value 30% depreciation (figure context indicates significant impact on external debt ratio).

### Analytical notes and definitions included in the source
- Sources: International Monetary Fund, Country desk data, and staff estimates (figure note).
- For historical scenarios, the historical averages are calculated over the five-year period, and the information is used to project debt dynamics five years ahead.
- Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance (figure note 3/).
- Definitions and formulas:
  - Automatic debt dynamics derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
  - Contribution from price and exchange rate changes defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock.
  - Gross external financing need defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

---

### Annex II. Addressing Systemic Tax Issues

### Structural diagnosis of the Jordan tax system
- The structural inefficiency of the Jordan tax system has long been a matter of concern; the pandemic only cast an additional spotlight on the limitations of the tax system.
- Both Jordan’s corporate income tax (CIT) and general sales tax (GST) suffer from the presence of numerous preferential regimes that significantly narrow tax bases and fracture the tax system into a multiplicity of tax regimes.
- Highly-differentiated tax rates are imposed on different businesses, depending on their size, residency, business activity, or location; preferential tax treatment is a norm rather than exception.
- The complex web of preferential regimes creates ample opportunities for tax arbitrage and significantly complicates tax administration.
- As a result, the productivity of tax system is one of the lowest in the comparator group of regional peers (Table AII.1 note).

### Tax-to-GDP and tax expenditure magnitudes
- Jordan’s tax-to-GDP ratio is 16 percent (Figure AII.1 caption: "Jordan’s tax-to-GDP ratio of 16 percent lags behind its regional peers").
- A USAID report published in 2013 estimated revenue foregone at 7 percent of GDP.
- Authorities’ tax expenditures assessments: 10.6 percent of GDP for 2017 and 10.0 percent of GDP for 2018 (Figure AII.2).
- Authorities’ tax expenditures assessments include only a few basic provisions of the legal framework within the standard system; revenue foregone due to presence of economic zones is notably excluded.
- 72 percent of total tax expenditures in 2018 is attributable to consumption taxes; with GST alone accounting for about 40 percent of total.

### Corporate tax system fragmentation and effective rates (as of 2020)
- As of 2020, effectively nine differentiated corporate tax segments exist in the system outside economic zones (Table AII.2 note).
- A sector-specific National Solidarity Contribution (NSC) was imposed on corporate profit since 2018; NSC rates vary between 1 and 7 percent of the taxable income.
- The combined rate of tax imposed on corporate profit effectively varies from 15 to 38 percent (text summary).
- Table AII.2 — Effective Combined Tax Rates on Corporate Profit as of 2020 (In percent):
  - Banks: CIT 35; NSC 3; Total 38
  - Telecommunications: CIT 24; NSC 2; Total 26
  - Mining (including exploration, extraction and exploitation): CIT 24; NSC 7; Total 31
  - Finance leasing and financial services: CIT 24; NSC 4; Total 28
  - Production and distribution of electricity: CIT 24; NSC 3; Total 27
  - Insurance and reinsurance: CIT 24; NSC 2; Total 26
  - Statutory rate: CIT 20; NSC 1; Total 21
  - Industrial activities: CIT 15; NSC 1; Total 16
  - Pharmaceuticals and textile: CIT 14; NSC 1; Total 15
- Economic zones: 55 in total (44 Free Zones and 12 Development Zones). Profit from operations inside Development Zones taxed at 10 percent; transformational industrial activities with at least 30 percent local value-added taxed at 5 percent. Since 2019 profit tax exemption in Free Zones eliminated; businesses subject to regular CIT regime. Aqaba Special Economic Zone (ASEZ) levies income tax at rate of 5 percent on profits realized inside ASEZ.
- Investors in zones may remain eligible for exemption from GST, Special Sales Tax (SST), customs duties, Land and Building tax (footnote 3).

### Distributional and compliance implications
- Over 50 percent of Jordan’s CIT revenue is collected from highly regulated economic sectors with elevated tax rates—banks, financial institutions, insurance companies and mining sector (text).
- Example from Table AII.3 — CIT Collection by Economic Sector, 2019:
  - Banks: Share of Taxpayers 0.02; Share of Total Tax Paid 39.4; Nominal Tax Rate 35; Average Tax Rate on Profit Margin 35.0
  - Financial companies: Share of Taxpayers 0.39; Share of Total Tax Paid 2.5; Nominal Tax Rate 24; Average Tax Rate on Profit Margin 20.5
  - Insurance companies: Share of Taxpayers 0.02; Share of Total Tax Paid 0.9; Nominal Tax Rate 24; Average Tax Rate on Profit Margin 10.5
  - Telecommunications: Share of Taxpayers 0.01; Share of Total Tax Paid 3.0; Nominal Tax Rate 24; Average Tax Rate on Profit Margin 17.0
  - Mining: Share of Taxpayers 0.00; Share of Total Tax Paid 3.9; Nominal Tax Rate 24; Average Tax Rate on Profit Margin 24.0
  - Pharmaceuticals/Textiles: Share of Taxpayers 2.28; Share of Total Tax Paid 2.0; Nominal Tax Rate 10; Average Tax Rate on Profit Margin 5.2
  - Industrial activities: Share of Taxpayers 7.21; Share of Total Tax Paid 4.7; Nominal Tax Rate 15; Average Tax Rate on Profit Margin 5.6
  - Hotel/Restaurant/Tourism: Share of Taxpayers 10.33; Share of Total Tax Paid 5.1; Nominal Tax Rate 20; Average Tax Rate on Profit Margin 5.2
  - Other: Share of Taxpayers 79.75; Share of Total Tax Paid 38.5; Nominal Tax Rate 20; Average Tax Rate on Profit Margin 6.5
  - Total: Share of Taxpayers 100.00; Share of Total Tax Paid 100.0
- The other businesses are effectively taxed, on average, substantially below nominal average tax rates; example: about 80 percent of all business activities are subject to the standard nominal CIT rate of 20 percent, while the average effective tax rate is equal to 6.5 percent (text).

### Transfer pricing and legislative gaps (commitments)
- Jordan does not have a single, all-encompassing transfer pricing legislation. Legal basis exists in Article 20(D) of the ITL, which generally follows the arm’s length principle, but:
  - Definition of “related persons” does not include indirect relationships and those between companies with common shareholders—an exploitable loophole.
  - No guidelines are available on common/traditional transfer pricing methods, on how to adhere to the best method rule, or a hierarchy among methods.
  - Clear guidance on information taxpayers must keep to document and substantiate transfer pricing position is missing.
- To address transfer pricing limitations, Jordan committed to enacting an effective legislation to strengthen transfer pricing rules in line with international standards (new proposed SB for end-March 2021).

### Analytical implications summarized in the source
- Preferential tax treatment contributes to significant revenue drain and complexity, un-levels the business playing field, induces welfare losses and inequities, complicates administration and compliance, and opens avenues for profit shifting and tax-planning across entities.
- The combination of high tax expenditures (10.6 percent of GDP in 2017; 10.0 percent of GDP in 2018) and a tax-to-GDP ratio of 16 percent implies substantial potential revenue gains from narrowing preferences and broadening tax bases.

*International Monetary Fund. Chapter: "10. The external debt trajectory is relatively robust to shocks. Standardized stress-test" and Annex II: "Addressing Systemic Tax Issues" (excerpts reproduced from the supplied content).*

### 8.      The basic choice facing policymakers is whether or not to continue with the current

### The basic choice facing policymakers is whether or not to continue with the current corporate tax system featuring significantly differentiated tax rates and a narrow tax base

### Corporate income tax (CIT) system: choices and recommendations
- Findings
  - The current corporate tax system features significantly differentiated tax rates and a narrow tax base.
  - Differentiated CIT preferences distort investment decisions and create unequal playing fields across investors and sectors.
  - A more neutral system would have stronger revenue potential and be less susceptible to aggressive tax-planning.
- Short-term actions
  - The Jordanian authorities have committed to submitting to the parliament an amended Investment Law that rationalizes investment tax incentives and addresses tax arbitrage opportunities and transfer pricing abuses (EFF SB11, reformulated proposed new SB1).
  - Immediate action is required to stop revenue losses from negative spillovers.
  - Introduction of substance requirements disallowing preferential tax treatment for companies operating with insufficient economic nexus to minimize profit shifting to special economic zones (EFF SB14, reformulated proposed new SB8).
- Medium-term objective
  - Elimination of tax differentials to re-establish a neutral investment environment.
  - A detailed tax expenditure analysis is needed to identify an appropriate plan.

### General Sales Tax (GST): role, performance, and structural issues
- Role and aggregate figures
  - Indirect taxes are the workhorse of the Jordanian tax system.
  - Since 2012, taxes on goods and services have accounted for up to three-quarters of Jordan's tax revenues, averaging around 11.5 percent of GDP.
  - GST alone brings revenue at around 4 percent of GDP per annum.
  - The authorities estimate the GST tax expenditures at about 40 percent of total or 3.4 percent of GDP in 2018.
- Performance drivers and structural problems
  - Jordan's GST is underperforming due to exclusions from the base, reduced rates including domestic zero-rating, and low compliance.
  - Jordan has a very narrow GST base. Until 2017 Jordan applied five different GST rates: 16 percent, and four reduced rates (8, 7, 4, and 0 percent).
  - Post-2016 measures reduced the number of rates from five to four: standard, and three reduced rates (10, 4, and 0 percent).
  - Some base-broadening measures were reversed in 2019, with items moving from 16 or 10 percent to 4 percent; reversal tendency continued in 2020.
  - The GST law includes extensive exemptions (Schedule 2) and non-taxable supplies (Article 10).
  - Article 12 of the JIL zero-rates inputs to businesses in development zones and subjects supplies in development areas to a reduced rate of 7 percent unless exempt, effectively treating them as exports and creating subjective exclusions by supplier type.
  - Preferential regimes and exclusions cause economic distortions, tax cascading, bias toward vertical integration, and unequal playing fields.
  - Preferential regimes and exclusions incentivize avoidance and create fraud opportunities; administrative costs can increase due to qualification problems.
- GST data (2019) — exact figures from ISTD-based IMF staff calculations
  - Turnover Ranges (In JDs) — Exempt Sales as a Share of Turnover (%) — Ratio of GST to Total Turnover — Share of Total Collected GST (%)
    - 0 – 50,000: 2.33 — 14.94 — 0.98
    - 50,000 – 100,000: 2.92 — 12.76 — 1.40
    - 100,000 – 2,500,000: 5.76 — 10.57 — 23.61
    - 2,500,000 – 5,000,000: 5.57 — 6.88 — 8.55
    - > 5,000,000: 13.47 — 5.30 — 65.46
    - Averages / Total: 6.01 — 6.25 — 100.00
  - Observed patterns:
    - For firms with turnover below JD 50,000, exempted sales represented 2.3 percent of turnover; for firms with turnover above JD 5 million, exempted sales amounted to 13.5 percent.
    - Smaller firms remit 15 percent of total turnover in GST, while larger firms remit, on average, only 5.3 percent of their turnover.
- Legal and administrative fragmentation
  - GST legislative framework is fragmented with significant ancillary legislation and administrative instructions.
  - The GST law does not include place of taxation rules to establish Jordan’s right to tax cross-border transactions, creating avoidance and evasion risks; businesses can register in one zone to benefit from preferential regimes regardless of customer location.
- Recommended reforms for GST
  - Introduce place of taxation rules in line with international best practices (new proposed SB3).
  - Broaden the GST base and abolish preferential GST regimes to increase C-efficiency and address planning, avoidance, and fraud—acknowledging political economy difficulties and likely resistance.
  - In the medium to long term, aim for a broad GST base as a priority objective.
  - Develop clear anti-avoidance and anti-fraud policy and introduce new Targeted Anti-Avoidance Rules (TAARs) and Targeted Anti-Fraud Rules (TAFRs) into the GST law, including:
    - A TAAR that prevents the abuse of optional registration.
    - A TAAR to prevent the use of non-monetary considerations to avoid tax.
    - A TAAR to prevent underpricing of supplies.
    - A TARF allowing refusal of registration by tax authorities to help prevent organized fraud.
  - In the medium to long term, introduce a General Anti-Avoidance Rule (GAAR) once administrative capacity is sufficient.

### Fiscal and macroeconomic context (from Letter of Intent and MEFP)
- Economic impact of COVID-19 and macro projections
  - Expected output contraction of 3 percent in 2020, instead of the 2 percent growth envisioned before the pandemic.
  - Domestic unemployment rose to 23 percent.
  - Annual inflation expected to remain low.
  - Current account deficit likely to widen to close to 7 percent of GDP.
  - Combined public sector deficit projected to widen from 5 percent of GDP in 2019 to 7.7 percent of GDP in 2020.
  - Public debt net of social security fund holdings projected to be about 89 percent of GDP.
- Policy and administrative measures undertaken
  - Increased social protection spending, deferred tax and utility payments, temporarily reduced consumption tax rates on tourism.
  - Central Bank of Jordan (CBJ) reduced the policy rate by 150 basis points, lowered reserve requirements, provided liquidity support to banks, and low interest rate loans to SMEs.
  - Postponed non-priority capital investment, pay cuts for cabinet members and senior officials, delayed wage increases, suspended allowances and bonuses, hiring freeze for government entities and SOEs.
  - CBJ required banks not to pay out 2019 dividends to ensure capital buffers.
  - July Eurobond issuance of $1.75 billion was heavily oversubscribed at competitive rates.
- Tax administration improvements and anti-evasion measures
  - Majority of tax services shifted online.
  - 75 percent of returns in 2020 were submitted through e-filing (compared to only 6 percent in 2016).
  - 95 percent of refunds are now deposited directly into taxpayers' accounts.
  - Dispute resolution procedure established for settling outstanding income and sales taxes.
  - Adopted risk-based approach to audits; established a “gold list” of tax-compliant companies entitled to fewer audits, faster processing, and deferral of tax payment on imports (to time of sale).
  - GST by-laws changed to mandate that all tax arrears be paid to businesses within 30 days instead of 6 months previously; aim to clear all ISTD outstanding arrears by year-end.
  - Working on strengthening ISTD institutional and technical capacity through increased staffing, personnel training, and organizational changes.
  - A robust anti-tax evasion effort has identified significant under-reported tax liabilities and key loopholes used in tax avoidance.
- Program financing and IMF-related requests (Letter of Intent)
  - Request for completion of the first review of the extended arrangement under the IMF's EFF and disbursement of the second tranche in the amount equivalent to SDR 102.93 million (30 percent of quota).
  - Request to frontload purchases under the EFF by raising access to 42 percent of quota for the second and the third reviews each, and to 33 percent of quota for the fourth and the fifth reviews each; access for the last three reviews would be reduced to 20 percent of quota each to keep the total amount unchanged.

*Source: 1jorea2021001*

### 5.       Helped by this timely policy response, we expect growth to resume next year and the

### 5.       Helped by this timely policy response, we expect growth to resume next year and the

### Macroeconomic outlook and projections
- Real GDP growth is projected to turn positive in 2021, as the pandemic is brought under control, and gradually accelerate, closing the output gap over the medium term.
- Inflation is expected to rebound to 1.3 percent in 2021.
- The current account deficit is projected to return to its pre-COVID-19 adjustment path as tourism fully recovers by 2022.
- A gradual multi-year fiscal consolidation over 2021–24 should bring public debt down to below 80 percent of GDP by end-2025.

### Donor support and refugee-related fiscal pressures
- Donor support is critical for helping Jordan cope with the refugee crisis and its associated fiscal and social costs.
- In 2019, the shortfall between planned and received donor financing to address the needs of refugees increased to USD 1.4 billion.
- Data through 2020:Q3 suggest a further widening of the gap, even before factoring in higher costs of containing COVID-19 among the refugee population.
- These shortfalls hamper implementation of the economic reforms program under the Jordan Compact; Jordan will continue to provide refugees with all essential services.

### Engagement with the EFF program and program performance
- Commitment to the EFF program remains strong; engagement with the Fund has been continuous since EFF approval in March.
- The COVID-19 shock rendered existing quantitative targets unrealistic:
  - End-June quantitative performance criteria (QPC) for the primary fiscal deficit of the central government and the combined public deficit were breached.
  - Most indicative targets for end-June and end-September could not be observed (MEFP Table 1).
  - End-June QPC and end-September IT on net international reserves (NIR) and non-incurrence of external debt service arrears were met, the former aided by emergency support under the Rapid Financing Facility.
- Delays in implementing structural conditionality occurred due to focus on the health crisis (MEFP Table 2).

### Policy objectives: safeguard macro stability and boost growth
- Immediate priority: facilitate economic recovery and prevent permanent job and income losses.
- Medium-term objective: rebuild macroeconomic buffers critical for safeguarding macroeconomic stability.
- Key pillars:
  - Gradual and steady fiscal consolidation.
  - Strengthening finances of NEPCO and WAJ.
  - Raising tax revenue as a critical component of consolidation.
  - Monetary and financial policies anchored by the exchange rate peg, requiring adequate foreign exchange reserve buffers.
  - Tackle long-standing impediments to growth in labor market, business environment, competitiveness, and governance.
  - Build on the Jordan Economic Growth Plan and the Five-Year Reform Matrix launched at the 2019 London Initiative.

### A. Fiscal policy and structural fiscal reforms — key findings and targets
- Fiscal balances weakened in 2020 due to revenue loss and additional spending needs.
  - Domestic revenue shortfall in 2020 compared to the EFF request is estimated at about 3.5 percentage points of GDP.
  - Discretionary measures to contain and mitigate the crisis are expected to be limited (0.6 percent of GDP).
  - Central government domestic arrears are estimated at close to 1 percent of GDP.
  - The combined public deficit is now projected at 7.7 percent of GDP and public debt at 89.2 percent of GDP at end-2020.
- New fiscal anchor:
  - Reach a public debt to GDP ratio of no more than 80 percent by 2025.
  - Target for public debt net of SSC’s holdings of 80 percent of GDP to allow a more gradual consolidation pace.
  - The new target still delivers about a 4 ppts of GDP improvement between 2019 and 2024 in the central government primary balance (excluding grants) and the combined public balance envisaged at EFF approval.
- Fiscal consolidation in 2021:
  - Gradual consolidation of 0.7 percent of GDP in 2021.
  - Narrow primary deficit to a targeted level of 3.7 percent of GDP, an improvement of 2.3 percentage points of GDP compared to 2020.
    - About 1.6 percent of GDP will come from the post-crisis recovery.
    - About 0.7 percent of GDP from discretionary measures.
  - Bulk of effort (0.5 percent of GDP) from measures to broaden the tax base, close loopholes, and fight tax evasion.
- Measures and timelines (as described):
  - Amendments to the 2014 Investment Law to eliminate preferential tax treatment (proposed reset for end-March 2021 SB).
  - Enact transfer pricing legislation (new proposed end-March 2021 SB).
  - Introduce place-of-taxation rules in the GST law (new proposed end-April 2021 SB).
  - Submit to parliament Economic Substance Regulations for all SEZs (end-December SB, proposed reset to end-February 2021).
  - Implement track-and-trace system for tobacco: technical specifications finalized; sign digital commitments with three largest cigarette companies (new proposed end-February 2021 SB); implement with the largest company by end-July 2021 (delayed and reformulated SB from end-December 2020); full sector implementation by end-2021.
  - Pass legislation to introduce a single tax administration and a single customs service, bringing ASEZA participants under ISTD and Jordan Customs by end-March 2021 (delayed SB).
  - Establish a project management unit in the Ministry of Finance to monitor structural fiscal reform agenda by end-March 2021.
  - Put in place a new fully-resourced macro-fiscal unit at the Ministry of Finance by June 2021.
  - Roll out compliance improvement campaigns for professional groups by end-December 2020.
  - Recruit 50 qualified staff already and plan to recruit another 50 (end-December 2020 SB) for ISTD.
  - Bring the National Unified Registry (NUR) online as single gateway for social assistance by end-December 2020.
  - Issue regulations to support Unified Public Procurement By-law and expand JONEPS to cover all public institutions at ministerial level and municipalities by end-June 2022.
  - Publish ex-post audits of all crisis-mitigating inflows and spending and publish results (new proposed end-June 2021 SB).
  - Conduct a comprehensive review of trust accounts now expected in early-2021 (end-January 2021 SB); reassess structure and scope of the 2017 draft organic budget law and submit an amended draft law by end-December 2020.
- Public enterprise and local government vulnerabilities:
  - Royal Jordanian (RJ): Five-month suspension of commercial passenger flights and slow airport re-opening have pressured finances. Government committed to facilitate orderly restructuring; any support will be measured and conditional on agreed efficiency plan.
  - Greater Amman Municipality (GAM): Decline in own-source revenues; developing restructuring plan to strengthen revenues, decrease operating costs, stretch debt maturities, and implement monitoring for government supervision.
- Contingency and program flexibility:
  - Immediate priority to mitigate health and socioeconomic impact; expand healthcare capacity to keep economy open as much as possible.
  - If the second wave or further resurgence leads to significant economic damage, re-prioritize spending toward essential areas and use program adjustors; remain in close consultation with the Fund.

### A.(i)–(vii) Detailed structural fiscal reform areas
- (i) Tax policy and administration:
  - Initiate tax expenditure analysis to develop plan by July 2021 for streamlining and better targeting tax incentives.
  - Introduce Economic Substance Regulations for SEZs and leverage MAAC signing to address EU “Gray” List concerns.
  - Strengthen ISTD: new directorates to monitor poor compliance sectors; risk-based audit practices; specialized audit teams in LTD.
  - Recruit and plan recruitment: 50 recruited, 50 planned (end-December 2020 SB).
- (ii) Social safety net:
  - Conduct comprehensive review of social spending envelope and publish an action plan in coordination with World Bank and UNICEF early next year.
  - Implement three-year program to almost double coverage of National Aid Fund (NAF) cash transfer program.
  - Bring NUR online as single gateway by end-December 2020.
  - Program includes a floor on social spending (IT): (i) non-wage components of education and health sectors’ current expenditure envelope; (ii) NAF’s and other entities’ social protection programs; and (iii) school feeding program.
- (iii) Public financial management:
  - Cabinet decision to prohibit issuance of medical exemptions other than through existing Royal Court mechanism with budgeted allocation.
  - Reassess medicine procurement budget allocation by end-2020; implement monitoring mechanism of public sector consumption of oil products from the refinery.
  - Strengthen top-down budgeting, improve fiscal projections, and prohibit use of treasury advances for unbudgeted expenditures.
  - Comprehensive review of trust accounts delayed to early-2021 (end-January 2021 SB).
- (iv) Fiscal transparency:
  - Invite IMF Fiscal Affairs Department to undertake comprehensive Fiscal Transparency Evaluation.
  - Issue circulars to publish procurement contracts and beneficial ownership for COVID-19 emergency spending above JD 25,000.
  - Undertake ex-post audits of crisis-mitigating inflows and spending and publish results (new proposed end-June 2021 SB).
  - Issue regulations to support Unified Public Procurement By-law by end-December 2020; expand JONEPS rollout to ministerial level and municipalities by end-June 2022.
- (v) Fiscal risks management:
  - Undertake comprehensive review of SOEs and PPPs to identify and quantify fiscal commitments and contingent liabilities with Fund TA.
  - Implement new PPP law via Cabinet decisions clarifying binding scope for projects where procurement had not started by April 2020.
  - Staff PPP Unit at Prime Minister’s office, FCCL unit at MOF, and PIM Unit at Ministry of Planning and International Cooperation; ensure coordination and information sharing.
  - Start reporting annual information on financial performance of the largest public corporations in energy, water and transport sectors, and subnational governments using IMF FAD’s SOE Health Check Tool.
- (vi) Fiscal policy analysis and reform capacity:
  - Establish project management unit at MOF by end-March 2021.
  - Put in place a fully-resourced macro-fiscal unit at MOF by June 2021 to strengthen forecasting, distributional analysis, public balance sheet risk monitoring, and debt sustainability analyses.
- (vii) Public sector efficiency:
  - Undertake a detailed study to explore merging ministries and entities to enhance efficiency, improve service levels, and generate medium-term expenditure savings.

### B. Monetary and financial policies and access to finance
- Monetary and financial sector policies will remain anchored by the exchange rate peg, requiring maintenance of adequate foreign exchange reserve buffers, and aim to preserve banking system health through the period of economic stress.

*IMF staff report excerpt.*

### 17.      Monetary policy will continue to be underpinned by our firm commitment to the

### 17.      Monetary policy will continue to be underpinned by our firm commitment to the exchange rate peg.

### Monetary policy, liquidity support, and reserves
- The exchange rate peg is maintained to preserve market confidence and avoid any potential de-anchoring of inflation expectations.
- Since the onset of the crisis, the CBJ implemented a package of measures totaling about 8 percent of GDP to support economic activity.
- Credit to the private sector grew by nearly 6 percent year-on-year during January–August, allowing firms, including SMEs, to remain in business and keep employees on the payroll.
- Additional liquidity stimulus does not appear warranted at this time, but the CBJ will continue to carefully monitor the economy.
- In the event of reserves pressures, the CBJ will stand ready to raise interest rates and tighten liquidity.
- Objective: continue to maintain international reserves above 100 percent of the Fund’s Reserve Adequacy Metric.

### SME and business lending support (CBJ programs)
- New SMEs lending program: CBJ created a JD 500 million SMEs lending program.
  - CBJ provides liquidity to banks at zero interest rate; banks lend to SMEs at a maximum of 2 percent interest rate.
  - Interest payments on funds used for payment of wages to preserve employment are covered by the government.
  - Jordan Loan Guarantee Company (JLGC) provides a loan guarantee to banks at 85 percent of the loan value.
  - The government lent JD 300 million to JLGC at 2 percent interest rate to build a buffer for guarantee calls.
- Existing lending program: terms adjusted to support productive economic sectors (tourism, industry, renewable energy, etc.) and to allow use of loans for operational as well as capital expenses.
- Assessment: the two subsidized lending programs have helped Jordanian businesses weather the pandemic; given current market conditions, CBJ does not see the need to expand or renew these programs going forward.

### Reserve management framework enhancements
- CBJ will manage foreign reserves conservatively with objectives of safety, liquidity and profitability.
- Existing regulations will be integrated into one Board-approved investment policy by end-March 2021.
- Policy elements to include: hierarchy of objectives of foreign reserves, roles and responsibilities of CBJ units, maximum size of term deposits, and a formal procedure to:
  - manage limit breaches;
  - decide composition of foreign reserves;
  - rules for credit/concentration limits;
  - reporting system.

### Banking system health and supervisory measures
- System-wide capital adequacy ratio: 17.9 percent at end-June 2020 (slightly lower than 18.3 percent at December 2019; CBJ regulatory minimum is 12 percent).
- CBJ decision not to allow distribution of banks’ 2019 profits of JD 450 million provided additional cushion.
- Non-performing loans: increased from 5 percent of total loans in December 2019 to 5.4 percent in June 2020; likely to rise going forward as banks reassess portfolios.
- CBJ practices:
  - accounting, reporting and provisioning designed for adequate and timely risk monitoring;
  - continuous stress tests to ensure sufficient buffers against significant rise in NPLs and hit to profits.
- If capital adequacy falls below the 12 percent CBJ threshold for any bank, the CBJ will require the bank to submit a credible capital restoration plan to gradually rebuild capital.

### Legislative and regulatory strengthening for banks
- Since 2018, Jordanian banks compliant with IFRS9 accounting standards.
- 2019 legislative amendments:
  - to the Deposit Insurance Corporation law: established a robust bank resolution framework in line with the FSB Key Attributes;
  - to the Banking Law: (i) strengthened corporate governance; (ii) enhanced the resolution regime; (iii) strengthened legal framework for Islamic banks; (iv) advanced use of electronic means/transactions in banking and non-banking financial institutions.
- 2019 CBJ revised instructions on exposure limits; new liquidity standards instructions issued in early 2020.
- CBJ board will approve detailed guidelines to implement Emergency Liquidity Assistance framework (provided for in the CBJ Law) — new proposed end-June 2021 SB — including acceptable collateral, risk assessment instructions, and draft contracts.
- CBJ to reexamine legal provisions that may impede IFRS compliance and benchmark against other central banks; study and recommendations to be submitted to the CBJ Board by end-August 2021.

### AML/CFT and supervisory framework enhancements
- National Risk Assessment completed with Fund assistance; contributed to review of AML/CFT law to align with FATF standards and Jordan mutual evaluation recommendations.
- Draft amendments to the AML/CFT law approved by government in March 2020 and expected to be passed by parliament by mid-2021.
- All regulatory agencies, including the CBJ with Fund technical assistance, have amended regulations to conform with FATF standards.
- Risk-based framework implemented for offsite and onsite supervision of banks, money-exchange firms, other financial and nonfinancial institutions, and Non-Profit Organizations.

### Nonbank financial sector development and access to finance
- Insurance sector:
  - Amendments to the Insurance Law to transfer supervision to CBJ delayed by the pandemic; law before parliament and expected to be passed the first half of 2021.
  - CBJ training staff and drafting operational guidelines to strengthen supervision and minimize spillovers.
- Microfinance: nine microfinance institutions licensed under the Microfinance By-law of 2015; CBJ will continue to develop instructions for supervision and monitoring.
- Credit bureau and guarantees:
  - CRIF Jordan licensed in December 2015 as the first credit bureau; launched reporting service in October 2016; provides credit scores since 2019; coverage expanding across banks, insurance, leasing, microfinance, telecommunications, with plans for public utilities.
  - CBJ and commercial banks co-financed a JD50 million fund for loan guarantees to SMEs and start-ups; later increased to JD 67.4 million.
  - Established a $98 million equity fund, the “Innovative Startups and SMEs Fund” (ISSF), in December 2017 to provide capital to innovative start-ups.
  - Created a JD100 million export guarantee fund financed with a loan from the CBJ.
  - $550 million low-cost financing mobilized from the World Bank, the Arab Fund for Economic and Social Developments and other donors to support SMEs.
  - These loans have helped create more than 7,000 new jobs.
- Financial inclusion reporting:
  - Study on the state of financial inclusion expected to start in December 2020 and be completed by end-March 2021; will underpin the first Financial Inclusion Report and update the Financial Inclusion Action plan for 2020–21. Proposed to be reset to end-March 2021 SB.
- CBJ amended instructions to banks in August 2020 to prohibit gender discrimination in accessing credit.

### FSAP Update request
- Request: IMF to conduct an Update of the Financial Sector Assessment Program (FSAP) in late 2022 with preparatory work starting in early-2022.
- Rationale: significant changes in Jordanian financial system since last FSAP update in 2008 and exposure to three major external shocks since then; systemic analysis post-COVID-19 recovery important to ensure continued resilience.

### Electricity sector reforms: NEPCO financial sustainability
- NEPCO losses:
  - Broke even in 2019; expects to register a loss in 2020 reflecting reduced demand and fuel clause set to zero.
  - Losses expected to grow in 2021 and further years following coming on-stream of a costly oil shale plant.
- Action: prepare, by end-April 2021, an update of NEPCO’s Financial Roadmap for Financial Sustainability to restore financial viability over the medium term; will include reforms to raise revenues and reduce costs.
- Identified measures:
  - Revenue measures:
    - Cabinet decision to reduce marginal tariffs for all productive sectors to 75 fils/kWh for electricity consumed by businesses above their 2019 levels.
    - January 2020: lowered electricity tariffs for small and medium industries by 10 fils/kWh (about 15 percent of the tariff).
    - Lowered electricity tariffs for the water sector; committed to keep water sector tariffs equal to electricity cost-of-service.
    - Medium-term: introduce connection fees for self-generation capacity; apply flat tariff based on cost-of-service for electricity purchased from the grid; install electricity meters for every house connected to the grid to combat illegal connections and increase bill collection.
    - Energy and Mineral Regulatory Commission (EMRC) to assess need for further tariff adjustments as part of quarterly reviews.
    - Increased electricity exports to the West Bank and signed agreement to increase them further in 2021; October 2020 agreement to export electricity to Iraq within two years.
  - Costs saving measures:
    - Optimize usage of available energy sources through adequate imports of gas (including from Egypt, the Mediterranean and LNG markets) and electricity.
    - 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:
    - Continue implementation in 2021 of debt optimization plan approved by cabinet earlier in 2020 and partly implemented in 2020 to reduce NEPCO’s interest burden.

### Electricity tariff reform and communication
- Commit to adjust end-user electricity tariffs to better target subsidies for households and reduce high cost for businesses.
- Adopt and announce a three-year reform plan with evenly-phased implementation starting in 2021 to:
  - redirect electricity subsidies only to those who most need them;
  - use part of savings to reduce electricity tariffs for key business sectors while containing NEPCO losses.
- Reform originally envisaged for June 2020 delayed; reformulated and reset end-March 2021 SB.
- By end-March 2021, launch a robust communication plan to explain the purpose and expected impact on growth and employment.
- Additional measures to address distorted incentives that discourage consumption when system marginal costs are low (e.g., during daytime renewable supply).

### Review of Power Purchase Agreements (PPAs)
- External review of the most significant PPA: hiring of an international firm completed with COVID-19 related slight delay.
- Completion and sharing of report with Fund staff expected in early 2021 (end-March 2021 SB).
- Review objectives:
  - assess alignment with international best practices for negotiating and contracting PPAs;
  - identify governance concerns and confirm consistency with Jordanian law;
  - ascertain contracts’ financial implications for NEPCO.
- All relevant contracts will be made available to the reviewing firm.

### Water sector reforms and financial sustainability
- Arrest accumulation of arrears to water sector PPPs via development partner support and cash transfers from the Ministry of Finance to WAJ; investigate replenishing buffer accounts for PPP payments.
- Prepare a Financial Sustainability Roadmap (in consultation with the World Bank and stakeholders) to:
  - increase revenues through higher bill collection, reduction in non-revenue water (physical losses and thefts), and analysis of adequacy of water tariffs in all sectors;
  - contain sector costs, particularly electricity consumption.
- Implement the roadmap and issue regular progress reports.
- Restructuring measures:
  - Ensure WAJ and all distribution companies report independent and frequent (quarterly and annual) financial statements following planned merger of WAJ into the Ministry of Water and Irrigation.
  - Starting in 2020, incorporate WAJ into the general budget and plan an adequate budget for the water sector in 2021.
- Electricity consumption collaboration:
  - Implement electricity efficiency projects and monitor electricity consumption of WAJ and three water distribution companies to prevent accumulation of new arrears to electricity distribution companies.
  - Design a joint electricity-water multi-year strategy to arrest arrears and enable efficient electricity purchasing by the water sector (e.g., set a ceiling on electricity tariffs charged to the water sector, study direct connection of water sector facilities to NEPCO).
- PPP law adherence: ensure WAJ and water sector fully adhere to PPP law in procurement and government guarantees for all new PPPs.

### Structural policies to promote jobs and growth
- Labor market context: unemployment rate has risen to 23 percent; previous gains in labor market participation reversed.
- Key policy areas and measures:
  - Encourage formality:
    - Amended the Social Security Law to allow reduced contributions for start-ups hiring young workers; introduced lower rates in the Agricultural and ICT sectors.
    - Expansion to startups in all sectors via Board decision of the Social Security Corporation was superseded by a Prime Minister Defense Order lowering social security contributions for all sectors during COVID-19. Once the Defense Order expires, extend the same treatment to startups across all sectors.
  - Enhance gender equality:
    - Civil Status and Passport Department updated online passport application to remove requirement for women to present a Family Book.
    - Instructions for firms with employees totaling 15 or more children to provide in-house or commercial daycare options delayed by pandemic; now expected completed by end-December 2020 SB.
    - Draft Labor Law amendments submitted to parliament to address harassment and violence in workplace and public spaces and protect reporters from job/career loss.
    - New nurseries licensing by-law adopted to reduce procedures for nursery licensing.
    - By June 2021, issue instructions for licensing of home-based childcare.
    - Review social security survivor benefits to remove gender discrimination that may deter female participation.
  - Transportation and female participation:
    - Implementing Code of Ethics and Professional Conduct for transport sector to regulate passenger, driver and operator conduct and tackle harassment.
    - Consolidate and enhance bus services quality by end-2022 with initial focus on Jerash and Amman; revise Public Transport Strategy for Irbid and Zarqa.
    - Greater Amman Municipality developing Amman’s first Bus Rapid Transit (BRT) system expected to start operations in 2021; complementary interurban BRT connecting Amman and Zarqa expected to start operations in 2022.
  - Public-private wage differentials:
    - Prepare a civil service compensation reform plan to better align public and private sector compensation, considering education, training, managerial responsibilities and job requirements.
  - Reduce youth unemployment:
    - Streamline and enhance TVET efforts and pursue legislation to consolidate initiatives under a single umbrella.
    - Step up enforcement of certification regulations to raise profile and demand for formal technical training.
    - Expand the National Empowerment and Employment Program (NEEP), launched in March 2019, which promotes on-the-job training by offsetting training costs for six months on condition of retention for three years.
    - NEEP has been working well and will be expanded over the next 2–3 years, potentially reaching over 30,000 job seekers.

*International Monetary Fund — Jordan: selected chapter content*

### 32.      A key pillar of our growth strategy is improving the business environment to foster

### 1jorea2021001 - 32.      A key pillar of our growth strategy is improving the business environment to foster

### Business-environment reform agenda
- Launched in January 2020 a broad reform agenda centered around the “Investor’s Journey,” prioritizing business-environment reforms from the perspective of the investor across registration, licensing, inspection, and advertising.
- ISIC4 classification of economic activities to be adopted uniformly across all government entities by March 2021 and applied for newly registered entities to improve coordination among agencies involved in the “Investor’s Journey”.
- First stage implementation of the Public Key Infrastructure System underway to facilitate digital authentication of online users.

### Licensing, regulatory simplification, and insolvency
- Abolish licensing requirements for bookshops, cultural centers, and in the tourism sector by end-December 2020.
- Issue amended regulations abolishing additional licenses identified as lacking a clear legal basis, removing inter alia the requirements for judicial guarantee deposits for small businesses. (Footnote: The abolished licenses will be replaced by alternative registration or notification procedures.)
- More sectoral licenses to be streamlined by the end of 2021.
- Amendments to the Vocational Licensing Law for the Greater Amman Municipality (GAM) are with parliament; adoption and issuance of related by-laws and instruction delayed by the COVID-19 crisis.
- Modernized insolvency framework: after the 2018 amendment of the Insolvency Law and associated by-laws, training of licensed insolvency practitioners and judges is underway; by the end of March 2021 there will be at least five licensed Insolvency Practitioners ready to oversee insolvency cases.

### Competition, regulatory institutions, and investment facilitation
- Streamline the regulatory framework and strengthen the market competition framework by consolidating around three key areas: consumer protection, utilities, and the transport sector.
- Objective: create strong, technical, and effective independent bodies to ensure a stable regulatory environment and boost market competition.
- Institutional setup completed for the newly created Investor Grievance Mechanism to identify, track, manage, and resolve grievances between investors and public agencies within specified time periods to increase investment retention and expansion and prevent escalation to legal disputes.
- Following adoption of changes to the 2014 Investment Law (⁋ 8) and with World Bank technical support, prepare a draft new Investment Law by end-March 2021 to enhance Jordan Investment Commission’s investment promotion role.

### Transport and logistics modernization
- Design, in 2021, a strategy to reduce oversupply in the highly fragmented trucking sector and provide incentives for fleet renewal and industry consolidation to enhance the efficiency of cargo transport for containers in the Aqaba-Amman corridor.

### Governance, anti-corruption, and financial disclosure
- Submitted to parliament amendments to the Illicit Gains Law to strengthen monitoring and verification of public officials’ financial disclosures and allow publication of basic information from those disclosures.
- Amendments require all disclosures be submitted to the Jordan Integrity and Anti-Corruption Commission and maintained within an electronic database shareable across relevant government agencies; allow more public access to basic financial disclosure information of public officials to increase public trust and accountability.

### Statistics and data quality improvements
- Recognize the importance of timely and accurate economic data highlighted by the COVID-19 shock.
- Continue efforts to increase the quality of primary statistics from annual industry surveys and ensure consistency with quarterly surveys.
- Department of Statistics (DOS) will publish, by end-June 2021, data on annual GDP for 2019 by the production and income approaches, and by end of the year by the expenditure approach, based on DOS annual data sources.
- Going forward, DOS will adhere to a regular publication and revision schedule that includes revisions to quarterly GDP based on annual GDP estimates.

### Program monitoring, quantitative targets, and conditionality
- Progress monitored through semi-annual reviews, quantitative performance criteria (PCs), indicative targets, and structural benchmarks as detailed in Tables 1 and 2 and the Technical Memorandum of Understanding.
- IMF disbursements will be on-lent to the government during the program period.
- Memorandum of Understanding between the CBJ and the Ministry of Finance signed on responsibilities for servicing financial obligations to the IMF.

Key exact program figures and targets reported in Table 1 (selected items preserved exactly as in source):
- Primary fiscal deficit of the central government, excluding grants and net transfers to NEPCO and WAJ, in JD million (flow, cumulative ceiling): 320; Adjusted Actual Jun-21: 124; Proposed Revised PC Sep-21: 486; Proposed PC Dec-21: 743; Proposed IT Dec-21: 1,872; (table includes many related exact values and met/not met statuses).
- Combined public deficit in JD million (flow, cumulative ceiling): 575; Adjusted Actual Jun-21: 379; Proposed Revised PC Sep-21: 919; Proposed PC Dec-21: 1,302; Proposed IT Dec-21: 2,406; (table includes many related exact values and met/not met statuses).
- Net International Reserves of the Central Bank of Jordan in USD million (stock, floor): 13,060; Adjusted Actual Jun-21: 11,682; 12,033 (Met); Proposed Revised PC Sep-21: 12,753; 12,776; 14,228 (Met); Proposed PC Dec-21: 14,462; Proposed IT Dec-21: 12,380; (table lists further monthly stock values: 14,317; 11,754; 10,755; 10,412).
- Ceiling on accumulation of external debt service arrears: 0 (continuous; multiple periods show 0 and Met).
- Social spending by the central government in JD million (flow, cumulative floor): 257; Adjusted Actual Jun-21: 257; 302 (Met); Proposed Revised PC Sep-21: 385; 385; 643 (Met); Proposed PC Dec-21: 514; Proposed IT Dec-21: 804.
- Public debt in JD million (stock, ceiling): 25,623; Adjusted Actual Jun-21: 25,622; 26,176 (Not met); Proposed Revised PC Sep-21: 26,178; 26,076; 27,279 (Not met); Proposed PC Dec-21: 25,825; Proposed IT Dec-21: 27,379; (table includes additional stock values).
- Domestic payment arrears of NEPCO in JD million (stock, ceiling): 0; Adjusted Actual Jun-21: 0; 26 (Not met); Proposed Revised PC Sep-21: 0; Proposed PC Dec-21: 0; Proposed IT Dec-21: 50 (Not met); (additional period values shown).
- Net Domestic Assets of the Central Bank of Jordan in JD million (stock, ceiling): -1,054; Adjusted Actual Jun-21: -274; 278 (Not met); Proposed Revised PC Sep-21: -746; -1,368; -899 (Not met); Proposed PC Dec-21: -1,642; Proposed IT Dec-21: 80; (table includes further values: -1,473; 190; 769; 910).
- SSC net financing to the central government (flow, ceiling): 318; Adjusted Actual Jun-21: 318; 548 (Not met); Proposed Revised PC Sep-21: 384; 384; 548 (Not met); Proposed PC Dec-21: 485; Proposed IT Dec-21: 548.

Memorandum and Technical Memorandum of Understanding (TMU) specifics:
- Program exchange rate of the Jordanian dinar to the U.S. dollar is set at JD 0.709 = $1 and the gold price is set at JD 1046.52 per fine troy ounce for measurement of the program performance criterion on net international reserves.
- Program exchange rates table (exact values):
  - British Pound: 0.911106
  - Japanese Yen: 0.006505
  - Euro: 0.786889
  - Canadian dollar: 0.538721
  - SDR: 0.975744
- 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.
- Debt definition for program monitoring follows 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.

### Structural benchmarks, prior actions, and timelines (selected items)
- Prior Action: Submission to parliament of a budget law for 2021 consistent with a central government primary deficit target (excluding grants and transfers to NEPCO and WAJ) of no more than JD 1,180 million.
- Prior Action: Hire an international accounting, consulting or legal firm to undertake a comprehensive review of the most significant PPA.
- Proposed new and reformulated structural benchmarks include (exact time frames preserved):
  - Submit to parliament an amended Investment Law that removes all Articles related to tax incentives, in line with TA recommendations — Mar-21.
  - Enact effective legislation to strengthen transfer pricing rules in line with international standards and IMF staff advice — Mar-21.
  - Introduce into the GST Law "place-of-taxation" rules for GST in line with international best practices — Apr-21.
  - Sign digital track and trace commitments with three largest cigarette companies — Feb-21.
  - Adopt and announce a three-year plan, with evenly-phased implementation starting in 2021, that (a) redirects electricity subsidies only to those who most need them; and (b) uses part of the achieved savings to reduce electricity tariffs for key business sectors, while containing NEPCO losses — Mar-21.
  - Approval by the CBJ Board of guidelines for implementation of the Emergency Liquidity Assistance (ELA) framework provided for in the CBJ Law — Jun-21.
  - Undertake ex-post audits of all crisis-mitigating inflows and spending and publish the results — Jun-21.
  - Approve legislation to introduce Economic Substance Regulations for all special economic zones — Feb-21.

*International Monetary Fund (excerpt from the Jordan program document).*

### 10.      An indicative target (floor) on social spending by the central government;

### 10.      An indicative target (floor) on social spending by the central government;

### Monitoring framework and targets covered
- Performance criteria (PCs) and indicative targets are monitored semi-annually on a cumulative basis from the beginning of the calendar year, with indicative targets for the other quarters:
  - PCs: central government primary fiscal deficit and combined public deficit.
  - Indicative targets: social spending by the central government (floor) monitored semi-annually (with indicative quarterly targets for other quarters).
- Stock-level targets (monitored semi-annually, with indicative quarterly targets for other quarters) include:
  - Net International Reserves (NIR) of the CBJ (performance criterion).
  - Public debt (indicative target) and short-term public debt.
  - Domestic payment arrears of NEPCO, WAJ, and Aqaba, Miyahuna, and Yarmouk Water Companies (indicative targets).
  - Net domestic assets (NDA) of the CBJ (indicative target).
- The performance criterion on accumulation of external debt service arrears is monitored on a continuous basis.

### Enumerated indicative and performance targets (listed in source)
- 10. An indicative target (floor) on social spending by the central government;
- 11. An indicative target (ceiling) on public debt, net of SSC’s holdings of government debt;
- 12. An indicative target (ceiling) on the domestic payment arrears of NEPCO;
- 13. An indicative target (ceiling) on the domestic payment arrears of WAJ;
- 14. An indicative target (ceiling) on the domestic payment arrears of Aqaba, Miyahuna, and Yarmouk Water Companies;
- 15. An indicative target (ceiling) on the net domestic assets (NDA) of the CBJ.
- 16. An indicative target (ceiling) on the Social Security Investment Fund’s net financing to the central government.

### Definitions relevant for fiscal monitoring
- Central government: budgetary central government covered by the annual General Budget Law (GBL); includes all ministries and government departments operating within the central authority system. Operations measured on a cash basis.
- Primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (for program monitoring) equals the 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.
- Net external financing: cash external debt disbursements received by the central government, less external debt repayments paid by the central government. Includes debts of the central government (excluding debts outside the general budget) and foreign debts channeled through the central government to finance rest-of-public-sector operations.
- Receipts from sale of government assets: transfers of monies received by the central government including 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 not covered by the general budget and specifically the Social Security Investment Fund). Equivalent to cumulative change from December 31 of the previous year in stocks of government debt held by nonbanks and in the float.
- Net transfers from the central government to NEPCO and the state-owned water sector: (i) direct transfers from the central government to NEPCO and the state-owned water sector (or to their creditors) including subsidies, cash advances, payment of debt or guarantees if called, minus (ii) transfers of cash from NEPCO and the state-owned water sector to the central government (including repayments of debt, arrears or cash advances).

### Adjustors applying to the primary deficit ceiling and combined public deficit
- Downward adjustment by the extent foreign budgetary grants received by central government fall short of levels specified in Table 1 of the MEFP, up to a maximum of 75 percent of the shortfall.
- Upward adjustment by the extent foreign budgetary grants exceed the levels specified in Table 1 of the MEFP, up to a cap of US$200 million for 2020, and US$200 million for 2021. This upward adjustment applies only to grants specifically provided to protect livelihoods of workers severely affected by containment measures (spending not covered under paragraph 30/39 of the TMU).
- Downward adjustment by the extent the combined stock of health and energy arrears by the central government exceeds the projected combined stock specified in Table 1 of the MEFP, excluding any one-off settlement operation (e.g., write-off of intra-governmental claims).
- Downward adjustment by the extent the stock of checks issued by the central government but not yet cashed exceeds JD 200 million (the programmed stock in Table 1 of the MEFP) in case of the end-year indicative target or performance criterion.
- For 2020 and 2021: upward adjustment by the equivalent amount of unbudgeted spending directly related to efforts to prevent, detect, control, treat and/or contain the spread of COVID-19 (emergency outlays, medical supplies and equipment). Such expenditures:
  - Are authorized by cabinet resolution and funded through exceptional treasury advances (therefore not funded and reported as part of budget allocations).
  - Amounts and nature of expenses reported to staff monthly.
  - For 2021, if treasury advances for these purposes exceed ½ percent of GDP, the authorities will consult Fund staff on program adaptation to ensure objectives remain achievable while ensuring needed COVID-19-related spending.

### Combined public deficit: definition and components
- Combined public deficit (for program monitoring) = (i) primary deficit of central government excluding grants and net transfers to NEPCO and state-owned water sector; plus (ii) operational loss of NEPCO; plus (iii) overall deficit of the state-owned water sector.
- Operational loss of NEPCO: difference between total operating revenues and total costs for normal operations within the year 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 costs related to electricity generation borne by NEPCO; (ii) fuel transportation costs; (iii) depreciation costs; (iv) other maintenance and operating expenses including wages, remuneration of board of directors, and provisions; and (v) interest expense and other financial costs.
- Overall balance of state-owned water sector: 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, Miyahuna or Yarmouk water companies’ obligations on their behalf. Current and capital expenditures include: (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 (vi) capital expenditures.

### Floor on Net International Reserves (NIR) of the CBJ
- NIR definition: foreign assets of the CBJ minus its foreign liabilities.
- Foreign assets include readily available claims on nonresidents denominated in foreign convertible currencies: foreign exchange (foreign currency cash, deposits with foreign correspondents, and holdings of foreign securities), monetary gold, IMF reserve position, and SDR holdings.
- Exclusions from foreign assets: assets pledged, collateralized or otherwise encumbered; CBJ’s claims on resident banks and nonbanks and on subsidiaries/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; and the outstanding balance of bilateral accounts with the Central Bank of Iraq of USD 1,081.67 million.
- Foreign liabilities include 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: stock of foreign assets and liabilities of the CBJ shall be valued at program exchange rates.
- As of June 30, 2020, the stock of NIR amounted to USD 12,033.1 million (at program exchange rates).
- Adjustors to the NIR floors:
  - Upward (downward) by the extent the sum of foreign budgetary grants and foreign budgetary loans—excluding programmed guaranteed and non-guaranteed Eurobonds—received by the CBJ during the relevant period exceeds (falls short of) levels specified in Table 1 of the MEFP within any calendar year. For the end-year floor, the downward adjustment is capped at 75 percent of the shortfall.
  - Floors also 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
- External debt service arrears: 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.

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

### Ceiling on public debt
- Public debt 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.
- Definition of guarantee: any explicit legal obligation of the central government, or any agency acting on its behalf, to service such a debt in the event of nonpayment by the recipient (payments in cash or in kind), or any implicit legal or contractual obligation to finance partially or fully any shortfall incurred by the debtor.
- Adjustor: ceiling on public debt will be adjusted downward by the extent to which cumulative disbursements under the EFF during the relevant period fall short of levels specified in Table 1.

### Ceilings on domestic payment arrears
- NEPCO domestic payment arrears: belated settlement of liabilities due under obligation (contract) for more than 60 days, or creditor’s refusal to receive a settlement duly offered. Covered arrears include outstanding payments on wages and pensions; social security contributions; tax payments; and obligations to banks and other private companies and suppliers. Excludes obligations to the central government arising from net transfers as specified in paragraph 12.
- WAJ, Aqaba, Miyahuna, and Yarmouk Distribution Companies domestic payment arrears: same definition and coverage as for NEPCO (payments due more than 60 days; same categories included; exclusions identical).

### Ceiling on the Net Domestic Assets (NDA) of the CBJ
- Reserve money of the CBJ: 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.
- NDA of the CBJ: difference between the reserve money of the CBJ and its NIR as defined in Section D.
- Adjustors to NDA ceilings:
  - 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 equals 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 for program monitoring
- Government will provide IMF (Division B of the Middle East and Central Asia Department) the information specified in the document, including:
  - Standard fiscal data tables prepared by the ministry of finance with 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.

*Source: 1jorea2021001 - 10.      An indicative target (floor) on social spending by the central government;*

### 60.      The government financing information from the Treasury account, as agreed by both the

### The government financing information from the Treasury account

### Data reporting requirements and monitoring
- 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).
- 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:
  - Monthly and quarterly data should be sent within a period of no more than six weeks (for the monetary and fiscal variables).
  - 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: Any variable mentioned for monitoring a performance criterion and not explicitly defined shall be defined in accordance with the Fund’s standard statistical methodology, such as the Government Financial Statistics.

### Central government arrears (reporting items)
- The 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.
- Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the central government (quarterly).

### NEPCO, WAJ, and water distribution companies (reporting items)
- Gross transfers to and from NEPCO and WAJ detailing the 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).
- NEPCO:
  - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by NEPCO’s accounting department on a quarterly basis (to compute the PC on NEPCO net loss).
  - 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.
- WAJ:
  - 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 on a quarterly basis.
- Water distribution companies (Aqaba, Miyahuna, and Yarmouk):
  - Full unaudited income statements and the stocks of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by each company and WAJ’s Directorates of Finance on a quarterly basis.
- Related to the combined public sector deficit: All the information specified in paragraph 28 (as referenced).

### Energy flows and fuel consumption (reporting items)
- The value and quantity of fuel products consumed by public sector entities from the Jordan Petroleum Refinery Company (monthly).
- 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).

### Central Bank of Jordan (CBJ) reserves, interventions, and monetary data
- CBJ’s foreign exchange reserves and preliminary data on dollarization (weekly).
- CBJ’s monthly FX interventions in the interbank market.
- Data on CD auctions (following each auction).
- Monetary statistics (monthly).
- The outstanding balance of bilateral accounts with the Central Bank of Iraq (monthly).
- Banking FSI (quarterly; starting 2021 Q1).

### Continuous performance criteria and public debt (reporting items)
- 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.
- The 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).

### Social spending and other economic data (reporting items)
- A 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 (monthly):
  - 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.
- 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).

### Excerpts on macroeconomic context, targets, and policy adjustments (Statement by the Staff Representative)
- COVID-19 and recent developments:
  - New daily infections fell from over 6,000 in early November to below 4,000 in the week referenced.
  - On November 26, Moody’s and Fitch affirmed Jordan’s sovereign rating at B1 and BB-, respectively.
- Fiscal targets and budget:
  - Authorities submitted to parliament a draft budget law for 2021 consistent with a primary deficit target of JD 1,180 million (3.7 percent of GDP), excluding grants.
  - Authorities expect domestic revenues to be about 0.3 percent of GDP higher than staff envisaged, offset by 0.35 percent of GDP higher capital expenditures.
- Social protection and jobs support package announced:
  - JD 260 million (0.8 percent of GDP) in temporary and targeted measures, including:
    - JD 100 million to expand the cash transfer program to cover 100,000 new families and daily workers.
    - JD 140 million to protect 180,000 jobs in affected sectors.
    - JD 20 million for the tourism sector.
  - Financing of the package:
    - New grants JD 164 million.
    - Reprioritizing 2020 spending JD 10 million.
    - SSC’s labor support scheme JD 66 million.
    - Co-financing with the private sector and the World Bank for the tourism sector JD 20 million.
  - The package is consistent with program flexibility and is not expected to affect the program’s fiscal targets because additional spending is largely tied to grants or supported by the SSC.
- Economic and fiscal context:
  - Growth averaged about 2 percent between 2012 and 2019; GDP is forecast to decline by 3 percent for 2020.
  - Unemployment rate rose to a high of 24 percent; youth unemployment at 40 percent.
  - Public debt was 79 percent of GDP at end-2009; public debt is forecast at 89 percent of GDP at end-2020.
  - The authorities aim for a debt-to-GDP ratio of 80 percent of GDP in 2025 (instead of 74 percent before the pandemic in line with the RFI projections).
- Fiscal policy stance:
  - Budget aims to reduce the primary fiscal deficit from 5.8 percent of GDP in 2020 to 3.7 percent of GDP in 2021.
  - Revenue measures focus on broadening the tax base and combatting tax evasion rather than increasing tax rates or lowering thresholds.
  - Expenditure measures focus on reducing wasteful spending, better targeting, postponing non-priority expenditure, improving procurement practices, and hiring freezes in non-essential sectors.
- Monetary and financial sector policies:
  - CBJ anchored monetary policy by the peg to the US dollar, aiming to maintain reserve coverage above 100 percent of the Fund’s ARA Metric.
  - CBJ has been a net buyer of foreign exchange since early 2019.
  - Banking system capitalization is well above the regulatory minimum of 12 percent.
  - Adoption of IFRS9 accounting standards and establishment of a bank resolution framework in line with the FSB Key Attributes.
  - Amendments to the Insurance Law to transfer supervision to the CBJ expected to be passed in the first half of 2021.
  - An FSAP is planned for 2022.
- Structural reforms priorities:
  - Electricity sector reform to restore NEPCO’s financial viability and reduce the cost of generating electricity while targeting household subsidies.
  - Labor market reforms to encourage formal, female, and youth employment; measures include flexible working arrangements, affordable and safe transportation, removal of gender differentiation in labor regulations, child daycare, streamlining technical and vocational education and training, and expanding reduction of social security contributions rates for start-ups hiring young workers.
  - Business environment reforms to reduce the cost of starting and operating businesses, eliminate red tape, strengthen investor protection, simplify licensing requirements, and consolidate competition and regulatory frameworks.
- Program recalibration:
  - The EFF program was recalibrated to accommodate the pandemic while preserving medium-term targets; quantitative fiscal targets were modified while keeping an ambitious structural reform agenda.
  - Immediate priority: facilitate economic recovery, prevent permanent job and income losses, protect the most vulnerable, and maintain fiscal stability.
  - Medium-term objective: rebuild macroeconomic buffers, support sustainable growth and job creation, and put debt on a sustainable and downward path.

*Statement by the Staff Representative on Jordan, December 14, 2020.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1jorea2021001.pdf_