## 1jorea2021002 — Jordan: Second Review under the EFF (June 17, 2021) ## Source details **Canonical URL:** [1jorea2021002 — Jordan: Second Review under the EFF (June 17, 2021)](https://www.imf.org/-/media/files/publications/cr/2021/english/1jorea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1jorea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1jorea2021002.pdf.json) --- ### Program financing and augmentation - IMF approvals and purchases: - 291.55 million (about US$400 million) purchase in May 2020 under the Rapid Financing Instrument. - Jordan’s four-year EFF of SDR 926.37 million (about US$1.3 billion, equivalent to 270 percent of Jordan’s quota in the IMF), approved March 25, 2020. - Executive Board approved the authorities’ request to increase access under the EFF by about US$200 million. - Authorities requested an augmentation of the program by about US$200 million (42 percent of quota); staff supports the request. - Completion of the review will make available about US$200 million in Fund financing, bringing total Fund disbursements since the start of 2020 to around US$900 million, including the US$400 million RFI purchase in May 2020. - External financing needs and identified sources: - Pandemic-driven increase in external financing needs by about US$1.1 billion in 2021–22. - Expected approval and disbursement of US$540 million over 2022–25 in new World Bank lending projects. - Authorities plan a Eurobond issuance of US$500 million this year. - Proposed EFF augmentation: around US$200 million (SDR 144.102 million or 42 percent of quota), bringing total access to SDR 1,070.472 million or 312 percent of quota (about US$1.5 billion). - Change in External Financing Gap Relative to First Review (In millions of U.S. dollars): External financing gap: 352; (+) Change in Total Financing Needs: 361; (+) Change in Gross Financing Requirements: 1,140; Current account deficit (excl. grants): 1,056; (-) Change in Gross Financing Sources: 303; Sources of financing identified: 352; (+) Identified new sources of financing: 352; Official budget support: 142; IMF EFF augmentation: 210; (+) Unidentified external financing: 0. ### Macroeconomic impact and outlook - Growth and output: - Output contracted by 1.6 percent in 2020. - Growth in 2021 projected at 2 percent (slightly below the 2.5 percent projected in the first review). - Growth expected to reach around 3 percent in the medium-term, supported by structural reforms. - Inflation and current account: - Headline inflation dropped to -0.3 y-o-y at end-2020; expected to rebound to 2.5 percent y-o-y in 2021 with core inflation projected at 1.8 percent. - Current account deficit estimated to have widened to around 8 percent of GDP in 2020; projected to widen to 8.3 percent of GDP in 2021. - Public finances and debt: - Public debt reached 88 percent of GDP at end-2020, 9 ppts of GDP higher than expected at approval of the extended arrangement. - Revised 2021 fiscal targets: temporary 0.6 ppt of GDP relaxation in the primary central government deficit (excluding grants), revised target of 4.3 percent of GDP (implies a 1.4 ppts. of GDP fiscal consolidation in 2021). - Medium-term debt/GDP anchor: 80 percent by 2025 remains within reach per staff analysis. - Reserves and market access: - Gross international reserves were around US$1 billion higher than anticipated at the first review. - Jordan’s EMBIG spread remains among the lowest in the region, affirming continued market access. ### Labor market, social impacts, and vaccination - Labor market and social indicators: - Unemployment rose to a record 25 percent in Q4 2020. - Youth unemployment rose to 55 percent in Q4 2020. - Female unemployment reached 33 percent in Q4 2020; female labor force participation stagnated at 14 percent. - Only one third of the working-age population participated in the labor force at end-2020. - Social protection and refugee burden: - Jordan hosts some 1.3 million Syrian refugees, increasing fiscal and social pressures. - Government announced a fiscal-stimulus package (March 31) to expand the social safety net, introduce employment programs targeting youth and women, support tourism, and accelerate clearance of arrears to health and energy sectors. - Vaccination (Annex I): - Vaccines approved: Pfizer/BioNTech, Sinopharm, AstraZeneca, Janssen, Sputnik V. - Government contracted sufficient vaccines to cover nearly the entire adult population (around 50 percent of the total), including COVAX. - Vaccination campaign start date: January 13. - Vaccine administration capacity increased to 80,000 people a day. - By mid-June: around 2.7 million doses administered; 19 percent of the population had received at least one dose; 2.9 million people had registered (over 50 percent of the adult population). ### Financial sector, monetary policy, and safeguards - Monetary stance and reserves: - Peg to the US dollar remains the anchor for macroeconomic stability; monetary policy has been appropriately accommodative while supporting the peg. - CBJ became a net foreign-exchange buyer by Q1 2021. - Revised NIR path for 2021–22 ensures reserves stay above 100 percent of the Fund’s ARA metric. - CBJ measures and credit: - CBJ policy rate cuts and liquidity injections lowered interbank rates and propelled private sector credit growth to above 6 percent in 2020 (and through early 2021). - CBJ expanded its subsidized SME lending scheme by JD 200 million in March 2021; the scheme had been accessed by 5,201 SMEs by end-April. - An older CBJ scheme sized at JD 1.2 billion remains to support productive sectors. - Banking soundness (selected indicators): - Risk-weighted capital adequacy ratio: 18.3 (2019), 18.3 (2020). - NPLs (percent of total loans): 5.0 (2019), 5.5 (2020). - Provisions (percent of classified loans): 69.5 (2019), 70.7 (2020). - Liquidity ratio: 134.1 (2019), 136.6 (2020). - Return on assets: 1.2 (2019), 0.6 (2020). - Loans to deposits ratio: 81.6 (2019), 87.3 (2020). - CBJ required banks not to pay out dividends in 2020; capital adequacy remained at 18.3 percent, above regulatory minimum of 12 percent. - CBJ permitted dividend payouts in 2021 up to a 12 percent cap of paid-in capital. - Safeguards and oversight: - Unified investment policy approved in December to strengthen governance of foreign reserves. - CBJ Board to approve guidelines implementing Emergency Liquidity Assistance framework (end-June 2021 SB). - CBJ reexamining legal provisions that may impede IFRS compliance, recommendations to be submitted to CBJ Board by end-August 2021. - Authorities requested a Financial Sector Assessment Program (FSAP) update in 2022. ### Electricity and water sector reform and NEPCO - NEPCO financials and outlook: - NEPCO’s 2020 losses limited to 0.3 percent of GDP; projected to increase to around 1 percent of GDP in 2021 and remain elevated in the medium-term. - NEPCO missed end-December IT on its stock of arrears but cleared all JD 70 million in arrears to IPPs accumulated during lockdown by end-April 2021; planned clearance of JD 69.5 million in arrears to IPPs by end-April 2021 (agreements reached). - Drivers of increased losses: coming on-stream of the oil shale power project and legacy PPA capacity charges. - Measures to contain NEPCO losses: - Boost domestic and regional demand (including prospective electricity exports). - Optimize gas imports, retire old power plants (three plants expected retired by 2025 delivering annual savings of about JD 47 million by 2025), implement debt optimization plan. - Explore options to optimize costs related to existing and future PPAs; arbitration requests submitted to the Paris International Chamber of Commerce on Attarat contracts (Dec 19, 2020). - Electricity tariff reform (Annex VI): - Authorities adopted a three-year end-user electricity tariff reform plan; front-loaded implementation to begin early 2022; rollout expected no later than end-March 2022 (proposed SB). - Objectives: reduce high electricity costs for business by reducing household cross-subsidization; reduce business sector electricity costs by around 0.15 percent of GDP annually from the first full year of implementation. - Household measures: reduce tariff blocks from seven to three; introduce nominal discounts; progressively withdraw subsidies from better-off households; all households must apply for subsidy eligibility. - Safeguards: revenue neutrality commitment for NEPCO, progressive targeting, appeals mechanism, donor support to protect refugees potentially affected. - Water sector challenges and roadmap: - WAJ and water distribution companies’ budget deficits rose to 1 and 0.4 percent of GDP in 2020, respectively; WAJ accumulated JD 23 million in new arrears over 2020. - Jordan’s per capita renewable water resources: 96 m3 per year. - Authorities preparing a Financial Sustainability Roadmap for the water sector to be completed by end-September 2021. ### Fiscal reforms, PFM, and social protection - Fiscal performance and 2020 accounts (selected figures): - Total revenue and grants: 7.3 JD bil., 23.8% GDP (1st Review); 7.0 JD bil., 22.7% GDP (Actual); -0.3 JD bil., -1.2% GDP (Difference). - Tax revenue: 4.9 JD bil., 16.0% GDP (1st Review); 5.0 JD bil., 16.0% GDP (Actual); 0.1 JD bil., 0.0% GDP (Difference). - Grants: 1.1 JD bil., 3.5% GDP (1st Review); 0.8 JD bil., 2.5% GDP (Actual); -0.3 JD bil., -0.9% GDP (Difference). - Overall central government balance: -2.1 JD bil., -6.7% GDP (1st Review); -2.3 JD bil., -7.3% GDP (Actual); -0.2 JD bil., -0.6% GDP (Difference). - Government debt (net of SSC holdings): 27.3 JD bil., 89.2% GDP (1st Review); 27.3 JD bil., 88.0% GDP (Actual); 0.0 JD bil., -1.2% GDP (Difference). - Fiscal reform priorities and structural benchmarks: - Tax policy and administration: tax expenditure analysis with IMF TA; IMF-supported plan for legislative tax reforms by end-November 2021; strengthen ISTD capacity; recruit 100 new tax administration officials at ISTD (implemented). - Social protection: action plan by early 2022 to improve adequacy and efficiency; bring National Unified Registry (NUR) online; increase NAF allocations using 2021 fiscal space. - Public sector wage bill: study of drivers with recommendations by end-October-2021 (new proposed SB). - Arrears clearance: clear central government arrears to health and energy sectors (1.3 percent of GDP); issue circular for elimination timetable during 2021–22 (new proposed end-July 2021 SB). - PFM and procurement: strengthen top-down budgeting; issue guidance to trust account holders by end-June 2021; issue regulations supporting Unified Public Procurement Bylaw; expand JONEPS coverage to all ministries and municipalities by end-December 2022. - Investment quality and PPPs: staff PPP Unit, FCCL unit, and PIM Unit; launch National Registry of Investment Projects (NRIP) by end-2021. - Fiscal capacity: recruit four new division heads and four staff for a macro-fiscal unit at MOF by end-October 2021. - Program conditionality and monitoring: - All quantitative performance criteria (QPCs) were met, and most indicative targets (ITs) met. - Progress on structural benchmarks strong; staff supports modifying end-June 2021 QPCs to allow space to protect recovery and expand social safety net given weaker 2021 outlook. ### Risks, stress tests, and capacity to repay the Fund - Risks and vulnerabilities: - Downside risks include a prolonged pandemic, sustained higher oil prices, tighter global liquidity, and larger-than-expected SOE/PPP losses. - A one-time real depreciation of 30 percent would materially raise external debt-to-GDP in stress tests, underscoring importance of safeguarding the peg. - Debt and external metrics: - Public external debt expected to rise from 40 percent of GDP in 2020 to 47 percent in 2022 before falling below 40 percent by 2026. - Private external debt expected to remain in 32–38 percent of GDP range. - Capacity to repay the Fund: - Fund credit outstanding will peak at 4 percent of GDP in 2023, 11.6 percent of exports of goods and services, and 12.9 percent of gross usable reserves. - Extended arrangement repurchases and charges peak at 1.1 percent of exports of goods and services and 1.2 percent of gross usable reserves in 2023. - Safeguards assessment (CBJ): - CBJ reporting to Audit Committee revamped; unified investment policy approved; ELA guidelines approved by CBJ Board (SB met); work on IFRS-related legal provisions due to CBJ Board by end-August 2021. ### Staff appraisal and key policy recommendations - Staff assessment: - Swift, targeted policy responses helped buffer pandemic impact and preserve macro stability. - Accommodative monetary policy, liquidity support, and SME subsidized lending kept credit flowing while maintaining reserve buffers. - Fiscal measures expanded social safety net and supported job retention. - Policy recommendations: - Balance near-term recovery support with measures to reduce debt sustainability risks. - Support temporary relaxation of 2021 deficit targets for social protection and jobs-support spending. - Continue high-quality tax and expenditure reforms to arrest and reverse the rise in public debt/GDP. - Implement tax legislative changes, strengthen tax administration, fight tax evasion, and examine public wage bill efficiency. - Fully implement PPP law, improve PFM and procurement, stem arrears, and tie government support to credible restructuring plans. - Active outreach to build public buy-in for reforms. - Staff recommendation on program: - Staff supports completion of the Second Review, modification of targets, and augmentation of the arrangement by US$200 million to help close near-term financing gaps with development partner support. *Source: 1jorea2021002 — JORDAN: SECOND REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY, REQUEST FOR AUGMENTATION OF ACCESS, AND MODIFICATION OF PERFORMANCE CRITERIA (June 17, 2021).* ### 291.55 million (about US$400 million) purchase in May 2020 under the Rapid Financing ### 1jorea2021002 - 291.55 million (about US$400 million) purchase in May 2020 under the Rapid Financing ### Program financing and augmentation - IMF approvals and purchases: - 291.55 million (about US$400 million) purchase in May 2020 under the Rapid Financing Instrument. - Jordan’s four-year EFF of SDR 926.37 million (about US$1.3 billion, equivalent to 270 percent of Jordan’s quota in the IMF), was approved by the IMF’s Board on March 25, 2020. - The Executive Board approved the authorities’ request to increase access under the EFF arrangement by about US$200 million. - The authorities requested an augmentation of the program by about US$200 million (42 percent of quota), which staff supports. - Completion of the review will make available about US$200 million in Fund financing, bringing total Fund disbursements since the start of 2020 to around US$9 00 million, including the US$400 million RFI purchase in May 2020. - Pandemic-driven external financing needs: - The pandemic has significantly increased Jordan’s external financing needs (by about US$1.1 billion in 2021–22). ### Economic impact and outlook - Growth and output: - Output contracted by 1.6 percent in 2020. - Growth in 2021 is projected at 2 percent (slightly below the 2.5 percent projected in the first review). - Growth is expected to reach around 3 percent in the medium-term, supported by structural reforms. - Public finances and debt: - Public debt reached 88 percent of GDP at end-2020, 9 ppts of GDP higher than expected at the approval of the extended arrangement. - The revised fiscal targets for 2021 aim to accommodate higher spending on health, social protection, and job-supporting schemes while implementing gradual, growth-friendly, and equitable fiscal consolidation as the recovery becomes entrenched. - Inflation and prospects: - Headline inflation dropped to -0.3 y-o-y at end-2020; it is expected to rebound to 2.5 percent y-o-y in 2021 (with core inflation projected at 1.8 percent). - A near-full reopening is expected in the summer (2021), with a moderate 2 percent growth rate projected for 2021. ### Labor market and social impacts - Unemployment and participation: - Unemployment rose to a record 25 percent in Q4 2020. - Youth unemployment rose to 55 percent in Q4 2020. - Female unemployment reached 33 percent in Q4 2020, with female labor force participation stagnating at 14 percent. - Only one third of the working-age population participated in the labor force at end-2020. - Social protection and refugee burden: - The authorities’ timely and effective policy response helped protect jobs and the vulnerable. - Jordan is hosting some 1.3 million Syrian refugees, increasing fiscal and social pressures. - The government announced a fiscal-stimulus package (March 31) to expand the social safety net, introduce employment programs targeting youth and women, support the tourism sector, and accelerate clearance of arrears to the health and energy sectors (Annex III). - Regular information on COVID-related spending is being published, and an IMF Fiscal Transparency Evaluation was undertaken. ### External sector and reserves - Current account and reserves: - The current account deficit is estimated to have widened to around 8 percent of GDP in 2020. - The 2020 current account is estimated to be 1 percent of GDP wider than at the time of the first review. - Gross international reserves were around US$1 billion higher than anticipated at the first review, largely due to a temporary reduction in banks’ net foreign assets. - The CA deficit is projected to widen to 8.3 percent of GDP in 2021. - Tourism and remittances: - Shortfalls in tourism receipts in Q4 2020 and weaker remittances have contributed to external deterioration. - A full recovery in tourism is not expected before 2023. - Market access: - Jordan’s EMBIG spread remains among the lowest in the region, affirming its continued market access. ### Policy stance, reforms, and recommendations - Fiscal policy: - The authorities remain committed to gradual, growth-friendly, and equitable fiscal consolidation to bolster public debt sustainability and ensure inclusive growth. - Key reforms advanced: closing tax loopholes, broadening the tax base, strengthening tax administration capacity, and streamlining the granting of tax incentives. - Continued high-quality reforms to enhance efficiency and transparency of public finances are important. - Monetary and financial sector policy: - Monetary policy has been appropriately accommodative since the onset of the pandemic while supporting the peg. - Moving forward, monetary policy should remain flexible and data driven, balancing recovery support and monetary and financial stability. - While the financial sector remains sound, continued vigilance is warranted given likely delayed effects of the pandemic on banks’ asset quality. - Structural reforms: - Continued progress on structural reforms is essential for a durable and inclusive recovery. - Electricity sector reforms to address high electricity costs for businesses are crucial for fostering job-rich growth and competitiveness; a comprehensive review of the most significant power purchase agreement was completed and a three-year electricity tariff reform plan was adopted (prior actions). - Other reforms should focus on improving the business environment, reducing unemployment (particularly among women and youth), and strengthening governance. - Donor and partner support: - Continued donor support is critical given the pandemic-driven increase in external financing needs and Jordan’s burden hosting refugees. - The authorities’ reform momentum and commitment to fiscal transparency, coupled with stepped up financial assistance from development partners, will help achieve program objectives. ### Program implementation and monitoring - Performance and benchmarks: - All quantitative performance criteria (QPCs) were met, and most indicative targets (ITs) have also been met. - Progress on structural benchmarks (SBs) due for this review has been strong, including streamlining tax incentives and closing tax loopholes. - In light of the weaker 2021 outlook, staff supports the authorities’ request to modify end-June 2021 QPCs to allow adequate space to protect the recovery and expand the social safety net. - Mission and approvals: - Discussions with the authorities were held remotely during March 8–30, 2021. - Approved by Thanos Arvanitis (MCD) and Delia Velculescu (SPR). - Date on document: June 17, 2021. *JORDAN — SECOND REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY, REQUEST FOR AUGMENTATION OF ACCESS, AND MODIFICATION OF PERFORMANCE CRITERIA (June 17, 2021).* ### 7. The discussions focused on near-term policies to support the nascent recovery and ### 7. The discussions focused on near-term policies to support the nascent recovery and ### Near-term policy stance and program objectives - Agreement that the weaker-than-expected outlook warrants some near-term policy relaxation and higher financing support to respond to the ongoing COVID shock and limit scarring. - Program aims: - (i) resume a gradual, growth-friendly and equitable fiscal consolidation as the recovery takes hold, while implementing an ambitious structural fiscal reform agenda to mobilize resources for critical spending and bolster public debt sustainability; - (ii) ensure monetary and financial stability through proactive measures and oversight; - (iii) gear the electricity and water sectors to financial sustainability, while accounting for the country’s energy and water needs; - (iv) advance structural reforms to support jobs-rich and inclusive growth. ### Progress on structural benchmarks (SBs) and prior actions (PAs) - Seven SBs met: - Submitted to Parliament an amended Investment Law that removed all articles related to tax incentives. - Signed digital track and trace commitments with three largest cigarette companies. - Approved legislation to introduce economic substance regulations for all SEZs. - Conducted a comprehensive review of trust accounts. - Recruited 100 new tax administration officials at ISTD. - Submitted to parliament amendments to allow greater public access to basic financial disclosure information by public officials. - Published the Financial Inclusion report and the Financial Inclusion Action plan for 2020-2021. - Two SBs implemented with delay due to the unexpected third COVID wave: - Enactment of legislation to strengthen transfer pricing rules (June). - Issuance of instructions aimed at increasing access to affordable childcare (February). - Two SBs reset for July and September 2021: - Introduction into the GST Law "place-of-taxation rules” in line with international best practices (submitted to Cabinet). - Passing legislation to bring ASEZA into a single Jordan tax administration and a single customs service (submitted to Parliament). - Two electricity-sector SBs reset as prior actions (PAs) have been delivered: - Comprehensive review of the most significant PPA. - Adoption of a three-year electricity tariff reform plan with implementation commencing no later than March 2022. ### Calibrating public finances for the recovery phase - Fiscal program status through end-March: - 2020 central government primary deficit (excluding grants) was 5.7 percent of GDP, 0.3 percent of GDP below the program ceiling. - December QPCs and March ITs on the primary deficit and combined public deficits were met. - December and March ITs on floor on social spending and ceiling on SSC net financing of the central government were met. - End-December IT on public debt stock met; missed March IT due to lower-than-expected purchases of government bonds by the SSC. - Proposed 2021 fiscal-target easing to support recovery: - A 0.6 ppt of GDP relaxation in the primary central government deficit (excluding grants) target to accommodate higher social protection and job-support schemes and weaker revenues due to the growth markdown. - Revised target of 4.3 percent of GDP implies a 1.4 ppts. of GDP fiscal consolidation in 2021. - ITs on the public debt stock are adjusted to allow an additional 0.3 percent of GDP clearance of domestic arrears. - Public debt outlook: - Medium-term debt/GDP anchor of 80 percent by 2025 remains within reach, supported by: proposed temporary stimulus measures, one-off arrears clearance, 2020 debt ratio being 1.2 percent of GDP lower than expected at the time of the first review, and grants projected to be higher by around 0.1 ppt of GDP. - SSC’s net income declined by 15 percent in 2020; SSC can continue to invest in government bonds before the exposure cap becomes binding. - 2020 fiscal accounts (selected figures; "1st Review", "Actual", "Difference" columns presented in source): - Total revenue and grants: 7.3 JD bil., 23.8% GDP (1st Review); 7.0 JD bil., 22.7% GDP (Actual); -0.3 JD bil., -1.2% GDP (Difference). - Tax revenue: 4.9 JD bil., 16.0% GDP (1st Review); 5.0 JD bil., 16.0% GDP (Actual); 0.1 JD bil., 0.0% GDP (Difference). - Grants: 1.1 JD bil., 3.5% GDP (1st Review); 0.8 JD bil., 2.5% GDP (Actual); -0.3 JD bil., -0.9% GDP (Difference). - Current expenditure: 8.3 JD bil., 27.2% GDP (1st Review); 8.4 JD bil., 27.2% GDP (Actual); 0.1 JD bil., 0.0% GDP (Difference). - Capital expenditure: 1.0 JD bil., 3.1% GDP (1st Review); 0.8 JD bil., 2.7% GDP (Actual); -0.1 JD bil., -0.5% GDP (Difference). - Overall central government balance: -2.1 JD bil., -6.7% GDP (1st Review); -2.3 JD bil., -7.3% GDP (Actual); -0.2 JD bil., -0.6% GDP (Difference). - Government debt (net of SSC holdings): 27.3 JD bil., 89.2% GDP (1st Review); 27.3 JD bil., 88.0% GDP (Actual); 0.0 JD bil., -1.2% GDP (Difference). - Fiscal reform priorities and commitments: - Tax policy and administration: - Undertake tax expenditure analysis with IMF TA. - Develop IMF-supported plan covering tax policy and administration to implement legislative tax reforms by end-November 2021 (new proposed SB). - Strengthen ISTD capacity and bring ISTD’s core tax functions to international good practice standards. - Social protection: - Produce, by early 2022, an action plan to improve adequacy and efficiency of the social safety net. - Improve coverage and targeting of the National Aid Fund (NAF) cash transfer programs; bring the National Unified Registry (NUR) online as the single gateway for social assistance. - Increase budgetary allocations to NAF using space from the 2021 primary deficit target relaxation. - Public sector wage bill and efficiency: - Complete a detailed study of drivers of the public sector wage bill with recommendations by end-October-2021 (new proposed SB). - Arrears clearance: - Clear central government arrears to the health and energy sectors (1.3 percent of GDP) and avoid future incurrence. - Issue a circular setting a timetable for elimination of end-2020 stock of arrears during 2021–22. - Issue a decision committing all central government entities to new procurement procedures from the Jordan Petroleum Refinery Company (new proposed end-July 2021 SB). - Public financial management: - Strengthen top-down budgeting, improve fiscal projections, prohibit treasury advances for unbudgeted expenditures (cabinet decision), and issue guidance by end-June 2021 to main trust account holders to submit monthly revenues, expenditures, and financial transactions information. - Parliament passed amendments to the 2017 Organic Budget Law in line with IMF staff recommendations. - Public procurement and e-procurement rollout: - Issue regulations supporting Unified Public Procurement Bylaw. - Amend By-law and regulations after one year of implementation to clarify direct purchasing conditions and committee structures (new proposed end-December 2021 SB). - Ensure adequate staffing of committees/units and expand JONEPS coverage to all ministries and municipalities by end-December 2022. - Investment quality and PPPs: - Adequately staff PPP Unit at Prime Minister’s office, FCCL unit at MOF, and PIM Unit at MoPIC. - Issue secondary legislation requiring PIM appraisal standards for all new PIPs and PPP projects (new proposed end-Oct 2021 SB). - Launch the National Registry of Investment Projects (NRIP) by end-2021 comprising the PIP Databank and the PPP Databank. - Fiscal policy and debt management capacity: - Recruit four new division heads and four staff for a new macro-fiscal unit at MOF by end-October 2021 (new proposed end-October 2021 SB). - With MCM TA, boost debt management capacity to lower debt service costs at acceptable risk. - Fiscal transparency evaluation (FTE) recently undertaken to identify reform priorities. ### Ensuring monetary stability and financial sector resilience - Reserve and peg: - Jordan’s peg to the US dollar remains the anchor for macroeconomic stability. - FX market pressures after COVID-19 subsided in Q4 2020; reserves replenished due to significant official inflows, issuance of FX-denominated bonds locally, and the June 2020 Eurobond. - By Q1 2021, the CBJ became a net foreign-exchange buyer. - Revised NIR path for 2021–22 reflects higher-than-expected stock of NIR to date and larger BoP needs while ensuring reserves stay above 100 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric. - Monetary policy stance: - Monetary policy should remain flexible and data driven, continuing to support the peg while safeguarding the recovery. - CBJ policy rate cuts and liquidity injections lowered interbank rates and propelled private sector credit growth to above 6 percent in 2020 (and through early 2021). - By end-2020, CBJ started gradually unwinding reverse repos; trend continued into early May (the trend reversed in May due to seasonal factors). - ITs on net domestic assets (NDA) of the CBJ for December and March have been met. - CBJ will continue to gradually unwind crisis measures, while remaining alert to possible BoP pressures, e.g., in the event of a sharper/faster-than-expected rise in U.S. interest rates. - CBJ subsidized lending schemes: - In March 2021 the CBJ expanded the size of its subsidized lending scheme for SMEs by JD 200 million. - The scheme has been accessed by 5,201 SMEs by end-April. - An older CBJ scheme sized at JD 1.2 billion remains to support productive economic sectors such as tourism, industry and renewable energy. - These schemes should remain temporary and be gradually unwound once recovery firmly takes hold. - Banking system soundness (end-2020 and selected indicator comparisons 2019–2020): - Risk-weighted capital adequacy ratio: 18.3 (2019), 18.3 (2020). - NPLs (In percent of total loans): 5.0 (2019), 5.5 (2020). - Provisions (In percent of classified loans): 69.5 (2019), 70.7 (2020). - Liquidity ratio: 134.1 (2019), 136.6 (2020). - Return on assets: 1.2 (2019), 0.6 (2020). - Loans to deposits ratio: 81.6 (2019), 87.3 (2020). - CBJ required banks not to pay out dividends in 2020; capital adequacy ratio remained at 18.3 percent, above regulatory minimum of 12 percent. - CBJ permitted dividend payouts in 2021 up to a 12 percent cap of paid-in capital; not expected to weaken capital buffers. - CBJ maintained stringent provisioning standards in line with IFRS9 forward-looking expected loss approach. - Banks’ profits halved in 2020, including due to provisioning. - Given extension of debt deferment period for affected borrowers from June to end-2021, pandemic impact on asset quality may take time to materialize. - If downside risks materialize, CBJ should activate an NPL resolution mechanism requiring weaker banks to prepare prudent but feasible capital restoration plans. - AML/CFT regime: - Draft amendments to current AML/CFT law approved by the government in March 2020 and expected to be passed by parliament by Q3 2021. - FSAP: - Authorities requested a Financial Sector Assessment Program (FSAP) update in 2022 to take stock of financial sector changes since 2008. ### Gearing electricity and water sectors to financial sustainability - NEPCO financial position: - NEPCO’s 2020 losses were limited to 0.3 percent of GDP, helped by high electricity consumption, COVID-related delays in on-streaming of new plants, and a drop in LNG prices, despite cancellation of the fuel clause (which accounted for one-tenth of NEPCO revenues in 2019). - NEPCO missed the end-December IT on its stock of arrears but cleared all JD 70 million in arrears accumulated with IPPs during the lockdown by end-April 2021. - NEPCO’s losses are projected to increase to around 1 percent of GDP in 2021 and remain elevated in the medium-term, driven primarily by the expected coming on-stream of the oil shale power project this year. *Source: IMF staff and Central Bank of Jordan content as provided in the supplied PDF excerpt.* ### 19. Containing NEPCO’s losses remains an urgent priority (MEFP ¶24). The authorities ### 19. Containing NEPCO’s losses remains an urgent priority (MEFP ¶24). ### Measures to contain NEPCO losses and sectoral optimization - Authorities remain committed to measures to: - boost demand domestically and internationally (through export agreements); - reduce costs by continuing to optimize gas imports, retire old power plants, and implement the debt optimization plan; - explore options to optimize costs related to existing and future PPAs (on December 19, 2020, the government submitted arbitration requests to the Paris International Chamber of Commerce to seek declaratory judgements regarding the Attarat contracts). - Staff’s projections incorporate: - the impact of prospective electricity exports; - optimization of energy inputs — notably a decline in reliance on LNG (LNG contracts expired at end-2020 and were replaced by long-term piped-gas supply contracts from Israel and Egypt, the prices of which are largely unrelated to international prices). - Pending a resolution of contracts, staff’s projections continue to reflect the cost of the original contract. ### Electricity tariff reform (three-year end-user plan) - The authorities adopted a three-year end-user electricity tariff reform plan, with front-loaded implementation set to begin early 2022 (PA, see MEFP ¶26–27). - Objectives: - Address high electricity costs for the business sector arising from substantial cross-subsidization of household consumption, which constrain private sector growth, employment, and competitiveness. - Reduce tariff rates from the first year for energy-intensive sectors facing the highest tariff rates and with potential to generate high value added and high-productivity jobs, including in the commercial, health, and industrial sectors; additional sectors will be added in subsequent years. - Revenue neutrality and protection of vulnerable households: - Plan reduces, in a progressive manner, electricity subsidies accruing to households with capacity to pay through: - a simplified tariff structure and discount system which attenuates distortions while protecting vulnerable and low income groups; - excluding several categories of better-off households from subsidies, either in part or in full (see Annex VI). - All households will need to apply for the subsidy; information from applications will allow the authorities—with technical support, including from the Fund—to refine subsidy eligibility criteria and improve calibration of the discount system to enhance progressivity at rollout and in outer years. - Implementation timeline and safeguards: - Rollout of the reform—for both households and businesses—is expected to start no later than end-March 2022 (proposed SB). - Securing donor assistance to support refugees potentially affected by the reform and allocating adequate resources to process subsidy applications and appeals are important to ensure full protection of vulnerable groups post-implementation. ### Water sector—COVID-19 impacts and reform roadmap - COVID-19 exacerbated water sector challenges (MEFP ¶28): - In 2020, WAJ and water distribution companies’ budget deficits rose to 1 and 0.4 percent of GDP, respectively, due to more frequent deliveries and declining bill collection rates. - WAJ repaid part of its arrears to PPPs with donor assistance but continued to accumulate new arrears (JD 23 million over 2020); distribution companies also incurred new electricity arrears. - The end-December IT on the stock of water sector arrears was not met. - Demand and scarcity: - Higher demand during lockdowns and an unusually dry 2021 further fueled concerns about water scarcity, which had already been aggravated by faster-than-expected population growth (notably due to the large influx of refugees) and climate change. - Jordan has one of the lowest levels of per capita renewable water resources in the world (at 96 m3 per year), well below the internationally recognized water scarcity level (500 m3 per year), and currently retrieves 96 percent of its renewable water sources. - Policy response: - Authorities are considering large-scale projects to secure a sustainable water supply and are committed to routing these through the new PPP framework to ensure best value for money. - The authorities are preparing a Financial Sustainability Roadmap for the water sector, to be completed by end-September 2021, with assistance from development partners; the roadmap will provide a comprehensive analysis and propose concrete reforms to durably improve the sector’s financial position. - Fiscal note: - While water sector deficits of 1–1.5 percent of GDP in the coming years are already factored into the baseline of the IMF’s public debt sustainability analysis, the costs of new projects aimed at boosting water supply are not factored in. ### Reforms to entrench jobs-rich and inclusive growth - Labor market distortions (MEFP ¶29): - Youth unemployment: authorities are strengthening support for apprenticeships and vocational training and considering extending the lower social security contribution rates for startups (which hire young workers) to all sectors. - Female labor participation: instructions issued clarifying modalities for firms to provide in-house or commercial daycare options (end-December 2020 SB); aim to simplify licensing process for nurseries by December 2021; work on a new Labor law to remove sectoral restrictions for women and address harassment; implementing the Code of Ethics and Professional Conduct for the transport sector; launching the Amman Bus Rapid Transit system to facilitate affordable and safe transportation, especially for women. - Informality: government signed agreements with trade unions in April to facilitate rollout of a new type of work permit for Syrian refugees allowing work in all sectors open to non-Jordanians without being tied to a specific employer; plans to simplify work permit procedures for non-Jordanian skilled labor by end-September 2021. - Enhancing the business climate (MEFP ¶30): - Simplify licensing procedures for businesses under the “Investor’s Journey” program. - Implement an Advanced Ruling mechanism to streamline imports. - Operationalize the new insolvency framework by training insolvency practitioners and judges. - Strengthen the competition regulatory framework with development partner assistance. - Increasing financial inclusion (MEFP ¶21): - Since 2017 NFIS launch, CBJ has enhanced financial inclusion: at end-2020, share of adults owning financial accounts reached 50 percent, with gender gap reduced to 29 percent (overperforming respective targets of 41.5 percent and 35 percent). - Following the Financial Inclusion Report and Action Plan for 2020–2021, CBJ is developing a new medium-term strategy. - Strengthening governance: - COVID-related spending: publishing online procurement data, including contracts and beneficial ownership reported by awarded entities for COVID-19 emergency response spending; ex-post audit of all spending directly related to COVID-19 prevention, detection, control, treatment and/or containment and corresponding inflows with results to be published (June 2021 SB proposed to be reset to end-August). - Review of most significant PPA: prior action met on completion of review of the oil shale PPA by an internationally reputable law firm to inform scope for improving procurement and PFM framework. - Anti-corruption framework: authorities working to strengthen capacity of the Integrity and Anti-Corruption Commission, including to implement amendments to the Illicit Gains Law currently tabled in parliament. - Improving national account statistics: - Authorities will undertake a comprehensive review of primary statistics from industry surveys used to compile annual national accounts and ensure intertemporal consistency and accuracy of GDP statistics (MEFP ¶32). ### Program modalities, external financing, and risks - Authorities requested adjustments to program quantitative and structural conditionality in light of the COVID shock; modifications proposed to QPCs for June 2021 and ITs through June 2022 (MEFP Table 1) and to structural conditionality (MEFP Table 2). - External financing needs: - Financing requirements expected to increase by US$1.1 billion over 2021–22 due to the weaker tourism outlook. - Firm commitments of financing assurances are in place for the 12 months following the second review, with good prospects thereafter. - Identified external financing and sources: - Expected approval and disbursement this year of US$540 million over 2022–25 in new World Bank lending projects. - Authorities plan a Eurobond issuance of US$500 million this year. - An augmentation of access under the extended arrangement by around US$200 million (SDR 144.102 million or 42 percent of quota) is proposed; augmentation would bring total access under the extended arrangement to SDR 1,070.472 million or 312 percent of quota (about US$1.5 billion). - The augmentation is envisioned to be phased over 2021–22, covering about one-fifth of the financing gap. Purchases in 2021–22 will be on-lent to the government and used for budget support and BoP needs that arise for external debt service payments. - Change in External Financing Gap Relative to First Review (In millions of U.S. dollars): - External financing gap: 352 - (+) Change in Total Financing Needs: 361 - (+) Change in Gross Financing Requirements: 1,140 - Current account deficit (excl. grants): 1,056 - (-) Change in Gross Financing Sources: 303 - FDI, net: 45 - Public grants: 121 - Public sector borrowing (xcl. official budget support): 156 - Issuance of sovereign bonds (current plans): 500 - Private capital flows, net, of which: -518 - Commercial banks' NFA: -600 - (+) Change in Reserves (+ = increase): -477 - (-) Change in Errors and omissions: 0 - (-) Other changes in official external financing (valuation effects): 9 - Sources of financing: 352 - (+) Identified new sources of financing: 352 - Official budget support: 142 - IMF EFF augmentation: 210 - (+) Unidentified external financing: 0 ### Capacity to repay the Fund and safeguards - Capacity to repay: - Fund credit outstanding will peak at 4 percent of GDP in 2023, 11.6 percent of exports of goods and services, and 12.9 percent of gross usable reserves. - Extended arrangement repurchases and charges peak at 1.1 percent of exports of goods and services and 1.2 percent of gross usable reserves in 2023. - A prolonged pandemic, sustained higher oil prices, or aggravation in geopolitical tensions pose downside risks. - Safeguards assessment (CBJ): - Unified investment policy approved in December in line with staff advice to strengthen governance of foreign reserves. - Reporting to the Audit Committee revamped to enable stronger oversight of audit and control processes. - Work on track for CBJ Board to approve guidelines implementing the Emergency Liquidity Assistance framework (end-June 2021 SB). - CBJ reexamining legal provisions that may impede compliance with IFRS and will benchmark against practices in other central banks; resulting recommendations to be submitted to the CBJ Board by end-August 2021 (MEFP, ¶18). ### Staff appraisal and policy recommendations - Staff appraisal highlights: - Swift and targeted policy responses to the pandemic have helped buffer its impact and preserve macroeconomic stability. - Accommodative monetary policy, liquidity support to banks, and subsidized lending to SMEs helped keep credit flowing while maintaining adequate reserve buffers to support the peg. - Fiscal policy expanded the social safety net and supported job retention and creation, notably among youth. - Strong revenue mobilization, efficiency measures, and passage of a responsible 2021 budget helped safeguard debt sustainability and continued market access. - Risks and challenges: - Jordan has had two successive COVID waves since August, is one of the most affected countries in the region, and faces vaccine supply shortages. - Unemployment is high; private sector balance sheets are weaker; elevated public debt (at 88 percent of GDP) limits fiscal space; weaker tourism prospects will increase the current account deficit. - Policy recommendations moving forward: - Fiscal policy should balance near-term recovery support with reducing debt sustainability risks. - Staff supports temporary relaxation of 2021 deficit targets for greater social protection and jobs-support spending. - Continue high-quality tax and expenditure reforms to arrest and durably reverse the recent sharp rise in public debt/GDP. - Firm implementation of recent tax legislative changes and robust efforts to strengthen tax administration and fight tax evasion to broaden the tax base. - Examine the large public wage bill to improve efficiency, further strengthen the social safety net, fully implement the PPP law, improve PFM and procurement practices, and stem the flow of arrears to strengthen accountability. - Proactively address pressures in the broader public sector and ensure government support is tied to credible restructuring plans. - Active outreach to stakeholders to build public buy-in for reforms. - Conclusion: - While risks have increased, Jordan’s public debt is sustainable with continued strong policy implementation in the above areas. *Source: 1jorea2021002 — 19. Containing NEPCO’s losses remains an urgent priority (MEFP ¶24).* ### 31. Monetary policy should remain data-driven, while safeguarding the peg and financial ### 31. Monetary policy should remain data-driven, while safeguarding the peg and financial ### Monetary policy and reserve/peg considerations - The CBJ will need to calibrate the monetary stance to the pace and strength of the recovery and remain alert to emerging BoP pressures, with reserve adequacy critical to credibly supporting the peg. - Monetary policy should remain data-driven. ### Banking sector resilience and supervision - Banks are adequately capitalized, including due to the CBJ’s helpful prudential actions. - The full impact of the crisis on asset quality is yet to unfold. - Continued vigilance and agility in supervision are needed to ensure banks can continue to support good-quality credit creation, including in the event of a more protracted recovery. ### 32. The authorities are committed to removing key obstacles to durable, jobs-rich, and inclusive growth ### Labor market and inclusiveness challenges - The crisis has further exacerbated the problems of youth unemployment, low female labor participation, and high informality. - Decisive actions are needed to remove key impediments to jobs-rich and inclusive growth. ### Structural reforms and governance - Strengthening competition, streamlining licensing requirements, and reducing the economic footprint of the state will help promote entrepreneurship and private sector job creation. - Building on recent governance reforms, further efforts are needed to strengthen the anti-corruption framework. ### Water sector and fiscal responsibility - Addressing water sector challenges, especially water scarcity, in a financially responsible manner, will be critical. - The Financial Sustainability Roadmap will afford a timely opportunity for the authorities to articulate a coherent set of reforms in this area. *1jorea2021002 - 31. Monetary policy should remain data-driven, while safeguarding the peg and financial* ### 33. Staff supports the authorities’ request for the completion of the Second Review under ### 33. Staff supports the authorities’ request for the completion of the Second Review under ### Staff recommendation and program adjustments - Staff supports the authorities’ request for the completion of the Second Review under the extended arrangement. - Staff supports modification of targets and augmentation of the arrangement. - Staff supports the request to augment the extended arrangement by US$200 million to help close near-term financing gaps along with support from development partners. ### Rationale: observed performance and near-term outlook - Recommendation is based on the observed strong program performance. - Support for modifying targets reflects "the weaker recovery projected for 2021–22." - Robust and timely development partner support is deemed "critical for the success of Jordan’s reform program and to help Jordan continue to protect lives and livelihoods through the crisis, while hosting a large number of refugees." ### Health and pandemic-related measures affecting outlook - Greater vaccine supplies to advance Jordan’s open vaccination program—which "provides access to citizens and refugees alike"—will "facilitate a swifter exit from the pandemic." ### Key fiscal and financing actions implied or supported - Augmentation request: US$200 million. - Augmentation intended to "help close near-term financing gaps along with support from development partners." - Emphasis on continued development partner support to complement IMF augmentation. *Source: IMF staff text (excerpt).* ### Annex I. Jordan’s Vaccination Plans ### Annex I. Jordan’s Vaccination Plans ### Vaccine approvals and procurement - Regulatory authorities have approved Pfizer/BioNTech, Sinopharm, AstraZeneca, Janssen, and Sputnik V. - The government has contracted sufficient vaccines to cover nearly the entire adult population (around 50 percent of the total), including through tapping into the WHO’s COVAX facility. ### Inclusive distribution and registration - The authorities have implemented an electronic vaccine registration system open to all residents, regardless of nationality or status; thus, Jordan became one of the first countries to make vaccination available to the refugee population it hosts. ### Rollout pace, capacity, and coverage - Vaccination campaign start date: January 13. - Initial priority groups: healthcare workers and health-vulnerable populations (including among refugees). - Pace initially slowed by supply shortages due to competition on global vaccine markets. - Speed picked up significantly in April and May. - Vaccine administration capacity increased to 80,000 people a day. - By mid-June: - around 2.7 million doses had been administered, - 19 percent of the population had received at least one dose, - 2.9 million people had registered (over 50 percent of the adult population). - Vaccine registration started off slowly and gradually picked up. ### Policy measures, incentives, and targets - Authorities are working to raise awareness and incentivize vaccination including by providing more freedom of movement to those vaccinated and offering vaccines to civil servants in the workplace. - Government announced intent to reopen the entire economy by July. - Government announced intent to vaccinate all teachers before September to facilitate in-school learning. *Source: Annex I. Jordan’s Vaccination Plans (excerpt).* ### 2. Pressures have also increased outside the central government sector. Staff considers ### 2. Pressures have also increased outside the central government sector. Staff considers ### Non-central government pressures - The issuance of “comfort letters” by the Ministry of Finance to a commercial bank that enable Royal Jordanian to borrow up to JD50 million amounts to a government guarantee, which increases the debt stock. - The SSC’s net income has deteriorated by about 15 percent in 2020 compared to 2019, as social security contributions were reduced for all companies, the economy has contracted, investment income has dropped (especially on equities), and payouts have increased. - The drop in net income was smaller than the 50 percent expected at the time of the first review. ### Public debt structure and maturity - Foreign-currency denominated debt is half of total public debt. - The non-resident share of debt is relatively high, but risks are mitigated by a long maturity of external public debt, with issuance typically in tenors exceeding five years. - A large part of the foreign-currency debt is held by official, rather than private, creditors, reflecting official sector pledges made as part of the Jordan Compact and the 2019 London Initiative. - On the domestic side, excluding treasury bills, the average maturity has almost doubled to six years since 2018. ### Liability management and non-traditional instruments - Authorities are considering liability management operations to reduce debt service costs and smooth the amortization profile; authorities have requested MCM TA on conducting liability management operations to buy-back more expensive Eurobond if international market conditions remain favorable. - Scope exists to partially replace the stock of non-traditional debt instruments, e.g., “comfort letters”, with Treasury bonds. - “Comfort letters” enable entities owed arrears (construction companies, cancer center, refinery, and municipalities) to obtain loans from commercial banks; letters imply a government obligation to repay what these entities owed over a period of 5 years plus the interest (4–5 percent) that the banks charge. - Staff records “comfort letters” as debt. At end-2020, these non-traditional debt instruments amounted to 2.5 percent of GDP. - In 2021, the MOF is considering issuance of additional JD100 million in “comfort letters” to securitize health and energy arrears. ### Gross financing needs (GFNs) and SSC position - Public gross financing needs (GFNs) appear manageable; stress tests show GFNs are robust to shocks, reflecting: - significant projected concessional financing; - little private external debt maturing during the program; - pre-COVID domestic debt maturity extension. - Jordan issued a $1.75 billion Eurobond in June 2020 at very attractive rates; the issuance was more than 6 times oversubscribed. - Jordanian banks are adequately capitalized and recent domestic bond issuance has been significantly oversubscribed, implying banks can absorb higher government domestic debt issuance. - The SSC’s net income position is expected to return to more normal levels in 2021, as the recovery sets in. - Government bonds at the end of 2020 accounted for about 57 percent of the SSC investment portfolio, implying the SSC can scale up purchases of government bonds before the exposure cap becomes binding. - GFNs are projected to decline over the medium term, in line with the continued shift to longer-term domestic issuance and the envisaged fiscal consolidation under the EFF. ### Risks to debt sustainability and policy implications - Significant risks to debt sustainability remain. Possible adverse scenarios include: - a longer lasting pandemic associated with deeper hysteresis effects; - weaker fiscal consolidation effort; - tightening of global liquidity conditions; - losses from SOEs and PPPs exceeding those already captured in the baseline debt projections. - These risks underline the importance of: - initiating and maintaining momentum on growth-friendly fiscal consolidation once the pandemic abates; - accelerating structural reforms to protect the recovery and boost potential growth; - mitigating losses from the broader public sector. ### External sector DSA—coverage, projections, and vulnerabilities - Coverage of external debt in this DSA 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 the non-banking sector) is likely underestimated. - Public external debt is expected to rise from 40 percent of GDP in 2020 to 47 percent in 2022, reflecting higher external financing support in the wake of the COVID-19 pandemic, before falling back below 40 percent by 2026. - The composition of public external debt remains favorable due to the sizable share of concessional borrowing and official pledges under the Jordan Compact and the 2019 London Initiative. - Private external debt is expected to remain in the 32–38 percent of GDP range. - As of end-2019, 77 percent of total private external debt was owed by banks (mostly in the form of non-resident deposits), with the remainder owed by non-financial corporations. - Over the medium term, the share of firms’ external debt is expected to gradually increase from roughly a quarter to one third of total private external debt. - External financing requirements will remain sizable through mid-program and gradually decline thereafter; this reflects the post-COVID widening of the current account deficit and amortizations of U.S. guaranteed Eurobonds falling due in 2022 (assumed rolled-over on market terms). - Standardized stress-test scenarios indicate: - sensitivity of external debt to current account and combined shocks is relatively low; - interest rate and real growth shocks would have only marginal impact on the external debt burden. - A large and permanent real depreciation shock would bring the ratio of external debt to GDP well above the baseline projections; specifically, a one-time real depreciation of 30 percent is considered in bound tests, underscoring the importance of safeguarding the peg through prudent policies. *Source: IMF staff.* ### Annex VI. Electricity Tariff Reform Plan ### Annex VI. Electricity Tariff Reform Plan ### Background and problem statement - Existing electricity tariffs are not aligned with Jordan’s growth and employment needs, exacerbated by the COVID-19 pandemic. - Business tariffs vary significantly across sectors, with many productive business sectors paying tariffs "well above cost recovery" and thereby financing untargeted subsidies for household electricity consumption ("cross-subsidization"). - Current tariff schedules were developed after the 2011 Egyptian gas supply disruption; since then NEPCO’s supply capacity has expanded and supply costs have stabilized. - High electricity business tariffs are identified as an impediment to private sector growth and job creation, particularly in labor-intensive sectors. ### Reform plan overview - Authorities adopted a three-year electricity tariff reform plan that: - Reduces, in a progressive manner, electricity subsidies accruing to households. - Reduces electricity tariffs for key business sectors. - Reforms for both business and household tariffs are expected to be front loaded, with additional changes phased over later years. - Rollout for both households and businesses is expected to start before end-March 2022. - Authorities are committed to ensuring the reform is revenue neutral on a continuous basis throughout implementation. - A comprehensive World Bank study on business sector electricity tariffs is expected to be completed in Q3-2022 and will inform sector selection in years two and three. ### Business tariff changes and targets - The plan proposes reductions in high electricity costs for selected business sectors where costs hinder job creation or competitiveness. - Expected reduction in annual business sector electricity costs: around 0.15 percent of GDP from the first full year of implementation. - Sector selection criteria include: - Extent to which sectors are paying tariffs above cost recovery. - Whether high tariffs impede competitiveness. - Whether electricity costs hamper job creation. - Reducing distortions in the tariff structure for targeted sectors. - Initial focus: energy-intensive sectors currently paying rates above cost-recovery, including the commercial, health, and industrial sectors. - The plan envisions reducing the large number of business sector tariff categories to enhance transparency and simplicity, including: - Eliminating some time-of-day tariff distinctions. - Potentially harmonizing tariffs for small and medium industry (these sectors already pay tariffs below cost recovery). ### Household tariff changes, targeting, and protection of the vulnerable - Two complementary household measures to generate savings for the business leg while protecting vulnerable groups: (i) Streamlining consumption-based subsidized tariff schedule and introducing nominal discounts: - Reduce number of tariff blocks from seven (currently) to three. - Retain progressivity implicit in consumption-based tariffs. - Apply a nominal discount to monthly bills of select households to protect low- and middle-income households from large bill increases. - In the first year, consumption will be used to target the discount to households more likely to fall in low- and middle-income categories. (ii) Withdrawal of subsidies from households in a progressive manner: - Several categories of better-off households will face an unsubsidized tariff schedule from the first year. - Example exclusion criteria: households with multiple meters or large self-generating capacity, ex-pats residing abroad, and non-Jordanian households with capacity to pay. - All Jordanian households will need to apply for the subsidized regime on an online platform or in-person. - Data collected through the application process will inform subsidy eligibility criteria and calibration of nominal discounts. - Authorities will leverage technical assistance, including from the Fund. ### Progressivity, appeals, and safeguards - Reform to household tariffs will be progressive from the first year; progressivity will improve in later years as the reform is refined. - The streamlined consumption-based subsidized tariff regime and the discounts for low consumption households generate small gains for lower income households at the expense of higher income ones. - Exclusion criteria will remove subsidies from households in a progressive manner, primarily affecting households in the upper quartile of the income distribution in the first year. - An effective and credible appeals mechanism will be set up to: - Minimize exclusion errors and protect the vulnerable. - Determine whether households were wrongly excluded and should regain eligibility. - Facilitate assessment and refinement of exclusion criteria during implementation years two and three. - The appeals system will be fully funded over the years of the reform plan through buffers incorporated in costing estimates to ensure adequate savings are generated from the household leg of the reform. - Exclusion errors identified via the appeals system may reduce the number of households allocated to the unsubsidized regime and result in lower savings than expected; buffers are planned to accommodate this possibility. *Source: Annex VI. Electricity Tariff Reform Plan.* ### 6. The economic environment is likely to remain challenging this year before our ### 6. The economic environment is likely to remain challenging this year before our ### Economic outlook and key macro projections - Real GDP growth is projected to rise to 2 percent in 2021, as vaccination rates gradually increase and the global recovery supports a return of international tourism, including visits by Jordanian expatriates. - Growth will gradually accelerate to around 3 percent over the medium term, closing the output gap. - Inflation will average 2.3 percent in 2021, in line with the economic recovery and with rising global fuel and food prices. - The current account deficit is projected to reach 8.3 percent of GDP in 2021, as the recovery in tourism is pushed back by the COVID-19 resurgence, before returning to its pre-pandemic adjustment path, maintaining reserve adequacy. - 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 - In 2020, the shortfall between planned and received donor financing to address the needs of refugees remained in excess of USD 1 billion, even before factoring in the higher costs of reining-in the spread of COVID-19 among the refugee population. - These shortfalls hamper Jordan’s ability to sustainably cope with the refugee crisis and reduce macroeconomic vulnerabilities. - Jordan will continue to provide refugees with all essential services. ### Commitment to the EFF program and recent program performance - The authorities state strong commitment to the EFF approved in March 2020 and continued engagement with the Fund. - Despite COVID-related revenue drops and budget pressures, Jordan met end-December 2020 quantitative performance criteria (QPCs) and end-March ITs for: the primary fiscal deficit of the central government, the combined public deficit, net international reserves (NIR) and non-incurrence of external debt service arrears. - Most indicative targets for end-December and end-March were observed (MEFP Table 1). Structural conditionality has also been implemented (MEFP Table 2). - The 2021 budget reflects commitment to reduce primary deficits and arrest debt sustainability risks. ### Fiscal developments in 2020 - Domestic revenues declined by 9.4 percent relative to 2019, led by a COVID-related collapse in nontax revenues. - Total expenditures remained broadly flat as higher health, social protection, and interest spending were offset by lower capital expenditure. - The public wage bill was in line with the 2020 budget due to delaying public sector salary increases and bonuses to end-2020 and imposing hiring freezes while reallocating staff to health needs. - The 2020 central government primary deficit (excluding grants) was 5.7 percent of GDP, coming in 0.3 percent of GDP lower than programmed. - Public debt was 88 percent of GDP, 1.2 percent of GDP below the end-2020 program projection. ### Fiscal policy stance for 2021 and medium term - Target: narrow the primary deficit excluding grants to 4.3 percent of GDP in 2021 — an improvement of 1.4 percentage points of GDP compared to 2020. - This target represents a temporary 0.6 ppt of GDP relaxation relative to the 3.7 percent of GDP target for 2021 envisioned at the time of the first review. - The additional fiscal space will accommodate higher spending on social protection and job-support schemes and somewhat weaker revenues; measures are described as targeted and temporary, to be offset by stronger consolidation in outer years. - Commitment to implement significant, growth-friendly, phased consolidation to bring public debt (net of SSC holdings) to below 80 percent of GDP by 2025. ### Monitoring public enterprises and subnational units - Royal Jordanian (RJ): five-month suspension of commercial passenger flights in 2020 and slow reopening have pressured RJ’s finances. Government committed to facilitate orderly restructuring; any support will be measured and conditional on efficiency improvements and implementation. - Greater Amman Municipality (GAM): pandemic containment measures led to a decline in GAM’s own-source revenues. GAM is developing a comprehensive restructuring plan to strengthen revenues, decrease operating costs, stretch out debt maturities, and implement monitoring for government supervision. ### Structural fiscal reforms (targets and actions) (i) Tax policy and administration - Tax policy: Initiate, with IMF technical assistance, a tax expenditure analysis to streamline and better target tax incentives, including in the special and development economic zones. - MOF will prepare, and share with IMF staff by end-November 2021 (new proposed end-November 2021 SB), an FAD-supported plan encompassing tax policy and administration reforms to: streamline tax incentives, introduce place-of-taxation rules for GST, establish economic substance requirements for special zones, enhance transfer pricing rules, and bring ASEZA into a single tax administration and a single customs service for Jordan. - Revenue administration: enhance ISTD capacity by upgrading IT infrastructure; strengthen audit function with risk-based practices and specialized audit teams in the large taxpayer directorate (LTD); collaborate with local universities for training. - Full automation of income and sales tax registration for new companies, including tax identification numbers and VAT certificates, targeted by end-2021. - Tobacco track-and-trace: signed digital commitments with three largest cigarette companies; implement track and trace software with the largest company by end-July 2021 (SB), full implementation by end-March 2022. - Rollout of e-invoicing in several pilot sectors in early 2022 to strengthen monitoring and reduce under-invoicing. (ii) Social safety net - Comprehensive review of social spending envelope completed; action plan to enhance effectiveness and efficiency to be published and implemented in coordination with the World Bank and UNICEF in early 2022. - Implementing a three-year program to strengthen the social safety net by almost doubling coverage of the National Aid Fund (NAF) cash transfer program. - National Unified Registry (NUR) brought online as single gateway for Jordanians seeking social assistance. - Program includes a floor on social spending (IT) consisting of: (i) non-wage components of education and health current expenditure envelope; (ii) NAF’s and other entities’ social protection programs; and (iii) school feeding program. - Increased allocations to NAF in the 2021 budget and planned further temporary support for the unemployed using additional fiscal space from the 2021 primary deficit target relaxation. (iii) Public sector wage bill and efficiency - Extend hiring freeze on new positions in non-essential sectors until end-2021. - Aim to make remuneration performance-based and better aligned with market comparators; enhance institutional roles to strengthen budgetary oversight and human resource planning. - Explore streamlining by merging ministries and agencies to reduce inefficiency. - Complete a study of drivers of the public sector wage bill with recommendations (new proposed end-October-2021 SB). (iv) Public financial management - Minister of Finance to issue circular setting timetable for elimination of end-2020 stock of central government domestic arrears during 2021–22 (new proposed end-July, 2021 SB). - Issue decision committing all central government entities to new procedures for purchases from Jordan Petroleum Refinery Company to eliminate energy arrears (new proposed end-July, 2021 SB). - Strengthen top-down budgeting, improve fiscal projections, prohibit use of treasury advances for unbudgeted expenditures. - Guidance by end-June 2021 to main trust account holders to submit monthly revenues, expenditures, and financial transaction information, including explanations for changes over JD 3 million, and flagging future large drawdowns/increases. - Parliament passed amendments to the 2017 draft organic budget law with Fund technical assistance. (v) Fiscal transparency and fiscal risks management - Invited IMF’s Fiscal Affairs Department to undertake a comprehensive Fiscal Transparency Evaluation (FTE) in March–April 2021. - Issued regulations to support implementation of the Unified Public Procurement Bylaw. - Accelerate rollout of eGovernment Procurement system, JONEPS: amend By-law and regulations based on one year of implementation (new proposed end-December 2021 SB) and ensure adequate staffing of committees and units; expand JONEPS coverage to all public institutions at ministerial level and municipalities by end-December 2022. - With Fund TA, conducted comprehensive review of SOEs and PPPs to identify and quantify fiscal commitments and contingent liabilities; will develop consolidated database of major SOEs and subnational governments leveraging the IMF FAD’s SOE Health Check Tool. (vi) Improving investment quality - Implement new PPP law: Cabinet decisions clarify law binding for all new projects where procurement had not started by April 2020; FCCL unit at MOF to monitor financial commitments of all existing PPP projects. - All ministries and agencies required to supply FCU with necessary documents and information for all PPPs. - Commitments: - Adequately staff the PPP Unit at the Prime Minister’s office, the FCCL unit at MOF and the Public Investment Management (PIM) Unit at MoPIC. - Issue secondary legislation requiring adoption of PIM appraisal documents for all new PIPs and PPP projects (new proposed end-Oct 2021 SB). - By end-2021, prepare legislative basis and launch the National Registry of Investment Projects (NRIP) comprising the Public Investment Project (PIP) Databank and the PPP Project Databank, including all PIPs in the 2022 General Budget and all prepared PPP projects. (vii) Fiscal policy and debt management capacity - Strengthen MOF capacity to generate medium-term forecasts (including off and on budget grants and loans), assess dynamic and distributional impacts of measures, monitor public balance sheet risks, and carry out debt management and debt sustainability analyses. - Recruit four new division heads and four staff for a new macro-fiscal unit at MOF by end-October 2021 (new proposed end-October 2021 SB); unit to produce first macro-fiscal outlook and risks report in Q1 2022. - With MCM TA, seek to boost debt management capacity to lower debt service costs at acceptable risk through liability management operations. ### Monetary policy and financial sector measures - Exchange rate peg remains cornerstone of monetary policy to preserve market confidence and anchor inflation expectations. - Central Bank of Jordan (CBJ) implemented a package of measures totaling about 8 percent of GDP to support economic activity at the onset of the crisis. - Credit growth to the private sector held up at nearly 6 percent in 2020, allowing firms, including SMEs, to remain in business and keep employees on payroll. - CBJ allowed banks to postpone installments for affected customers without commission or delay interest; measure extended until end-2021. - Objective: maintain international reserves above 100 percent of the Fund’s Reserve Adequacy Metric. - CBJ SME support: created a JD 500 million SME lending program in 2020; in March increased the envelope to JD 700 million, raised borrowing limits for hard-hit sectors and extended loan terms by one year. ### Reserve management and banking sector soundness - CBJ integrated existing regulations on investment of foreign reserves into one Board-approved investment policy in December 2020 covering objectives, roles, maximum term deposit size, procedures for managing limit breaches, composition decisions, credit/concentration limits, and reporting. - Banking system indicators at end-2020: - System-wide capital adequacy ratio: 18.3 percent (same as 2019), above CBJ regulatory minimum of 12 percent. - Non-performing loans (NPLs): 5.5 percent of total loans in 2020, up from 5 percent in 2019. - NPL coverage ratio: increased from 69.5 percent at end-2019 to 70.7 percent at end-2020. - CBJ measures: decision not to allow distribution of banks’ 2019 profits and cap 2020 profit distributions at 12 percent as a share of paid-in capital to provide cushion. ### Prudential supervision and risk management - CBJ to continue close monitoring and addressing banking system risks using prudential and supervisory framework. - Accounting, reporting and provisioning practices align with IFRS9’s forward-looking expected loss approach; strict provisioning requirements maintained despite temporary impact on reported bank profits. - CBJ continuously conducts stress tests to ensure banks have sufficient buffers for significant NPL rises and profit hits. - If capital adequacy falls below 12 percent for any bank, CBJ will require a credible capital restoration plan to rebuild capital gradually. *International Monetary Fund — Jordan staff report excerpt* ### 18. The legislative and regulatory framework for banks is being strengthened further. ### 18. The legislative and regulatory framework for banks is being strengthened further. ### Legislative and regulatory framework for banks - Since 2018, Jordanian banks have been compliant with the IFRS9 accounting standards, which has bolstered transparency and monitoring. - The 2019 legislative amendments to the Deposit Insurance Corporation (DIC) law and to the Banking Law as a whole: - (i) strengthened the corporate governance system; - (ii) enhanced the resolution regime; - (iii) strengthened the legal framework for Islamic banks; and - (iv) advanced the use of electronic means/transactions in the banking sector and non-banking financial institutions. - The CBJ is committed to continuously assess and, if needed, strengthen its framework for bank resolution. - In 2019, the CBJ issued revised instructions on exposure limits for banks operating in Jordan. - New instructions regarding the application of liquidity standards were issued in early 2020. - The planned approval by the CBJ Board of detailed guidelines to implement the Emergency Liquidity Assistance framework provided for in the CBJ Law is on track (end-June 2021 SB). Among other things, the guidelines will: - define acceptable collateral; - provide instructions how to assess risks; and - include draft contracts. - The CBJ is reexamining the extent to which certain legal provisions are an impediment to IFRS compliance and will concurrently benchmark against practices in other central banks with similar statutory requirements. The study and the resulting recommendations will be submitted to the CBJ Board by end-August 2021. ### Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) - A National Risk Assessment, completed with the assistance of the Fund, has contributed to a more enhanced review of the draft AML/CFT law to ensure full alignment with Financial Action Task Force (FATF) standards. - The draft AML/CFT law addresses many practical issues faced by the AML/CFT Unit and other competent authorities and the recommendations included in the mutual evaluation report of Jordan. - The draft AML/CFT law was approved by the government in March 2020 and is expected to be passed by parliament by Q3 2021. - The IMF has provided drafts of instructions for implementing targeted financial sanctions related to Terrorist Financing and Proliferation Financing United Nations Security Council Resolutions. - CBJ, with support from Fund technical assistance, has amended its regulations to ensure better conformity with FATF standards; further regulatory reform will follow passage of AML/CFT amendments. - In line with IMF technical assistance recommendations, a risk-based framework for offsite and onsite supervision has been put in place for: - banks, - money-exchange firms (the two most critically important sectors for AML/CFT), - securities firms, and - real estate agents. - The CBJ is making progress on applying the IMF risk-based framework to other financial institutions. - Jordan has requested follow-up IMF technical assistance in this area. ### Nonbank financial sector development - Insurance sector: - A new Insurance Law to allow for the transfer of the supervision of the insurance sector to the CBJ was enacted in June 2021. - The law allows for implementation of reforms to the sector’s regulatory framework in line with recent IMF TA. - The CBJ is training staff and drafting necessary operational guidelines to foster stronger supervision, minimize spillovers from the insurance sector to banks, and enhance financial development and inclusion. - Microfinance sector: - Nine microfinance institutions have been licensed according to the Microfinance By-law of 2015 and the instructions issued pursuant to it. - The CBJ will continue to develop and implement instructions required for the efficient supervision and monitoring of the microfinance sector. ### Reforms to facilitate access to finance and financial inclusion - Implementation outcomes and steps: - The CBJ implemented the National Financial Inclusion Strategy (NFIS) 2018–20 and fully achieved its overarching goals. - The CBJ released instructions for all operating banks in Jordan to open a “basic bank account” for eligible citizens. The “Instructions of the Basic Bank Account” aim to allow legally eligible citizens and the financially excluded to open a bank account, include simplified due diligence procedures, and exemption from fees and minimum balance requirement. - The first issue of a regular Financial Inclusion Report and the Financial Inclusion Action plan for 2020–21 were published at end-March 2021. - Planned work: - The CBJ has mandated a financial inclusion diagnostic study to be carried out during 2021 to measure the current state of financial inclusion in Jordan, capture the impact of the NFIS, and use outcomes as a basis for a new evidence based strategy. - The CBJ has prepared a Financial Inclusion Action Plan for 2021–22. - Support for micro enterprises: - The CBJ will launch in Q2 2021 a new financing program through allocating USD 30 million from the new Arab Monetary Fund loan to be lent directly to microfinance institutions at zero interest rate, the cost of which will partly be subsidized by the government. ### IMF engagement: FSAP and technical assistance (TA) - Jordan has requested the IMF to conduct an update of the Financial Sector Assessment Program (FSAP) in late 2022 with preparatory work starting in early-2022, noting: - The last FSAP update was in 2008. - The financial system has been subjected to three major external shocks since the last update. - A systemic analysis post-COVID-19 recovery is important to ensure continued resilience and health of the financial system. - Additional IMF TA requests: - Follow-on TA on liquidity forecasting to analyze different components of excess liquidity in banks such as holdings for precautionary reasons. - TA on setting up a comprehensive and state-of-the-art monetary and economic policy modeling framework. - TA on a risk-based banking supervision framework. - TA to update monetary statistics in preparation for some nonbank financial corporations coming under the supervisory umbrella of CBJ by mid-2021. ### Electricity and water sector reforms (selected commitments linked to financial stability) - NEPCO financial viability and losses: - NEPCO registered a 0.2 percent of GDP loss in 2020 and NEPCO losses are expected to widen to 1 percent of GDP in 2022 and in outer years. - Drivers: slow growth in electricity demand, the fuel clause remaining at zero, and the coming on-stream of the oil shale project. - Strategy to restore NEPCO to financial viability over the medium term will encompass reforms to raise revenues (including accounting for COVID-19 revenue losses) and to reduce costs further. - Revenue measures: - Priority to secure higher domestic and regional demand to decrease average cost of electricity supply. - In 2020, tariffs were reduced for small and medium enterprises as well as for all business sectors on consumption above 2019 levels to support growth and strengthen NEPCO revenues. - Plans to increase domestic revenues through better bill collection by installing electricity meters for every house connected to the grid to combat illegal connections; and through promoting electrification of different end-uses. - Expect electricity exports to the West Bank to increase in 2021. - Following the signing of the export agreement with the Iraqi government, construction of necessary infrastructure has started and exports are expected to start in 2024. - Cost-saving measures: - Continue to optimize the usage of all available energy sources through adequate imports of gas (including from Egypt, the Mediterranean and LNG markets) to reduce costs and maximize efficiency. - Continue to reduce costs of LNG storage and regasification. - Explore options to optimize costs related to existing and future PPA commitments which impose large capacity charges on NEPCO. - Continue efforts to retire old power plants; expect to retire three plants by 2025, delivering annual savings that will reach about JD 47 million by 2025. - Debt optimization: - Continue to implement measures in NEPCO’s debt optimization plan, approved by cabinet and partly implemented in 2020. - Government and NEPCO will engage external partners to seek refinancing of debt maturing in 2021 and 2022 at slightly lower costs and at longer maturities. - Arrears to IPPs: - NEPCO plans to clear JD 69.5 million in arrears to IPPs accumulated during the 2020 lockdown by end-April 2021, following the force majeure NEPCO enacted. - Agreements have been reached with all IPPs on a repayment schedule; NEPCO started making scheduled payments in January 2021. - Tariff reform (three-year plan, revenue neutral for NEPCO; frontloaded implementation starting no later than March 2022): - Reduce electricity tariffs for key business sectors by using part of savings achieved from better targeting of household subsidies. - Reduce the number of tariff categories to : simplify the tariff structure, remove ambiguity, improve transparency, address distorted incentives, and harmonize tariffs across sectors and time of day. - Reform household tariff system by introducing a streamlined tariff structure with 3 (rather the 7) consumption blocks, a lower top marginal tariff rate, and a system of nominal discounts declining with the level of consumption. - Exclusions from subsidies for several categories of better-off households (households with multiple meters or large self-generation capacity, owners of service meters, expats, and non-Jordanians with capacity to pay) to be fully or partially excluded. - All Jordanian households will be asked to apply for the subsidized tariff on a platform; those receiving NAF support (complementary support and Takaful programs) will be automatically eligible. - Reform will be revenue neutral at all times; surplus household subsidy savings could be deployed to further reduce business tariffs. - The reform will protect the most vulnerable: Palestinian refugees and, for six months, the poorest 25 percent of Syrian refugees (as identified by the UN system) will access the subsidized tariff. - Commit to working with donors to secure resources for vulnerable refugees and continue providing flexible and free work permits for Syrian refugees. - Implementation and safeguards: - A robust communication plan and time-bound implementation plan will support the reform rollout. - Commit to starting rollout of new tariffs for households and businesses by no later than March 2022 (new SB) and ensuring continuous revenue neutrality for NEPCO. ### Water sector commitments - Rationale: Jordan is one of the driest countries in the world; low water resources are depleting fast, raising pumping and treatment costs and risking water shortages. Developing additional infrastructure will increase capital and current expenditure, making reforms critical. - Commitments: - Arrest accumulation of arrears toward water sector PPPs and electricity distribution companies through timely cash transfers from the Ministry of Finance to WAJ and exploring buffer accounts to provision payments to water sector PPPs. - Design a joint electricity-water multi-year strategy to avoid accumulation of arrears and enable efficient purchase of electricity by the water sector. - Adopt a Financial Sustainability Roadmap for the water sector, leveraging the “Action Plan to Reduce Water Sector Losses”; the roadmap will be completed by end-September 2021. - Ensure WAJ and the water sector fully adhere to the PPP law in procurement and granting of government guarantees for all new PPPs; ensure close coordination with the PPP, PIM, and FCCL units on project selection and vetting. ### Structural policies to promote jobs and growth (selected measures) - Labor market context: - The unemployment rate rose to 24.7 percent in 2020Q4. - Gender equality and female labor force participation measures: - The CBJ changed existing regulations to explicitly prohibit gender discrimination in credit provision to enhance access to financial services by female-owned SMEs. - Government issued instructions clarifying modalities for firms with employees who in total have 15 or more children to provide in-house or commercial daycare options. - The Ministry of Social Development will conduct a comprehensive legal and institutional review of the nurseries licensing process and design a revised regulatory and institutional model by December 2021. - The draft new Labor Law (in parliamentary procedure) tackles harassment and violence in the workplace and public spaces and removes existing restrictions for women to work in specific industries and professions. - The Ministry of Labor is working on new legislation specifying acceptable working conditions in the agriculture sector to address challenges women face (low wages, lack of employment benefits, long working hours, absence of appropriate occupational safety and health on farms). - The launch of the Amman Bus Rapid Transit (BRT) system later this year will provide female workers with a safe and dependable mobility solution. - Youth unemployment and skills: - Streamline and enhance technical and vocational education and training (TVET); work on legislation to bring initiatives under a single umbrella and a strategy to transition beneficiaries into the labor market. - The Technical and Vocational Skills Development Commission (TVSDC) will adopt a national criterion for accreditation of training curriculums and provide qualifications of training service providers. - Take stock of the impact of reduced social security contribution rates for start-ups hiring young workers in the agricultural and IT sectors and consider rolling out the same treatment to startups in all sectors. - The National Empowerment and Employment Program (NEEP), which temporarily subsidizes training of new hires, will be expanded over the next 2–3 years, potentially reaching over 30,000 job seekers. - Formality and non-Jordanian worker rules: - Conduct a study on job informality to identify characteristics of informal workers and firms to shape policies to expand social security coverage. - In April 2021, the Ministry of Labor changed regulations to allow issuance of a type of work permit for Syrian refugees that allows them to work in all sectors open to non-Jordanians without being tied to a specific employer and with freedom to move between employers and geographical areas. - Issue new instructions that will simplify work permit procedures for non-Jordanian skilled labor based on the ISCO-8 profession classification by end-September 2021. *Source: 1jorea2021002 - 18. The legislative and regulatory framework for banks is being strengthened further.* ### 30. A key pillar of our growth strategy is improving the business environment to foster ### 1jorea2021002 - 30. A key pillar of our growth strategy is improving the business environment to foster ### Business-environment reforms, investment facilitation, and competition - Objective: improve business environment to foster investment, enhance competition, and boost export competitiveness. - Public investment policy: - Focus on aligning new investment projects with Government Reform Matrix priorities and mobilizing private financing and know-how via public-private partnerships (PPPs). - By the end of this year, plan to bring to market projects from the PPP pipeline, including the King Hussein Bridge Land Border Crossing Terminal and the interurban Amman-Zarqa bus rapid transit. - Streamlining permits, licenses, registration, and other transactions: - “Investor’s Journey” reform program to prioritize business-environment reforms from the investor perspective (registration, licensing, inspection, advertising). - ISIC4 classification adopted uniformly across all government entities and applied for newly registered entities. - Amendments to the Vocational Licensing Law for the Greater Amman Municipality (GAM) are with parliament. - Licensing requirements abolished last year for bookshops, cultural centers, and in the tourism sector. - Property valuation and land transactions: - Implement Property Values Estimation Bylaw (No. 4 of 2019) to pre-estimate land values and reduce valuation time. - Property value estimations to be completed for the Amman Directorates by the end of 2021 and the rest of Jordan by the end of 2022. - Digital and administrative automation: - Full automation of income and sales tax registration for new companies (including tax identification number and VAT certificate) underway. - Social Security registration automation for new businesses is complete. - Investment law and incentives: - After parliamentary passage of amendments to the Investment Law, authorities will prepare regulations on non-fiscal investment incentives replacing fiscal ones. - By December 2021, submit to parliament a new Investment Law, including amendments to re-establish Jordan Investment Commission as Jordan’s Investment Promotion Agency and amend relevant regulations for impacted GoJ entities. - Insolvency framework: - Operationalize new insolvency framework following 2018 amendment and by-laws. - Eight licenses already issued for Insolvency Practitioners. - Aim to design customized training for judges by end-October 2021. - Priorities: establish Insolvency Committee and launch electronic insolvency registry. - Consumer protection and competition policy: - Conduct by end-2021 an economic sector analysis to result in a strategic plan for consumer protection laws and competition policies. - Strengthen competition regulatory framework with international development partner assistance. - Trade and transport facilitation: - Establish regulations to comply with WTO Trade Facilitation Agreement commitments (pre-arrival procedures, advance ruling, acceptance of copies) and remove red tape. - New bylaw for “Advanced Ruling” mechanism issued; launch new electronic portal by end of 2021 to allow importers to apply and get approval for Advanced Ruling status. - Jordan Customs to upgrade infrastructure to leverage the National Single Window (including all points of border entry) and launch a trade and trade-related permit issuance system connected to four licensing GoJ agencies. - Design strategy to reduce oversupply in highly fragmented trucking sector and provide incentives for fleet renewal and industry consolidation to enhance cargo transport efficiency on the Aqaba-Amman corridor. ### Strengthening governance and transparency - Ongoing updates to government procurement contracts website, including beneficial ownership of awarded entities, for COVID-19 emergency response spending (in line with RFI commitments). - Ex-post audits undertaken of all spending directly related to COVID-19 prevention, detection, control, treatment and/or containment; audits will assess procurement transparency and publication of beneficial ownership for contracts awarded since end-June 2020. Finalization of the report expected to take more time (SB reset to end-August 2021). - An international firm was hired to review the most significant PPA to identify governance concerns related to contracting/negotiation and confirm consistency with Jordanian law; the review was completed and shared with Fund staff (prior action). - Working to strengthen capacity of the Integrity and Anti-Corruption Commission, including implementation of amendments to the Illicit Gains Law currently tabled in parliament. ### Economic statistics and data transparency - COVID-19 underscored the importance of timely and accurate economic data. - Department of Statistics (DOS) commitments: - Publish data on annual GDP for 2019 by the production and income approaches by end-June 2021. - Publish annual GDP for 2019 by the expenditure approach by end of the year, based on DOS annual data sources. - Adhere to a regular publication and revision schedule that includes revisions to quarterly GDP based on annual GDP estimates. - Publish explanatory articles and highlight large movements in data with economic rationale. - Continue efforts to increase quality of primary statistics from annual industry surveys and ensure consistency with quarterly survey data. ### Program monitoring, conditionality, and implementation timeline - Program monitoring: - Progress monitored through semi-annual reviews, quantitative performance criteria (PCs), indicative targets (ITs), and structural benchmarks as detailed in Tables 1 and 2 and the Technical Memorandum of Understanding (TMU). - Quantitative targets for December 2021 and June 2022 are PCs. - IMF disbursements to be on-lent to the government during the program period. - Memorandum of Understanding between the Central Bank of Jordan (CBJ) and Ministry of Finance signed on responsibilities for servicing IMF obligations. - Selected implementation dates and targets (as stated): - Property value estimations: Amman Directorates by end of 2021; rest of Jordan by end of 2022. - Insolvency judges training: design by end-October 2021. - New Investment Law submission to parliament: by December 2021. - Advanced Ruling electronic portal launch: by end of 2021. - DOS publication of annual GDP (production and income approaches): by end-June 2021; expenditure approach: by end of year. - Technical Memorandum highlights: - Program exchange rate: Jordanian dinar to the U.S. dollar is set at JD 0.709 = $1. - Gold price for program measurement: JD 1046.52 per fine troy ounce (for measurement of program performance criterion on net international reserves). - Program exchange rates table (selected entries as provided): British Pound 0.911106; Japanese Yen 0.006505; Euro 0.786889; Canadian dollar 0.538721; SDR 0.975744. - Any developments that could lead to significant deviation from quantitative program targets will prompt discussions between authorities and IMF staff on appropriate policy response. - For program purposes, debt definition follows paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), adopted December 5, 2014). *Source: Excerpts from the Jordan document provided in the IMF chapter/section PDF.* ### 5. The quantitative performance criteria and indicative targets specified in Table 1 attached to ### 1jorea2021002 - 5. The quantitative performance criteria and indicative targets specified in Table 1 attached to ### Overview: Quantitative Performance Criteria and Indicative Targets - The MEFP specifies performance criteria (PCs) and indicative targets (ITs) summarized in Table 1. They comprise ceilings, floors, a continuous zero ceiling, and semi-annual/continuous monitoring frequencies. - PCs and ITs listed: - Performance criterion (ceiling) on the primary fiscal deficit of the central government excluding grants and net transfers to NEPCO, and the Water Authority of Jordan (WAJ) and Aqaba, Miyahuna, and Yarmouk water companies (“state-owned water sector”). - Performance criterion (ceiling) on the combined primary deficit of the central government (as defined above), the operational loss of NEPCO, the overall deficit of WAJ, and the overall deficit of Aqaba, Miyahuna, and Yarmouk water companies (“combined public deficit”). - Performance criterion (floor) on the net international reserves (NIR) of the Central Bank of Jordan (CBJ). - Continuous performance criterion (zero ceiling) on the accumulation of external debt service arrears. - Indicative target (floor) on social spending by the central government. - Indicative target (ceiling) on public debt, net of SSC’s holdings of government debt. - Indicative target (ceiling) on the domestic payment arrears of NEPCO. - Indicative target (ceiling) on the domestic payment arrears of WAJ. - Indicative target (ceiling) on the domestic payment arrears of Aqaba, Miyahuna, and Yarmouk Water Companies. - Indicative target (ceiling) on the net domestic assets (NDA) of the CBJ. - Indicative target (ceiling) on the Social Security Investment Fund’s net financing to the central government. ### Monitoring and Measurement - Monitoring frequency and basis: - The PCs on the central government’s primary fiscal deficit and the combined public deficit, and the ITs on social spending by the central government, are monitored semi-annually (with ITs for other quarters) on a cumulative basis from the beginning of the calendar year. - The PC on the NIR and the ITs on public debt, short-term public debt, domestic payment arrears of NEPCO, WAJ, and Aqaba/Miyahuna/Yarmouk, and NDA of the CBJ are monitored semi-annually (with ITs for other quarters) in terms of stock levels. - The PC on the accumulation of external debt service arrears is monitored on a continuous basis. ### B. Ceiling on the Primary Deficit of the Central Government Excluding Grants and Net Transfers to NEPCO and State-Owned Water Sector - Definition and measurement: - Central government refers to the budgetary central government covered by the annual General Budget Law (GBL); operations measured on a cash basis. - Primary deficit (excluding grants and net transfers to NEPCO and state-owned water sector) = sum of: - (i) net external financing of the central government; - (ii) receipts from the sale of government assets received during the relevant period; - (iii) net domestic bank financing of the central government; - (iv) net domestic nonbank financing of the central government; - (v) grants received from abroad by the central government, including grants from the Gulf Cooperation Council; - less (vi) domestic and foreign interest payments by the central government; - and (vii) net transfers from the central government to NEPCO and the state-owned water sector. - Component definitions: - Net external financing = cash external debt disbursements received by the central government less external debt repayments paid by the central government; covers central government debts and foreign debts channeled through the central government. - Receipts from sale of government assets include 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 banking system’s claims in JD and foreign currency on 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 the cumulative change from December 31 of the previous year in stocks of government debt held by nonbanks and in the float. - Net transfers to NEPCO and state-owned water sector = (i) direct transfers (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 to the primary deficit ceiling: - Downward by the extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period falls short of the levels specified in Table 1 of the MEFP up to a maximum of 50 percent of the shortfall. - Upward by the extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period exceed the levels specified in Table 1 of the MEFP, up to a maximum of 50 percent of the overperformance. For the end-December 2021 QPC, the 50 percent limit will not apply to the first US$200 million in overperformance in grants (the applicable limit for which will be 100 percent) deployed for protecting the livelihoods of workers severely affected by the pandemic (spending not covered under paragraph 30 of the TMU). - Downward by the extent to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation (such as the write-off of intra-governmental claims). - Downward by the extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million (the programmed stock as specified in Table 1 of the MEFP) in case of the end-year IT or PC. - For 2020 and 2021, upward by the equivalent amount of unbudgeted spending directly related to efforts to prevent, detect, control, treat and/or contain the spread of COVID-19, covering emergency outlays and medical supplies and equipment. These exceptional unbudgeted expenditures will be authorized by cabinet resolution and funded through exceptional treasury advances, with 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. ### C. Ceiling on the Combined Public Deficit - Definition: - Combined public deficit = sum of: - (i) primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (as in Section B); - (ii) operational loss of NEPCO; - (iii) overall deficit of the state-owned water sector. - NEPCO operational loss definition: - Operational loss = total operating revenues minus total costs for normal operations (unaudited income statement). - Total operating revenues = (i) sales of operating power; and (ii) all other revenue, excluding proceeds from central government transfers or payments of NEPCO’s obligations on NEPCO’s behalf. - Total costs = (i) purchase of electric power, including fuel costs, capacity and energy charges, and all costs related to electricity generation to be borne by NEPCO; (ii) any fuel transportation costs; (iii) depreciation costs; (iv) all other maintenance and operating expenses, including wages and remuneration of the board of directors, and provisions; and (v) interest expense and any other financial costs. - State-owned water sector overall balance definition: - Overall balance = total revenues minus 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 = (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. - Adjustors to the combined public deficit ceiling: - Downward by the extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period falls short of the levels specified in Table 1 of the MEFP up to a maximum of 50 percent of the shortfall. - Upward by the extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period exceed the levels specified in Table 1 of the MEFP, up to a maximum of 50 percent of the overperformance. For the end-December 2021 QPC, the 50 percent limit will not apply to the first US$200 million in overperformance in grants (the applicable limit for which will be 100 percent) deployed for protecting the livelihoods of workers severely affected by the containment measures (spending not covered under paragraph 39 of the TMU). - Downward by the extent to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation. - Downward by the extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million (the programmed stock) for end-year IT or PC. - For 2020 and 2021, upward by the equivalent amount of unbudgeted COVID-19-related spending authorized by cabinet resolution and funded through exceptional treasury advances. For 2021, if treasury advances for these purposes exceed ½ percent of GDP, the authorities will consult Fund staff on program adaptation. ### D. Floor on the Net International Reserves (NIR) of the CBJ - Definition: - NIR of the CBJ in U.S. dollars = foreign assets of the CBJ minus its foreign liabilities. - Foreign assets include foreign exchange (foreign currency cash, deposits with foreign correspondents, holdings of foreign securities), monetary gold, IMF reserve position, and SDR holdings. - Excluded from foreign assets: assets pledged, collateralized, or encumbered; CBJ’s claims on resident banks and nonbanks and on subsidiaries/branches 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 arising from derivatives and Jordan’s outstanding liabilities to the IMF. - Excluded 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 GCC grants and donor term deposits with remaining maturity not less than 360 days); the two technical swaps with Citibank Jordan for USD 88.5 million; and amounts received under any SDR allocations received after March 31, 2016. - Valuation and key stock: - The stock of foreign assets and liabilities of the CBJ shall be valued at program exchange rates. - As of December 30, 2020, the stock of NIR amounted to USD 13,058.2 million (at program exchange rates). - Adjustors to NIR floors: - Floors on NIR will be adjusted upward (downward) by the extent to which the sum of foreign budgetary grants and foreign budgetary loans—excluding programmed guaranteed and non-guaranteed Eurobonds—received by the CBJ (as specified in Table 1) during the relevant period exceeds (falls short of) the levels specified in Table 1. - For the end-year floor on the NIR, the downward adjustment will be capped at 75 percent of the aforementioned shortfall. - Given uncertainty on timing of the Eurobond issuance (assumed under the program in the third quarter of 2021 for $0.5 billion), the floor of the NIR for end-September 2021 will be adjusted downward by the programmed amount if the issuance is delayed to the fourth quarter of 2021. - Floors will be adjusted upward by the amount that the outstanding balance of bilateral accounts with the Central Bank of Iraq is repaid, including principal and interest. ### E. Ceiling on the Accumulation of External Debt Service Arrears - Definition: - External debt service arrears = debt service payments (principal and interest) 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. - Treatment: - Continuous performance criterion with a zero ceiling on accumulation of external debt service arrears. ### F. Floor on Social Spending by the Central Government - Definition: - Social spending = 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. ### G. Ceiling on Public Debt - Definition: - Public debt = 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. - Guarantee of a debt arises from any explicit legal obligation of the central government (or agency acting on its behalf) to service such a debt in event of nonpayment, or from any implicit legal or contractual obligation to finance partially or in full any shortfall incurred by the debtor. - Adjustors: - The ceiling on public debt for end-December 2021 and end-June 2022 will be adjusted downward by the extent to which the cumulative disbursements under the EFF during the relevant period falls short of the levels specified in Table 1. ### H. Ceiling on the Domestic Payment Arrears of NEPCO - Definition: - Domestic payment arrears by NEPCO = belated settlement of liabilities due under obligation (contract) for more than 60 days, or creditor’s refusal to receive a settlement duly offered by the debtor. - 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 17. ### I. Ceiling on the Domestic Payment Arrears of WAJ, and Aqaba, Miyahuna, and Yarmouk Distribution Companies - Definition: - Domestic payment arrears by WAJ, and Aqaba, Miyahuna, and Yarmouk = belated settlement of liabilities due under obligation (contract) for more than 60 days, or creditor’s refusal to receive a settlement duly offered by the debtor. - 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 17. ### J. Ceiling on the Net Domestic Assets (NDA) of the CBJ - Reserve money definition: - Reserve money of the CBJ = (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 definition: - NDA of the CBJ = reserve money of the CBJ minus its NIR (as defined in Section D). - Adjustors: - The ceilings on the NDA of the CBJ will be adjusted (adjustors text continues beyond provided excerpt). *International Monetary Fund — 1jorea2021002 (MEFP Section 5).* ### 55. Upward (downward) by the extent to which the floors on the net international reserves of ### 1jorea2021002 - 55. Upward (downward) by the extent to which the floors on the net international reserves of ### Adjustments to net international reserves (NIR) floors and reserve requirements - Upward (downward) by the extent to which the floors on the net international reserves of the CBJ are adjusted downward (upward). - Downward (upward) by the extent to which the CBJ decreases (increases) reserve requirements on Jordanian dinar deposits of the banking system. - The adjustment will equal the change in the required reserve ratio multiplied by the stock of deposits with licensed banks at the start of the first month when the new reserve requirement ratio applies that are: (i) denominated in Jordanian dinars and; (ii) subject to reserve requirements. ### Data provision required from the government (monitoring and program reporting) - The government will provide to the IMF (Division B of the Middle East and Central Asia Department) the information specified below to permit monitoring of developments under the program. - Fiscal and Treasury reporting (monthly unless otherwise noted): - Standard fiscal data tables prepared by the ministry of finance covering detailed information on: revenue (including expanded information on revenues from oil derivatives, vehicles, and cigarettes, as agreed with IMF staff); expenditure; balances of government accounts with the banking system; foreign grants; domestic and external amortization and interest; net lending; debt swaps with official creditors; and monthly change in the stocks and the monthly value of stocks of uncashed checks and trust accounts. - Government financing information from the Treasury account, as agreed by both the Ministry of Finance and the Central Bank of Jordan, and any potential discrepancy between the government financial data and the monetary survey data. - Gross transfers to and from NEPCO and WAJ detailing amounts paid or received in connection with debt transactions, transfers to cover losses, and any amount directed to repay any outstanding arrears of NEPCO or WAJ. - Central government arrears (quarterly unless otherwise noted): - Stock of all pending bills of the central government not paid for more than 60 days at the end of each quarter, including those of the health insurance fund, to distribution electricity companies, and to the Jordan Petroleum Refinery Company. - Value and quantity of fuel products consumed by public sector entities from the Jordan Petroleum Refinery Company (monthly). - NEPCO, WAJ, and water companies reporting (quarterly): - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days for NEPCO (quarterly). - Latest audited income statement signed by the auditor (usually available twice yearly with a six-month delay) with full explanation of any changes made to the unaudited version transmitted to the IMF, as soon as it becomes available to NEPCO’s management. - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days for WAJ (quarterly). - Full unaudited income statements and the stocks of accounts payable and payments overdue less and more than 60 days for each of the water distribution companies (Aqaba, Miyahuna, and Yarmouk) and WAJ’s Directorates of Finance (quarterly). - Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the central government (quarterly). - Energy and gas flows (quarterly): - Monthly gas flows from Egypt in million cubic meters. - 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. - Central Bank of Jordan (CBJ) reporting (weekly/monthly/quarterly as noted): - 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). - Outstanding balance of bilateral accounts with the Central Bank of Iraq (monthly). - Banking FSI (quarterly; starting 2021 Q1). - Continuous performance criteria: - 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. - Public debt reporting: - 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 floor: - 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/quarterly): - Interest rates and consumer prices; exports and imports; travel receipts and tourist arrivals; remittances; outstanding balance of non-resident purchases of domestic treasury bills and bonds; and GCC grants received by the CBJ and grants transferred by the CBJ to the Ministry of Finance (monthly). - Balance of payments (current and capital accounts) and external debt developments (quarterly). - List of short-, medium- and long-term public and publicly-guaranteed external loans contracted during each quarter, identifying creditor, borrower, amount and currency, maturity and grace period, interest rate arrangements, and amortization profile (quarterly). - National accounts statistics (quarterly). - Reporting timetables and revisions: - Weekly data and data on CD auctions should be sent to the Fund with a lag of no more than one week. - Monthly and quarterly data should be sent within a period of no more than six weeks (for the monetary and fiscal variables), and within a period of no more than eight weeks for other data (three months for national accounts statistics and balance of payments and external debt statistics). - Data related to the continuous performance criterion should be sent within one week after the date when the arrear was incurred. - Any revisions to previously reported data should be communicated to staff in the context of the regular updates. ### Definitions and statistical methodology - 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. - For variables omitted from the TMU but relevant for program targets, the authorities of Jordan shall consult with the staff on appropriate treatment based on the Fund’s standard statistical methodology and program purposes. ### Statement by the Staff Representative — key updates and program assessment (Executive Board Meeting, June 30, 2021) - Two structural benchmarks due by end-June 2021 were met following issuance of the Staff Report for the Second Review Under the Extended Fund Facility; new information does not alter the thrust of the staff appraisal and reaffirms the authorities’ strong commitment to the program. - Ex-post audit of COVID spending: - On June 24, the authorities met the SB related to undertaking and publishing ex-post audits of all crisis-mitigating spending directly related to COVID-19 containment and treatment (MEFP paragraph 31, Table 2, existing SB #6). - This covers JD 100,123,837 of spending from the authorities’ COVID Fund during 2020. - The audit noted the bulk of purchases happened through competitive tenders, with rare cases of direct awards due to exceptional circumstances; it assessed procurement transparency and publication of beneficial ownership information of entities awarded contracts since end-June 2020. - Guidelines for Emergency Liquidity Assistance (ELA): - On June 29, the authorities met the SB related to approval by the CBJ Board of guidelines for implementation of the ELA framework provided for in the CBJ Law. The guidelines were prepared in consultation with Fund staff to strengthen the CBJ’s lender of last resort function. ### Statement by Jordan’s Executive Director and senior advisors — recent developments and program progress (June 30, 2021) - Recent developments and pandemic impact: - Jordan experienced severe social and economic challenges due to COVID-19, particularly in the services sector affecting travel receipts, tourism, and remittances. - Two subsequent waves amplified the human and economic toll; unemployment rose to an all-time high at end-2020, with over half of younger job seekers being out of work. - Jordan continues to host 1.3 million Syrian refugees. - The authorities allowed equitable access to vaccination for citizens and refugees. - Performance under the Extended Fund Facility (EFF): - The program is highly structurally concentrated and performance remains strong, with all quantitative performance criteria and most indicative criteria met. - Eleven structural benchmarks were met under the second review, two with delay and two as prior actions. - Completed measures include streamlining tax incentives, publishing COVID-19 spending information, carrying out an IMF Fiscal Transparency Evaluation, reviewing significant power purchase agreements, and adopting a three-year electricity tariff reform plan. - Recommendation: future conditionality should be streamlined and comparable to other Fund-supported EFF programs. - External financing and program augmentation: - The pandemic increased Jordan’s external financing needs by about US$1.1 billion in 2021–22. - The authorities requested an augmentation of the program by about US$200 million. - Fiscal policy and reforms: - The Ministry of Finance’s fiscal strategy is committed to macroeconomic stability and debt sustainability. - Domestic revenues declined by 9.4 percent in 2020 relative to 2019, led by a collapse in nontax revenues. - Jordan implemented an ambitious tax policy agenda focused on closing tax loopholes and combating tax evasion rather than raising marginal tax rates. - As a result of revenue mobilization efforts, total revenues in 2021 are expected to exceed their 2020 level, the 2020 budget projections, and their 2019 pre-pandemic level. - In February, Parliament approved a 2021 budget consistent with EFF targets; measures included postponing non-priority capital investment, temporary reductions in pay for cabinet members and senior officials, suspension of other benefits for higher-paid employees, and a hiring freeze for government entities and state-owned enterprises. - Legislative actions: amendments to the 2014 Investment Law to eliminate articles related to preferential tax treatment; law to strengthen transfer pricing rules; legislation to introduce economic substance regulations for all special economic zones; signing of the Convention on Mutual Administrative Assistance in Tax Matters—contributed to removal from EU “Gray” List. - Going forward: fiscal policy will ease targets for 2021 to support recovery while preserving debt sustainability; continue fiscal structural reforms to strengthen tax policy and administration, ensure adequacy and efficiency of social safety nets, contain the public sector wage bill, strengthen public financial management and fiscal transparency, and improve investment quality. - Monetary and exchange rate policies: - CBJ’s monetary policy anchored by the peg to the US dollar; peg helps preserve market confidence and avoid de-anchoring of inflation expectations. - At the onset of the pandemic, the CBJ provided sizeable and timely liquidity of about 8 percent of GDP to the market and support to heavily impacted sectors. - In March 2021, the CBJ temporarily expanded its subsidized lending program to JD 700 million, from JD 500 million. - The CBJ extended to end-2021 the deferment on debt repayments by affected borrowers to banks. - The CBJ maintained a comfortable level of international reserves and will continue to target reserve coverage that exceeds 100 percent of the Fund’s ARA Metric. - Prudential measures: banks were required not to pay out their 2019 dividends; 2020 dividend payouts limited to 12 percent of banks paid-in capital. - Outcome: as a result, at end-2020 the banking system’s capital adequacy ratio remained robust. *Statement by the Staff Representative on Jordan — Executive Board Meeting June 30, 2021* ### 18.3 percent, well above the regulatory minimum of 12 percent. ### Financial Sector Developments and Structural Reforms ### Banking sector resilience and supervision - Capital adequacy: "18.3 percent, well above the regulatory minimum of 12 percent." - Non-performing loans are low and the coverage ratio increased at end-2020. - The Central Bank of Jordan (CBJ) will remain vigilant because "the full impact of the crisis on asset quality is yet to unfold." - CBJ actions to monitor and address banking risks: - Rigorous accounting, reporting, and provisioning practices. - Regular stress tests. - Strict provisioning requirements imposed on banks. - Strengthening legislative and regulatory framework for banks. ### AML/CFT and nonbank financial sector development - CBJ commitment to enhance the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime. - With Fund assistance, the CBJ has completed a National Risk Assessment that contributed to strengthening the draft AML/CFT law to ensure alignment with Financial Action Task Force (FATF) standards. - With Fund technical assistance, CBJ amended regulations for better conformity with FATF standards and has requested follow-up Fund TA to continue strengthening the AML/CFT regime. - CBJ initiatives to develop the nonbank financial sector, notably: - The insurance sector. - Microfinance institutions. - Reforms to facilitate access to finance to broaden reach and usage of financial services. - CBJ engagement with IMF departments: - Grateful to the Monetary and Capital Markets Department for TA; requested follow-up assistance on the different components of banks excess liquidity. - Requested a Financial Sector Assessment Program (FSAP) update in 2022. ### Other structural reforms and reform architecture - Jordan’s medium-term economic recovery depends on continued implementation of structural reforms to boost growth and employment. - Foundational reforms are anchored in a Five-Year Reform Matrix developed with the World Bank and other partners and are part of the Government Indicative Executive Program 2021–24. ### Labor market reforms - Priority to encourage formal, female, and youth employment. - Measures include: - Addressing public-private sector wage differentials. - Enhancing gender equality via flexible working arrangements, affordable and safe transportation, removal of gender differentiation in labor regulations, and child daycare. - Increasing youth labor force participation by strengthening vocational education and training and promoting apprenticeships and traineeships programs. ### Governance and anti-corruption measures - Continuous updates to the website of procurement contracts. - Ex-post audits of all COVID-19-related spending, in line with Rapid Financing Instrument commitments. - Strengthening the anti-corruption legal framework and capacity of the Integrity and Anti-Corruption Commission, including to implement amendments to the Illicit Gains Law currently tabled in Parliament. ### Electricity sector reform - Electricity sector reform is central to the growth agenda. - Government actions: - Seeking to contain losses of the electricity company NEPCO, which "are expected to increase starting in 2022, mainly due to the coming on-stream of a domestic oil shale project." - Pursuing a comprehensive strategy to restore NEPCO to financial viability over the medium term, encompassing reforms to raise revenues (including accounting for any revenue losses in the wake of COVID-19) and to reduce costs further. - Tariff reform: - Adopted a front-loaded three-year electricity tariff reform plan which reduces electricity subsidies to households in a progressive manner. - The plan reduces high costs of electricity for selected business sectors where costs impede job creation or competitiveness. - The reform to household tariffs was "designed to be progressive from the first year of implementation" and will be refined in later years to further improve progressivity. - An effective and credible appeals mechanism will be set up to minimize exclusion errors and protect the vulnerable. - The reform will be supported by a robust communication plan. - Government thanks the Fiscal Affairs department for support in finalizing the electricity sector tariff reform. ### Conclusion and program commitment - Jordanian authorities value the strong relationship with the Fund and look forward to continued policy dialogue and engagement. - Authorities have shown strong ownership and commitment to the EFF-supported program; program implementation "has also been strong." - Authorities remain fully committed to the EFF program’s objectives, notably to maintain macroeconomic stability and persevere with economic reforms while protecting the most vulnerable segments of the population. *Source: IMF staff report content.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1jorea2021002.pdf_