## 1jorea2021003 — Fiscal Transparency Evaluation of Jordan (April 2021) — Selected Findings and Recommendations ## Source details **Canonical URL:** [1jorea2021003 — Fiscal Transparency Evaluation of Jordan (April 2021) — Selected Findings and Recommendations](https://www.imf.org/-/media/files/publications/cr/2021/english/1jorea2021003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1jorea2021003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1jorea2021003.pdf.json) --- ### Executive overview and overall assessment - Jordan has a comprehensive legal framework for public finances and improved fiscal reporting frequency and timeliness. - Open Budget Survey 2019: Jordan scored above the global average for transparency and is the only country in the region ranked overall as "green". - IMF Fiscal Transparency Code (36 principles) performance: - Meets basic standard on 15 principles. - Meets good practice on 7 principles. - Meets advanced practice on 3 principles. - Performance stronger on Pillar I (Fiscal Reporting) than Pillar II (Forecasting and Budgeting) and Pillar III (Fiscal Risk Analysis and Management). - Pillar IV (management of natural resources) not covered by the evaluation. ### Public sector structure and fiscal aggregates (selected statistics) - Total institutional units in public sector: 275. - Subsector breakdown highlights: - Central government: 105 entities (83 in general budget law; 22 EBUs in Government Units’ Budget Law). - Local governments: 100 municipalities plus Greater Amman Municipality (GAM). GAM accounts for 52 percent of total local government revenue and 48 percent of their total expenditures. - Social security funds: SSC and CHIF; SSC consolidated with SSIF quarterly. - Public corporations: 67 entities (52 NFPCs, 15 FPCs); government majority participation in less than half. - Public sector aggregates (2019, percent of GDP): - Consolidated public sector expenditure: 48 percent of GDP. - Public sector asset holdings: around 152 percent of GDP. - Public sector liabilities: around 159 percent of GDP. - Public sector net worth: minus 6 percent of GDP. - Consolidated balance sheet summary (2019, percent of GDP): - Nonfinancial assets: about 98.3 percent of GDP. - Central government: 27.7 percent of GDP. - Local governments: 54.6 percent of GDP. - Financial assets: 54 percent of GDP on a consolidated basis (general government owns about 30.1 percent; PCs own 54.8 percent before consolidation). - Liabilities: 158.6 percent of GDP consolidated. - Debt securities: 37.4 percent of GDP. - Loans: 9.7 percent of GDP. - Payables: 17.3 percent of GDP. - Public service pensions: estimated at 50.4 percent of GDP. - Aggregated public sector net worth shown as -6.3 percent of GDP. ### Coverage, reporting basis, and major gaps - Fiscal reports are fragmented, use different standards, and no single consolidated report provides a comprehensive view of public sector finances. - Fiscal reports cover 88 percent of general government activity in terms of flows but have major gaps in stocks and balance sheets. - Reports compiled on a cash basis: - Cover most revenue, expenditure, and financing items. - Do not capture flows through off-budget accounts. - Do not fully cover accrued revenues and expenditures. - Specific stock estimates and gaps: - Deposits in trusts: JD 904.5 million = 2.9 percent of GDP (end-2019). - Other accounts payable (arrears): around 2.2 percent of GDP in 2019 (mainly health and energy). - Non-traditional debt instruments (“securitized arrears”): 2.5 percent of GDP at end-2020; MOF considering issuance of JD100 million in “comfort letters” in 2021. - Accounts payable by the public sector: 17.3 percent of GDP in 2019; NFPCs contributed 12.2 percent of GDP (NEPCO accounts for 10 percent). - Pension liabilities not reported; mission estimates public service pensions at 50.4 percent of GDP in 2019. SSC sustainability report indicates deficit by 2041 and inability to pay accrued benefits by 2051. - Nonfinancial assets reported in some EBUs and SSC: 23.1 percent of GDP in 2019; IMF FAD estimates total government nonfinancial assets around 87 percent of GDP. - Based on 12 largest NFPCs: assets 18.7 percent of GDP and outstanding liabilities (other than equity) 26.5 percent of GDP by end-2019. ### Fiscal reports, classification, timeliness, and reconciliation - Main published fiscal reports and producers (summary): - General Government Finance Bulletin (GGFB) — MoF/SEPD: monthly; cash basis; GFSM2001. - Quarterly and mid-year budget execution reports — GBD (joint with MoF): quarterly/semiannual; cash basis; national classification. - Public Debt Quarterly Report — MoF/PDD: quarterly; cash basis. - Final accounts and IPSAS Annual Financial Statements — MoF/AD; annual; cash basis; audited by the Audit Bureau (AB). - Government Financial Statistics (GFSY) — MoF/SEPD & AD: annual; cash basis; GFSM2001/2014; published with a 6-month lag. - Frequency and timeliness: - Monthly GGFB published within 20 days of month end; GGFB December (end-year) reports lag. - Annual final accounts / IPSAS statements for budgetary units usually published by June; AD published 2020 annual accounts in March 2021. - GFMIS rolled out to 67 budgetary units; other units uploaded manually. - Classification and consistency: - Economic classification broadly consistent with GFSM 2001/2014; functional classification presented by COFOG. - Internal consistency issues: large, persistent discrepancy between net lending/borrowing (above the line) and net financing (below the line); average deviations between above and below the line transactions averaging 2.1 percent of GDP. - GGFB contains one table (Table 64) combining annual data on revenue/expenditure with financial transactions; reconciliation statements recommended. ### Tax expenditures - Identified tax expenditures quantified at about 10 percent of GDP in 2018. - Tax expenditures equivalent to around two-thirds of total tax revenue. - Estimates presented using the “legal/regulatory” approach; estimates for tax expenditures are two years in arrears and no published forward estimate for the coming budget year. - Government intends to streamline tax incentives and submitted amendments to the 2014 Investment Law to remove preferential tax incentives. - IMF technical assistance supporting comprehensive identification of tax expenditures; results will feed into a revenue mobilization plan expected later in the year. ### Fiscal forecasting, MTBF, and credibility - Macroeconomic forecasts show substantial optimistic bias: average deviation of 35 percent in GDP forecasts since 2007; over 2007-2019 GDP growth rate for the budget year overestimated by 1.7 percentage points (35 percent deviation); over 2015-2019 deviation reached 1.9 percentage points and 45 percent respectively. - Budget documentation lacks full disclosure of macroeconomic assumptions for annual budget and MTBF; forecasts are not independently evaluated outside government. - MTBF issues: - Presented over five-year period but lacks explanation of content, methodology, and key assumptions. - Forecasts exhibit systematic optimistic bias for revenues, budget balance, and expenditures. - Expenditure overestimation partly due to overoptimistic capital expenditure execution assumptions. - Timing: - Budgets typically tabled late; recommendation to bring forward tabling to November 1st each year to give legislature realistic two-month approval period. ### Public investment management and procurement - Public investment weaknesses: - No disclosure of government’s total obligations under multi-annual investment projects. - Public investment relative to GDP has declined over last 15 years. - Cost-benefit analysis improving but not systematic. - NRIP and PIM reforms underway: - PIM unit in MoPIC (2020); guidelines for project appraisal and feasibility for projects above JD 10 million. - NRIP intended to identify and review ongoing projects and disclose commitments. - Procurement transparency: about 40 percent of tenders do not follow the common process, negatively affecting transparency and efficiency. ### Public participation and performance information - Citizen’s Guide to the budget published (first in 2011); easy-to-understand presentation but published after budget approval and lacks distributional/incidence analysis. - Budget documents provide detailed performance information at output level with six years of information, but program-level budgeting not yet legally formalized and linkage to national development plan weak. ### Audit and statistical integrity - Audit Bureau (AB) constitutionally mandated; audits covered estimated 97 percent of total general government expenditure (JD 12 523 million) in 2020. - AB limitations on independence: President can be removed by Council of Ministers without legislature approval if National Assembly not in session; AB budget included in General Budget Law; legislation before legislature would strengthen independence. - Fiscal statistics compiled by MoF/SEPD and disseminated per IMF SDDS; recommendation to enshrine MoF’s GFS responsibilities in legal text and establish a GFS Committee. ### Fiscal risks — magnitude and key exposures - Explicit and implicit fiscal risks estimated at over 120 percent of 2020 GDP. - Long-term NPV of expenditure pressures (2020-2050): - Health: JD 8 582 = 28 percent of GDP. - Pensions: JD 30 343 = 99 percent of GDP. - Combined long-term pressures: 127 percent of 2020 GDP (Health 28 percent + Pensions 99 percent). - Selected specific fiscal risks (figures preserved from source): - Guarantees: JD 3 065; 10 percent of GDP; Year 2020; Reporting: Monthly through GGFB. - Full reimbursement of bank deposits /1: JD 6,919; 22.5 percent of GDP; Year 2019; Reporting: Annually through JODIC reports. - Public corporation liabilities /2: JD 8 566; 27.1 percent of GDP; Year 2019; Reporting: Largely not reported, apart from NEPCO. - PPP-related liabilities: JD 6 358; 20.7 percent of GDP; Year 2020; Reporting: Not reported, but process in place to start doing so. - PPA commitments /3: JD 11 118; 36.2 percent of GDP; Year 2020-2040; Reporting: Not reported. - Local government debt: JD 526; 1.7 percent of GDP; Year 2019; Reporting: Reported. - Other risks — Natural disasters: JD 429; 1.4 percent of GDP; Year 2020-2050; Reporting: Not reported. - Source notes preserved in original. - PPPs and PPAs: - 47 large PPP/PPAs since 2003 concentrated in water, transport, and power. - Liabilities of largest PPP arrangements estimated at 21 percent of 2020 GDP. - Fiscal commitments to PPAs NPV of 36 percent of GDP over 2020-2045. - Public corporations (PCs) risks: - NFPC non-equity liabilities: 26.5 percent of GDP in 2019; about 70 percent belong to NEPCO. - NEPCO assets cover only 19 percent of liabilities (balance sheet insolvent). - In 2019 six out of the 10 largest NFPCs were either making losses or had debt-to-equity ratios exceeding one or negative net assets. - Government support to energy and water PCs reached 5.4 percent of GDP in 2014; decreased to around 1-2 percent of GDP in recent years. - Financial sector exposure: - Banking assets: 93.5 percent of financial assets in 2019; banking assets equal 162 percent of 2019 GDP. - Largest explicit fiscal risk: potential cost of reimbursing deposits = 22.5 percent of GDP in 2019 (JODIC). - SSIF invested over half of its resources in government bonds in 2019; JODIC must invest its funds (2.7 percent of 2019 GDP) entirely in government bonds. - Gross public debt: 89 percent of GDP in 2020 versus 78 percent of GDP in 2019. - Debt portfolio maturity: average maturity lengthened from 3.1 years in 2013 to 6.4 years in 2019. - Share of domestic debt: around 48 percent of total public debt. - Government loans include advances to NEPCO outstanding balance estimated at 16.5 percent of GDP in 2020. ### Reporting and management of fiscal risks — assessment and institutional reforms - Assessment: - Disclosure and analysis of macroeconomic risks: Not Met. - Disclosure and analysis of specific fiscal risks: Not Met in several areas. - Institutional developments: - New Macro-Fiscal Directorate (MFD) in MoF planned to gather data, build macroeconomic forecasting risk capability, and lead fiscal risk reporting. - FCU (Fiscal Commitments Unit) at MoF starting to gather PPP/FCU data. - 2020 PPP Law clarifies roles across PPP Unit (PMO), PIM Unit (MoPIC), and FCU (MoF) and mandates publication of non-security PPP contracts for new projects. - Budgetary contingencies: - Contingency allocations less than 1 percent of total expenditure; historical use averaged 0.6 percent of total expenditure 2011–2020. - No legal ceiling on contingency allocations; draft OBL limits reserve use to ‘unforeseen expenditures and contingencies’ but not defined in detail. ### Principal recommendations (selected and preserved numbering where provided) - Pillar I — Fiscal Reporting: - Improve presentation, classification, timeliness, and quality of fiscal reports for general government; implement roadmap in Box 1.2. - Harmonize fiscal reporting to ensure consistency between and within fiscal reports. - Expand identification and quantification of tax expenditures and publish estimates for the upcoming fiscal year with the budget documentation. - Adopt and implement pending legislation to enhance the independence of the Audit Bureau. - Undertake sectorization exercise aligned with GFSM standards and coordinate with Department of Statistics (MoPIC). - Start including debt arising from “securitization of arrears” in future reports (initially as a separate line). - Produce consolidated balance sheet for public sector/general government progressively. - Pillar II — Fiscal Forecasting and Budgeting: - Improve macro-fiscal forecasting credibility and build MoF capacity to prepare clear fiscal policy objectives and goals that anchor medium- and long-term fiscal planning (MFD). - Disclose more information on macroeconomic forecasts in budget documentation, including reconciliation with previous years' forecasts and benchmarking against independent forecasts. - Bring forward tabling of the budget to Parliament by one month to November 1st each year (GBD). - Complete reform of the National Registry of Investment Projects (NRIP) to identify, quantify, and regularly disclose commitments on multi-year investment projects. - Prepare written narrative and justification of projections in the MTBF and produce more realistic projections. - Pillar III — Fiscal Risks: - Assign responsibility for gathering data and reporting on fiscal risks to the new MFD in the MoF. - Develop MoF’s macroeconomic forecasting risk capability and publish sensitivity assessments of fiscal forecasts to key variables with the budget. - Complete efforts to create a comprehensive database of PPP risks (FCU) and generate progressively comprehensive PPP risk reports. - Strengthen MoF financial oversight of public corporations and publish a comprehensive annual report on companies' financial performance; operationalize a unit in MoF/GBD responsible for oversight of PCs. - Short term: generate basic fiscal risk reports using existing data; medium term: publish comprehensive fiscal risk statement. ### Potential near-term improvements in FTC ratings - Enacting pending legislation, implementing ongoing reforms (e.g., PPP measures), and reporting improvements could upgrade eight principles currently rated "Not Met" to "Basic" or "Good"; only five principles would remain "Not Met" after reforms. _Italic: Source: IMF staff evaluation and analysis (Fiscal Transparency Evaluation of Jordan), April 2021._ ### PREFACE____________________________________________________________________________________________________6 ### PREFACE ### Mission and scope - At the request of the Minister of Finance, H.E. Mohammad Al Ississ, an IMF mission undertook a remote Fiscal Transparency Evaluation (FTE) of Jordan between March 31 and April 26, 2021. - The evaluation is based on the IMF’s Fiscal Transparency Code (FTC). - The evaluation is based on information available at the time of the mission in April 2021. - The findings and recommendations of the report represent the views and advice of the IMF mission team and do not necessarily reflect those of the authorities. ### Mission team - Mr. Richard Allen (head) - Mr. Yugo Koshima (IMF Fiscal Affairs Department) - Ms. Nabila Akhazzan (IMF Statistics Department) - Mr. Julien Dubertret (short-term expert) - Mr. Bryn Welham (short-term expert) - Patrick Ryan (IMF Fiscal Affairs Department) provided valuable support in compiling data and cross-country comparisons. ### Meetings and principal counterparts - At the Ministry of Finance: - H.E. the Minister of Finance, Mohammad Al Ississ - Mr. Abdel Hakim Shibli, Secretary General - Mr. Majdi Al Shuriqi, Director General, General Budget Department - Ms. Hanadi Refaee, Director of Studies and Economic Policies - Mr. Ahmad Hmaidat, Director of Public Debt - Mr. Ahmad Annuz, Head of Statistics, Public Debt Department - Mr. Sulieman Al Zyoud, Director of the Treasury - Mr. Haytham Haliaqa, Director of Accounting - Mr. Osama Sulieman, Head of the FCU - Mr. Omar Asfour, Head of the Public Management Reform Unit - Mr. Wissam Al Rabadi, Advisor to the Minister - Mr. Kheiry Amr, CEO of the Government Investment Management Corporation - and other senior officials. - Outside the Ministry of Finance: - Mr. Nedal Al Azzam, Head of the Research Department, Central Bank of Jordan (CBJ), and meetings with the Bank’s Banking Supervision and Financial Stability Departments - Public Investment Management Unit at the Ministry of Planning and International Cooperation (MoPIC) - Head of the PPP Unit at the Prime Minister’s Office - Ministry of Water and the Water Authority of Jordan (WAJ) - Social Security Investment Fund (SSIF) - Audit Bureau (AB) of Jordan - Jordan Deposit Insurance Fund - Greater Amman Municipality (GAM), Amman Vision for Transport, and Amman Vision for Investment - Cities and Villages Development Bank (CVDB) - Ministry of Municipal Affairs - Ministry of Environment and the Jordan Environment Fund - Chair of the Parliament’s Economy and Investment Committee - Representatives of the United States Agency for International Development (USAID) and other development partners ### Notes on methodology and acknowledgements - The team conducted a remote FTE between March 31 and April 26, 2021, using information available in April 2021. - The team thanks the Jordanian authorities for excellent collaboration and frank, open exchanges. - Special thanks to Dr. Hanadi and Fadwa Al Draini in the Ministry of Finance, and to Kareem Ismail and Sana Almunizel of the IMF’s Resident Representative’s Office in Jordan for support in arranging meetings and responding to requests for documents. - Thanks to interpreters Basma Al Far and Issa Zayed for interpretation support. *Source: PREFACE (Fiscal Transparency Evaluation of Jordan), April 2021.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overview and overall assessment - Jordan has a comprehensive legal framework for the management of public finances and has improved fiscal reporting frequency and timeliness. - In the 2019 Open Budget Survey, Jordan scored above the global average for transparency and is the only country in the region ranked overall as "green". - Against the IMF’s Fiscal Transparency Code (36 principles), Jordan: - Meets the basic standard of practice on 15 out of the 36 principles. - Meets good practice on 7 principles. - Meets advanced practice on 3 principles. - Performance is generally stronger on Pillar I (Fiscal Reporting) than on Pillar II (Forecasting and Budgeting) and Pillar III (Fiscal Risk Analysis and Management). - The evaluation does not cover Pillar IV (management of natural resources), which is a relatively small sector in Jordan. ### Key findings: fiscal reporting, coverage, and quality - Fiscal reports are published but are fragmented and based on different standards; reports differ in institutional coverage, flows and stocks, and basis of accounting. There is no single report providing a comprehensive, consolidated view of public sector finances. - Fiscal reports cover 88 percent of general government activity in terms of flows, but major gaps exist in the coverage of the stock of government assets and liabilities. Jordan does not produce a consolidated balance sheet for the public sector nor for the general government. - Fiscal reports are compiled on a cash basis and: - Cover most revenue, expenditure, and financing items. - Do not capture flows that pass through off-budget accounts. - Do not fully cover available information on accrued revenues and expenditures. - Limited information is published on tax expenditure, which represents 10 percent of GDP, and two-thirds of tax revenue. - Macroeconomic forecasts show a substantial optimistic bias, with an average deviation of 35 percent in GDP forecasts since 2007, producing large errors in revenue projections underpinning the budget. - Budget documentation includes only limited information on the macroeconomic assumptions used in preparing the annual budget and the MTBF. Forecasts are not independently evaluated by individuals or entities outside the government. - No analysis in the budget examines how fiscal outcomes might be affected by different macroeconomic scenarios. - Jordan’s total gross exposure of government to a range of identified fiscal risks is estimated at over 120 percent of 2020 GDP, but government reporting and disclosure of these risks is limited. - Jordan faces additional fiscal risks from long-term pressures on health and pensions spending estimated at 127 percent of GDP, but there is no publicly disclosed analysis of long-term fiscal sustainability. - Specific fiscal risks with limited reporting include: government guarantees, PPPs, natural resources (potash and phosphate mining), the environment and natural disasters, subnational governments, and public corporations. - Non-financial public corporations (NFPCs) are a substantial area of risk: in 2019 six out of the 10 largest NFPCs, including the two energy and three water companies, were either making losses or carrying high liabilities with debt-to-equity ratios exceeding one or negative net assets. ### Public sector financial overview (2019, percent of GDP) - Consolidated public sector expenditure: 48 percent of GDP. - Public sector asset holdings: around 152 percent of GDP. - Public sector liabilities: around 159 percent of GDP. - Public sector net worth: minus 6 percent of GDP. - Note: While the public sector deficit and net worth do not differ significantly from central government aggregates, overall public sector activities, gross assets, and liabilities are considerably larger. ### Institutional production of fiscal reports (summary) - Main published fiscal reports and producers: - General Government Finance Bulletin (GGFB) — MoF/SEPD: monthly; cash basis; GFSM2001; not consolidated for all subsectors with timely annual data for other subsectors lagging. - Quarterly and mid-year budget execution reports — GBD (joint with MoF): quarterly/semiannual; cash basis; national classification. - Public Debt Quarterly Report — MoF/PDD: quarterly; cash basis; national classification. - Final accounts and IPSAS Annual Financial Statements — MoF/AD, audited by the Audit Bureau of Jordan (AB): annual; cash basis; national classification. - Government Financial Statistics (GFSY) — MoF/SEPD & AD: annual; cash basis; GFSM2001/2014; published with a 6-month lag. ### Recommended reforms (12 key recommendations; summarized by pillar) Pillar I: Fiscal Reporting - Improve presentation, classification, timeliness, and quality of fiscal reports for the general government sector; a roadmap is provided in the report (Box 1.2). - Harmonize fiscal reporting to ensure consistency between and within fiscal reports. - Expand identification and quantification of tax expenditures and publish estimates for the upcoming fiscal year with the budget documentation. - Adopt and implement pending legislation to enhance the independence of the Audit Bureau. Pillar II: Fiscal Forecasting and Budgeting - Improve macro-fiscal forecasting credibility and build MoF capacity to prepare clear fiscal policy objectives and goals that anchor medium- and long-term fiscal planning. - Disclose more information on macroeconomic forecasts in the budget documentation, including a reconciliation with previous years' forecasts, and benchmark these forecasts against independent forecasts. - Bring forward the tabling of the budget to Parliament by one month to November 1st each year. - Complete reform of the National Registry of Investment Projects (NRIP) to identify, quantify, and regularly disclose commitments on multi-year investment projects. Pillar III: Fiscal Risks - Assign responsibility for gathering data and reporting on fiscal risks to the new Macro-Fiscal Directorate (MFD) in the MoF to improve overall management of fiscal risks. - Develop the MoF’s macroeconomic forecasting risk capability and publish with the budget assessments of the sensitivity of fiscal forecasts to key economic variables. - Complete efforts to create a comprehensive database of PPP risks and generate progressively more comprehensive PPP risk reports in line with recent Cabinet responsibilities. - Strengthen MoF financial oversight of public corporations and publish a comprehensive annual report on companies' financial performance. ### Potential near-term improvements in FTC ratings - Early improvements are feasible by enacting pending legislation, implementing changes already in process (e.g., on PPPs), and straightforward reporting improvements (e.g., on macroeconomic forecasts). - Through such changes, eight of the principles currently rated as "Not Met" could be upgraded to "Basic" or "Good"; only five principles would remain "Not Met" after reforms. ### Structure of the full report - Chapter I: Coverage, timeliness, quality, and integrity of fiscal reporting. - Chapter II: Comprehensiveness, orderliness, policy orientation, and credibility of fiscal forecasting and budgeting. - Chapter III: Arrangements for disclosure and management of fiscal risks. *Source: IMF staff evaluation (EXECUTIVE SUMMARY).* ### 6. Jordan’s public sector comprises 275 institutional units of various legal forms. ### 6. Jordan’s public sector comprises 275 institutional units of various legal forms. ### Public sector structure and subsectors - Total institutional units: 275. - Subsector breakdown: - Central government: - Includes 105 entities (83 included in the general budget law and 22 EBUs included in the Government Units’ Budget Law). - MoF concern: some agencies currently included as central government units may not be appropriately categorized according to international statistical standards (GFSM). - Recommendation: undertake a sectorization exercise aligned with GFSM standards and coordinate with the Department of Statistics (within MoPIC). - Local governments: - Comprises 100 municipalities and the Greater Amman Municipality (GAM). - GAM accounts for 52 percent of total local government revenue and 48 percent of their total expenditures. - Ministry of Municipalities compiles fiscal operations for all 100 municipalities (except GAM, which reports to the Prime Minister). - Cities and Villages Development Bank (CVDB) compiles extensive municipal fiscal data and provides source data to the MoF for adjustment into GFSM format. - Social security funds: - Made up of two main agencies: Social Security Corporation (SSC) and Civil Health Insurance Fund (CHIF). - SSC focuses on pensions and insurance payments; manages unemployment fund and maternity fund (small compared to pension scheme). - CHIF operates a health insurance scheme for civil servants and other segments; CHIF currently considered part of extrabudgetary unit subsector. - SSC produces comprehensive financial information consolidated with Social Security Investment Fund (SSIF) quarterly; legal/regulatory constraints may limit broader data release. - Recommendation: MoF staff develop a framework for data sharing, potentially explicit in legislation pertaining to GFS compilation. - Public corporations (PCs): - 67 entities classified as PCs. - Government has majority participation in less than half. - Major PCs provide water, electricity, oil and gas, and transportation. - 52 nonfinancial public corporations (NFPCs) and 15 financial public corporations (FPCs). ### Public sector expenditures (2019) - Jordan’s total public sector expenditures estimated at around 48 percent of GDP in 2019. - General government expenditure: 35.8 percent of GDP (consolidated). - Over 85 percent flows through central government; remainder through sub-national governments and social security funds. - General government capital expenditures: 3.3 percent of GDP. - Public corporations’ expenditure: 12.3 of GDP, about 94 percent spent by NFPCs. - Coverage notes: - No single report provides complete coverage of public sector activity. - Annual consolidated financial reports cover over 88 percent of all EBUs and PCs. - Ten public universities are excluded from general government sector and account for around 5 percent of general government expenditures. - Government Units Budget Law covers several financial and nonfinancial public corporations. ### Coverage of stocks and balance sheet gaps - Jordan does not produce a consolidated balance sheet for the public sector or general government. - Fiscal reports cover two debt instruments on liabilities side and deposits on financial assets side; monthly GGFB and quarterly debt report include loans, debt securities, central government deposits, and government guaranteed debt but exclude other instruments. - Major gaps in stock coverage and specific estimates: - Deposits in trusts: JD 904.5 million, equivalent to 2.9 percent of GDP (end-2019). - Other accounts payable (arrears): around 2.2 percent of GDP in 2019, mainly in health and energy sectors. - Non-traditional debt instruments (“securitized arrears”): - At end-2020, amounted to 2.5 percent of GDP. - In 2021, MOF considering issuance of JD100 million in “comfort letters” to securitize health and energy arrears. - Authorities plan to start including securitized arrears (initially as a separate line) in future reports. - Accounts payable by the public sector: 17.3 percent of GDP in 2019; largest share attributable to NFPCs (12.2 percent of GDP), of which NEPCO accounts for 10 percent. - Pension liabilities: not reported; mission estimates public service pensions at 50.4 percent of GDP in 2019. SSC sustainability report indicates deficit by 2041 and inability to pay accrued benefits by 2051. - Nonfinancial assets: - Total nonfinancial assets reported in financial statements of some EBUs and the SSC: 23.1 percent of GDP in 2019. - IMF FAD estimates total government stock of nonfinancial assets around 87 percent of GDP. - World Bank estimate: Jordan’s natural resource wealth around 32 percent of GDP (predominantly phosphate reserves). - Assets and liabilities of public corporations: - No consolidated statement for all companies. - Based on 12 largest NFPCs: total assets 18.7 percent of GDP and outstanding liabilities (other than equity) 26.5 percent of GDP by end-2019. - Consolidated public sector balance sheet summary (2019, percent of GDP): - Nonfinancial assets: about 98.3 percent of GDP (concentrated in local and central government: 27.7 percent of GDP attributed to central government sector, 54.6 percent of GDP to local governments, remainder to PCs). - Financial assets: 54 percent of GDP on a consolidated basis (general government owns about 30.1 percent; PCs own 54.8 before consolidation). - Liabilities: 158.6 percent of GDP on a consolidated basis. - Major reported instruments: debt securities 37.4 percent of GDP, loans 9.7 percent of GDP, payables 17.3 percent of GDP. - Public service pensions: estimated at 50.4 percent of GDP. - Net worth (public sector consolidated): negative on a subsector table, aggregated public sector net worth shown as -6.3 percent of GDP in table summary. ### Coverage of flows and reporting practices - Fiscal reports compiled on a cash basis; cover most revenue, expenditure, and financing items but do not capture flows passing through off-budget accounts. - Monthly fiscal reports of budgetary central government provide cash receipts and payments detail; annual financial statements of local governments, EBUs, SSC, and PCs include cash flow and comprehensive income statements. - No single consolidated document of all cash movements exists. - Fiscal reporting does not capture accrued revenues and expenditures; reporting on accruals and other economic flows is limited. - Lack of accrual recording implies non-cash flows are not recorded (important weakness: spending arrears rising). - Reporting of other economic flows limited to exchange rate impact on external debt. - Exchange rate effects reached 0.7 percent of GDP in 2020, mostly driven by increased share of debt denominated in Euros. ### Tax expenditures - Identified tax expenditures quantified at about 10 percent of GDP in 2018 (slight decline since 2014). - This level is equivalent to around two-thirds of total tax revenues. - Jordan’s tax expenditures as a percent of GDP are high compared to other countries. - No legal or policy cap or limit on total tax expenditures; no general policy governing circumstances/criteria under which they should be granted. ### Key recommendations and actions noted - Undertake a sectorization exercise aligned with GFSM standards to correctly define composition of general government and classification of public sector units; coordinate with Department of Statistics (within MoPIC). - Formalize a comprehensive list of general government and public sector units as defined by international standards to finalize consolidation work. - Develop an appropriate framework for data sharing with SSC (potentially explicit in legislation for GFS compilation). - Start including debt arising from “securitization of arrears” in future reports (initially as a separate line). - Improve coverage of stock positions (nonfinancial assets, pension liabilities, deposit liabilities, other payables) and produce consolidated balance sheet for public sector/general government. _Italic: Source: IMF staff estimates and analysis as presented in the chapter._ ### 19. Tax expenditure information is detailed, but the current scope of reporting is ### 19. Tax expenditure information is detailed, but the current scope of reporting is incomplete. ### Tax expenditure reporting: findings and analysis - Since 2016, the main tables of the budget have contained information on the cost of exemptions and reductions against the major direct and indirect taxes. - Estimates are presented for each tax using the “legal/regulatory” approach where estimates of loss are calculated against the country’s own tax code as a benchmark. - The government intends to streamline tax incentives and has submitted to the legislature amendments to the 2014 Investment Law that will remove all articles related to preferential tax incentives. - The IMF is providing technical assistance to support the comprehensive identification of tax expenditures; the results will feed into a revenue mobilization plan expected later this year. - The usefulness of existing analysis would be improved by including a forward estimate of tax expenditures for the coming fiscal year in the proposed budget; suggested initial method: simple extrapolation of expected growth in each tax area and apply to the value of associated tax expenditure. - The forecast should break down summary information to show tax expenditures by specific policy area (e.g., the tax expenditures supporting the special and economic development zones) and by specific sector. - The budget law currently before the legislature includes a requirement that tax expenditures be incorporated into the budget as estimated expenditures. ### Frequency and timeliness of fiscal reporting - Monthly GGFB provides detailed and timely picture of fiscal developments including budget execution over the previous year and evolution of main fiscal aggregates. - Cash-based fiscal reports cover collection of central government revenues, budget execution, and debt; published within 20 days of the end of month. - More detailed quarterly execution reports are published within one quarter and provide expenditure outturns by administrative, functional, program, and economic classification. - Government Financial Management Information Systems (GFMIS) Directorate developed a Dashboard informing senior staff about daily fiscal developments. - The GFMIS is currently rolled out to 67 budgetary units; data for other units (a small portion of total expenditure) is collected and uploaded manually. - Starting in 2018, financial data on EBUs is available through the Government Units (GUs) Portal; the latest final accounts of EBUs were published 2018. - In-year reports for entities outside the budgetary central government have not yet been published. - A General Government (GG) Portal project progressed through conceptual phases (supported by USAID and Deloitte) including data collection templates and bridge tables to GFSM; no further progress since September 2020. - End-year monthly reports (December) suffer from a lag compared to other months. ### Timeliness of annual financial statements - Annual final accounts and cash based IPSAS financial statements for budgetary units are usually published by June the following year. - The AD published the annual accounts for 2020 in March 2021. - Final accounts together with the cash based IPSAS financial statements are submitted each year to the AB for audit. - Final accounts for other units of general government are produced and audited, but not consolidated; AD compiles final accounts of EBUs following same presentation and level of detail as the general budget; SSC and GAM produce their own financial statements; aggregated financial position of all municipalities prepared by the Ministry of Municipal Affairs. ### Quality and classification of fiscal reports - Economic classification of revenue and expenditure is broadly consistent with the GFSM 2001/2014 reporting framework; budget nomenclature fully mapped to this framework. - The fiscal tables in the MoF’s Monthly GGFB have analytical shortcomings that hamper country comparability (e.g., current expenditure by the military is not detailed according to economic classification). - Example quantitative discrepancy: the wage bill in Jordan is approximately 50 percent of total current expenditures, whereas fiscal reports only identify around 20 percent in this spending category on the grounds that military spending is excluded. - Functional classification is well-advanced: budget documents and monthly bulletin present outlays by function according to COFOG for central government expenditures; spending also presented by program and subprogram in budget execution reports. ### Internal consistency and stock-flow reconciliation - The FTC requires fiscal reports be reconciled against three summary fiscal aggregates: (i) fiscal balance and financing (above and below the line consistency); (ii) debt issued and debt holdings (flows and stocks consistency); and (iii) financing and changes in the debt stock. - Current practices create inconsistencies that hamper data reconciliation: several summary tables show only revenue, expenditure, and the deficit with no information on corresponding transactions in financial assets and liabilities. - Large and persistent discrepancy exists between net lending/borrowing (above the line) and net financing (below the line); work in progress to address this shortcoming, and forthcoming GGFB (data for January 2021) would include the net financing component. - Jordan’s stock-flow adjustments need further reconciliation; Figure 1.9 shows large discrepancies between changes in government debt and net lending/borrowing that need to be explained and disclosed. - Discrepancies mainly due to below-the-line transactions identified from various reports. - Exchange rate changes affect value of debt denominated in foreign currencies; impact limited to an average of 0.5 percent of GDP over the last 5 years. - The GGFB only provides one table (Table 64) that combines annual data on revenue and expenditure with data on financial transactions and corresponding balancing items; this table could be a starting point to align other GGFB tables with international standard. ### Historical revisions and data reliability - Jordan adopted a revised statistical methodology for central government debt presented excluding the SSIF holding of government debt; this revision resulted in a reduction of the ratio of central government debt by around 18 percent of GDP. - The change of methodology was announced by the Minister of Finance and historical data back to 2016 has been included in the GGFB. - Ex-post revisions of fiscal data are not significant in Jordan; delays in December GGFB publication stem from time needed to prepare final accounts. - There is a need to prepare and publish more comprehensive analysis of revisions to fiscal statistics on a regular basis. ### Integrity, audit, and comparability - Fiscal statistics compiled by the SEPD in the MoF and disseminated in accordance with the IMF’s SDDS; national data summary page includes detailed metadata explaining roles and responsibilities and list of fiscal reports published. - Recommendations to strengthen institutional/legal framework: (i) enshrine MoF’s responsibilities in legal text giving GFS compilers authority to collect information and coordinate statistical work; (ii) establish a dedicated GFS Committee to ensure efficient flow of information and common classification of public sector units. - The Audit Bureau (AB) is constitutionally mandated to audit public sector institutions; its audits covered an estimated 97 percent of total general government expenditure (JD 12 523 million) in 2020. - Article 119 of the Constitution establishes an independent Audit Bureau and its Head; Article 22 of the law requires the AB to provide the legislature an analysis of the government’s final accounts each year. - The AB can inspect all public sector institutions and deliver financial, compliance, and performance audits; it has withdrawn from former pre-audit control function within central government ministries but continues this role for local government units and the SSIF. - The AB is a member of INTOSAI and has audited IPSAS cash-based compliant financial statements since 2016. - Current limitations on AB independence: President of AB can be removed by Council of Ministers without approval from legislature if National Assembly not in session; AB’s budget is prepared by the Bureau but included in General Budget Law and considered part of general budget process; AB reports its budget is insufficient. - Legislation currently before the legislature would strengthen AB’s independence by restricting government’s ability to remove the AB’s President without approval by the legislature. - The AB’s annual report provides detailed analysis of consolidated accounts and individual entities focusing on compliance issues and recommendations; however, it does not include a clear audit opinion on the accounts as required by INTOSAI—this opinion is provided in a transmittal letter from the AB to the MoF that accompanies the annual report and is published on the MoF website. - Final accounts are presented on same basis as General Budget Law and Government Units Budget Law, allowing reconciliation of budget revenue and expenditure. - The final accounts document for 2020 was published in February 2021; final accounts for Government Units are published with substantial delay (latest available document for GBUs is for 2018). - The final accounts on the General Budget take the form of a 700-page document with revenues by main head; current and capital expenditures by chapter and program, by economic category and by function. - The social security sector contributed a large surplus of 3.5 percent of GDP in 2019, improving the consolidated general government fiscal balance and counterbalancing deficits of central and local governments. *Source: IMF staff report excerpt (1jorea2021003 - 19. Tax expenditure information is detailed, but the current scope of reporting is incomplete).* ### 42. Based on the above assessment, the mission highlights the following priorities for ### 1jorea2021003 - 42. Based on the above assessment, the mission highlights the following priorities for ### Priorities for improving transparency of fiscal reporting - Roadmap: Box 1.2 (referenced) shows a possible roadmap in four stages for the MoF to align the reporting of general government statistics with international standards. The new MFD in the MoF could take the lead in implementing the roadmap in collaboration with other departments of the MoF and other government agencies. - Key short- and medium-term recommendations (Recommendation numbers as in source): - Recommendation 1.1. Enhance presentation and quality of fiscal reports (MoF): - Short term: - Review the classification of the general government and public sector units according to international statistical standards. - Supply further detail of government transactions by economic nature (e.g., military expenditures). - Improve the timeliness of fiscal reporting by other government units. - Medium term: - Undertake an audit of expenditure arrears and prepare an arrears management strategy. - Progressively prepare general government and public sector balance sheets starting with financial data. - Recommendation 1.2. Harmonize fiscal reporting to ensure consistency between and within fiscal reports (MoF): - Short term: Publish reconciliation statements of the differences between the fiscal aggregates published in various fiscal reports to allow reconciliation between the above and below the line transactions, and between stocks and flows. - Recommendation 1.3. Disclose more information on tax expenditures (MoF): - Short term: Include an estimate of tax expenditures in budget documentation for 2022. - Medium term: Further expand the identification and quantification of tax expenditures. - Recommendation 1.4. Strengthen External Audit (National Assembly and AB): - Short term: Adopt and implement pending legislation to enhance the independence of the Audit Bureau. ### Extracts of financing table (exact presentation from source) - In JD billion - ForecastExecution - Domestic loans3,573,86 - Foreign loans2,343,17 - Total5,917,04 - ForecastExecution - Deficit financing1,052,18 - Amortization of € and $ bonds1,171,17 - Amortization of domestic debt2,632,59 - Repayment of due foreign loan instalments0,520,77 - Other0,550,00 - Total5,916,71 - Balance - 0,000,33 - Sources - Uses ### Summary Evaluation: Fiscal Reporting — key findings from Table 1.4 - Coverage of Institutions (Principle 1.1.1) - Assessment: Good: A consolidated GFS report for general government (GG) is published, covering 88 per cent of EBUs and PCs but excluding public universities. Classification of GG units is not fully aligned with international standards. - Importance: High: The sector classification of institutional units in fiscal reports does not follow international standards. There is no comprehensive overview of the fiscal activities of the public sector and its subsectors. - Coverage of Stocks (1.1.2) - Assessment: Basic: Fiscal reports cover main debt instruments and cash and deposits as a financial asset. Nonfinancial assets and public service pensions are not reported. - Importance: High: Unreported public sector liabilities could increase debt and negatively affect fiscal sustainability. No estimates are made of Jordan’s overall net worth. Public sector’s stock of payables (arrears) is huge - 17.3 per cent of GDP in 2019. - Coverage of Flows (1.1.3) - Assessment: Basic: Fiscal reports are prepared on a cash basis and include revenue, expenditures, and financing operations for the central and GG subsectors (except public universities). - Importance: High: Monthly fiscal reports only cover 51 per cent of the total public sector revenues and 58 per cent of total expenditures. - Coverage of Tax Expenditures (1.1.4) - Assessment: Not met: Data on tax expenditures are published as part of the budget but estimates are two years in arrears; there is no published information on tax expenditures for the coming budget year. - Importance: Medium: Tax expenditures represented 10 per cent of GDP in 2018, two-thirds of total tax revenue. Work is in hand to publish more timely and complete data. - Frequency of In-Year Reporting (1.2.1) - Assessment: Advanced: Fiscal reports for BCG are prepared and published monthly and within one month, compliant with SDDS requirements. - Importance: High: Consolidated fiscal reports for GG are published with a long lag. Government units can share monthly data on revenues and expenditures through an interface with the MoF’s IT system. - Timeliness of Annual Financial Statements (1.2.2) - Assessment: Advanced: Final accounts are prepared and shared with the Audit Bureau within 3-4 months after the end of the year. - Importance: Medium: Final accounts of EBUs are produced with a long lag and are not consolidated. - Classification (1.3.1) - Assessment: Basic: Budget documents include an economic and functional classification of central government, which is broadly consistent with the GFSM 2014 framework, but more detail should be included in budget execution reports. - Importance: High: Military expenditures represented 32.7 percent of total expenditures in 2020 but no breakdown by economic categories is reported in the fiscal reports. - Internal Consistency (1.3.2) - Assessment: Not met: Fiscal reports do not show a reconciliation between the fiscal deficit and its financing. - Importance: High: Large deviations between above and below the line transactions, averaging 2.1 percent of GDP. - Historical Revisions (1.3.3) - Assessment: Basic: Fiscal statistics are not revised. Users have been informed of a recent methodological change to central government debt statistics. - Importance: Medium: A methodological change of the debt ratio calculation revised the estimated level of overall debt by 18.2 percent; no other reported revisions to historical data. - Statistical Integrity (1.4.1) - Assessment: Good: Fiscal statistics are compiled by a specific government unit and disseminated in accordance with international standards (GFSM 2001). - Importance: Medium: There is no independent verification of fiscal statistics. - External Audit (1.4.2) - Assessment: Basic: The AB publishes an audit report and audit opinion on the government's annual financial statements, but the Bureau is not fully independent. - Importance: High: Independent audit is critical to effective fiscal management; passing legislation currently before the legislature would ensure greater independence of the AB. - Comparability of Fiscal Data (1.4.3) - Assessment: Good: Final accounts are presented in the same manner as the approved budget. - Importance: Low: Reconciliation between budget outturns and fiscal statistics is desirable to enhance the quality of fiscal reports. ### Box 1.1 — A Roadmap for Improving the Reporting of General Government Fiscal Data (GFSM 2014 four stages) - GFSM 2014 compilation process: four main stages: 1. defining the scope and coverage of the general government sector and its subsectors, primarily by applying the concept of control and the market test; 2. selecting appropriate primary data sources for the units and entities covered; 3. preparing for compiling GFS through analyzing the source data to identify any adjustments to meet the GFSM methodology (e.g., bridge tables, derivation, classification); and 4. intra- and inter-sector consolidation. - Step 1: Prepare an exhaustive list of institutional units that distinguishes between the general government sector and the rest of the public sector (i.e., differentiates between market and nonmarket producers). Best practices recommend that, to be considered a public corporation, the company’s total revenue from the sale of goods and services should cover at least 50 percent of its production cost over a sustained period. - Example: NEPCO’s financial statements for 2019 suggest that this ratio exceeds the threshold and that the company should be reclassified as a nonfinancial public corporation. For WAJ, the ratio is much lower than 50 percent indicating that the company should remain classified as an EBU within the general government sector. - Recommendation: Share classification outcomes with MoPIC and the CBJ for consistency and harmonization across macroeconomic datasets. Given the relatively small number of institutional units in Jordan, focusing on borderline cases could be achieved and fall under the responsibility of the newly created MFD. - Step 2: Select appropriate primary data sources for each unit/entity that provide sufficient detail on stocks and flows and are available regularly and timely. Common sources: accounting records, financial statements, budget execution reports. Data sharing protocols and IT solutions (GU portal or GG portal) would help the compilation process. - Step 3: Make adjustments to source data to ensure consistency and comparability across subsectors (accounting rules, classification, valuation). Source data for GFS can include nonmonetary transactions (in kind), imputed transactions, arrears, and accrual adjustments. Several bridge tables have been developed in the context of the GG Portal to map existing source data to the GFSM presentation. - Step 4: Compile GFS statistics for each subsector and consolidate across units, eliminating transactions and reciprocal stock positions among entities to avoid double counting (e.g., loans and advances from the MoF to NEPCO or WAJ measured gross then netted out). - Source attribution in Box: Source. IMF staff. ### Fiscal forecasting and budgeting — selected findings (Sections II and 2.1) - Budgets should: - Set out credible projections of macroeconomic developments. - Provide comprehensive information on fiscal objectives and budgetary plans to facilitate policy analysis and strengthen accountability. - Give the legislature enough time to scrutinize and approve plans before the budget year begins. - Institutional and legal context: - Jordan is issuing a new OBL to replace the 2008 legislation with provisions including wider legal definitions and budget principles (Articles 2 and 3), clarification of program-performance budgeting (Article 2), clarification on content of the budget, the MTFF and the MTEF (Articles 11 and 12), more precise description of reporting obligations (Articles 23, 24 and 25), milestones in the budget preparation calendar (Article 5 and annex table), consolidation of the roles and powers of the MoF and GBD (Articles 4, 6, 7 and 17), consolidation of the role of MoPIC (Article 8), and codification of some rules governing transfers (Article18). - The new OBL codifies current practices, consolidates MoF’s role, and promotes improvements in transparency on macroeconomic and fiscal forecasts. - Comprehensiveness (2.1.1 Budget Unity — Good): - The annual budget covers around 100 institutions; coverage for 2020: expenditure and revenue approved in the budget accounted for 99 percent and 97 percent respectively of what is forecast for general government under the EFF program. - Classification inconsistencies: Many NFPCs are included as government units in the budget; other corporations (e.g., NEPCO and WAJ) are considered EBUs. Public universities are not included as separate entities though they account for 4.8 percent of the 2020 budget and are audited by the AB as public sector units; they should be classified as EBUs in budget documents to align with international standards. - SSC inclusion: The SSC comprises 18 percent of estimated revenues and 11 percent of estimated expenditures for general government in 2020; including the SSC within the budget would present a more comprehensive view. - Macroeconomic Forecasts (2.1.2 — Not Met): - Budget documentation contains no information on the macroeconomic assumptions used for the annual budget and the MTBF. - Partial information exists (GDP growth and inflation in recent budget speeches; some variables in the Finance Committee report) but does not constitute a full presentation. - Biases in GDP growth forecasts: On average, over the 2007-2019 period, the GDP growth rate for the budget year was overestimated by 1.7 percentage points, a 35 percent deviation from the outturn. Over the 2015-2019 period, the deviation reached 1.9 percentage points and 45 percent respectively. *Source. IMF staff.* ### 0.7 and 1.5 percentage points of GDP respectively. ### 1jorea2021003 - 0.7 and 1.5 percentage points of GDP respectively. ### Forecasting errors and transparency - Forecasting errors for real GDP growth are documented for 2007-2019 (Figure 2.0). - Recommendation: Include an annex to the draft budget presenting key macroeconomic variables to improve transparency and curb observed bias. - Publish annually alongside the budget. - Annex should include a table disclosing macroeconomic assumptions, a discussion of economic developments over the past year, and comparison/consistency with forecasts by other institutions (for example, the CBJ or independent research institutes). - Later refinements could show the impact of alternative macroeconomic scenarios on the budget (see Section 3.1.1). ### Medium-Term Budget Framework (MTBF) — assessment and deficiencies - Current status: MTBF is presented in main tables annexed to the General Budget Law covering a five-year period with outturns for two preceding years, forecast for the budget year, and indicative projections for two years following the budget. - MTBF includes: - A summary presentation of revenues, expenditures, the budget balance, and financing of the budget. - Detailed tables of different heads of tax and non-tax revenues. - Detailed tables presenting expenditures (recurrent and capital), by chapter (ministry/entity) and by economic category. - Government Units Budget Law contains an adapted MTBF presenting expenditures by unit and economic category; indicative numbers for the year after the budget year are used to launch the following year’s budget discussions. - Shortcomings: - MTBF lacks an explanation of content, methodology and key underlying assumptions. - Forecasts exhibit a systematic and major optimistic bias: revenue and budget balance forecasts over the 2013-2023 period have been persistently overestimated (Figures 2.1 and 2.2). - Growth assumptions are partly responsible for the bias (see Section 2.1.2); second- and third-year growth assumptions are not disclosed in budget documentation. - Expenditure forecasts are similarly overestimated (Figure 2.3), partly due to optimistic revenue bias and overestimation of execution of capital expenditure projects (see Section 2.1.4). - These biases reduce the MTBF’s operational role in setting fiscal policy goals despite formal features that could qualify as “advanced” practice under the Fiscal Transparency Code. - Recommendations: - Develop a written narrative and justification of projections in the MTBF. - Produce more realistic projections that reflect drivers of revenue and expenditure and the reality of the budgetary constraint to restore operational value and improve transparency. ### Investment projects and public investment management (Basic) - Findings: - Significant limitations remain in procedures and transparency of published information on public investment. - No disclosure of the government’s total obligations under multi-annual investment projects. - Exceptions to public procurement tendering procedures defined in law are frequent. - Cost-benefit analysis of infrastructure projects is improving but not yet systematically applied. - For the last 15 years, Jordan’s public infrastructure investment relative to GDP has followed a declining path; in contrast, most comparator countries have, on average, maintained their public investment (Figure 2.4). In absolute terms, public investment in Jordan has declined over time. - The systematic deviation between ambitious forecasts and stable or declining outturns points to structural deficiencies in capital expenditure management (Figure 2.5) as evidenced in the IMF’s 2017 PIMA evaluation and 2018 follow-up. - Reforms under way: - A PIM unit was set up in 2020 in MoPIC; its mandate to coordinate PIM reform agenda should soon be confirmed. - Two guidelines for improved project appraisal and selection prepared and published in 2020 are being implemented, covering: - Preparation of project concept notes and preliminary screening for all projects. - Implementation of feasibility studies for larger infrastructure projects (above JD 10 million). - Setting up of a National Registry of Investment Projects (NRIP) to: - Identify and review all ongoing projects and terminate dormant or low-value projects. - Ensure follow-up and implementation of government commitments on multi-year investment projects. - Procurement transparency: - About 40 percent of tenders do not follow the common process set up by the General Procurement Department and are subject to specific procedures that negatively affect transparency and efficiency of competitive bidding. ### Orderliness and fiscal legislation - Constitutional and legal framework: - The Constitution (Chapter 7) and the OBL establish core rules for the budget process but do not specify a compulsory deadline for Parliament’s approval. - Article 112 of the Constitution precisely defines legislature’s powers to amend the budget: - Paragraph (iv): legislature may decrease expenditures only, no increase allowed. - Paragraph (v): deals with amendments on taxes (no increase or reduction). - Paragraph (ii): specifies separate vote for each chapter. - Article 8 of the 2008 OBL defines required contents of the executive’s budget proposal but has restricted scope and results in virtually no narrative discussion or explanations. - Articles 11 and 12 of the new OBL demand presentation of overall macroeconomic and fiscal policy and should be considered as basis for expanded narrative. - Timing and deadlines: - Neither the Constitution nor the OBL set a deadline for approval of the budget by Parliament. Constitution requires draft to be tabled at least one month before the beginning of each financial year (Article 112 (i)) and provides for ‘provisional twelfths’ if enactment is delayed (Article 113). - The revised OBL before the National Assembly sets a detailed timetable but does not establish a closing date for the vote by the legislature; provisional twelfth rule is a workaround but not equivalent to a constitutional mechanism for timely vote and enactment. - Records show a limited but persistent delay in publication, with most budgets published at the end of January or early February (see Section 2.2.2). - Recommendation: - While constitutional amendment to require timely approval is long-term and challenging, short- to medium-term measures could include bringing forward the date on which the draft General Budget Law is tabled in the National Assembly (the Constitution does not forbid earlier tabling). ### Timeliness of budget documentation (Basic) - Performance over 2017-2021: - The draft General Budget Law and Government Units Budget Law were submitted to Parliament at least one month before the end of the financial year during 2017-2021, meeting constitutional requirements. - Over 2017-2020, the voted budget was published about a month after the beginning of the financial year. - In 2021, publication of the budget took place two and a half months after the beginning of the financial year; COVID-19 exceptional circumstances contributed to this decline in timeliness. - Recommendation: - A one-month advance to tabling the budget to Parliament on 1st November would provide the legislature a realistic two-month period to approve the budget, aligning more closely with practice in other countries. - Table of key dates (selected): - 2021 Budget: Draft published/submitted 30/11/2020; Laws approved by legislature 28/02/2021; Royal Decree 15/03/2021; Published 16/03/2021. - 2020 Budget: Draft 28/11/2019; Legislature 22/01/2020; Royal Decree 02/02/2020; Published 03/02/2020. - 2019 Budget: Draft 29/11/2018; Legislature 20/01/2019; Royal Decree 24/01/2019; Published 27/01/2019. - 2018 Budget: Draft 20/11/2017; Legislature 15/01/2018; Royal Decree 15/01/2018; Published 17/01/2018. - 2017 Budget: Draft 23/11/2016; Legislature 24/01/2017; Royal Decree 25/01/2017; Published 05/02/2017. ### Policy orientation and fiscal objectives - Fiscal policy objectives: - Government outlines fiscal policy objectives primarily through Jordan’s EFF program with the IMF via the Memorandum of Economic and Financial Policies and numerical/time-bound targets in the EFF. - Medium-term fiscal projections are discussed and agreed with authorities; reporting on achievement delivered through six-monthly program review cycle. - Annual budget documents include medium-term projections for revenues and expenditures, the overall deficit, and financing sources consistent with program objectives, and provisional ceilings for two years beyond the budget year. - Budget speech contains some narrative discussion of current fiscal situation and government expectations. - Institutional improvements: - 2020 OBL before Parliament re-commits government to publishing an MTFF early in annual budget preparation to improve transparency of policy objectives and debate. - EFF program includes capacity building: structural benchmark to recruit staff for a new MFD by end-October 2021 and a commitment that the unit produce its first report on macro-fiscal outlook and risks in Q1 2022. - Establishment of the new MFD in the MoF is expected to strengthen ability to set and manage fiscal policy objectives and MTFF in line with new law. ### Performance information (Good) - Budget documentation provides detailed performance information for each spending ministry and agency predominantly at the output level. - Information includes narrative statements on vision/mission of budget units, strategic objectives with performance indicators, breakdown of expenditure at program level and detailed performance information. - Most indicators at output/activity level; a few relate to higher service delivery outcomes. - Six years of performance information presented: results for two preceding years, preliminary results for present year, and target values for the budget year and two outer years. - Limitations: - Program-level budgeting is not recognized or required by existing legal framework; draft budget legislation before the National Assembly includes provisions to formalize practice. - Performance information is not clearly linked to sector development plans or national development plan (‘Jordan 2025’). - Citizen’s Guide to the budget (first produced in 2011) contains expected benefits for citizens but does not reference budget performance information. - Recommendation: - Rationalize and better link annual program-level performance information to multi-year sector plans and the national development plan to improve allocation of budgetary resources. ### Public participation (Basic) - Disclosure and citizen information: - Disclosure of public information around the budget is relatively good; in the 2019 Open Budget Survey Jordan scored above the global average for transparency and is the only country in the region ranked overall as ‘green’ on this measure. - The Citizen’s Guide to the budget uses easy-to-understand pictures, charts, and maps and includes a high-level discussion of macroeconomic and fiscal context, a breakdown of expenditure by function, and analysis of expected public service delivery. - Limitations: - Citizen’s Guide does not provide distributional or incidence analysis or opportunities for direct citizen participation in budget preparation. - The Citizen’s Guide is published after the budget is approved and there is currently no formal means for citizens to submit views to the executive during budget preparation. - Some civil society groups are invited to participate in hearings on the proposed budget prior to approval held by the legislature; MoF and GBD also participate in these hearings. *Source: 1jorea2021003 - 0.7 and 1.5 percentage points of GDP respectively.* ### 76. The draft OBL currently before the Parliament will strengthen some elements of ### 76. The draft OBL currently before the Parliament will strengthen some elements of ### Public participation in the budget process - The draft OBL would put the Citizen’s Guide on a formal legal basis and give the GBD responsibility for undertaking additional public awareness-raising activities around the budget. - Potential effects: - Might provide citizens with increased opportunity to contribute their views directly into the budget preparation process. - Could spur inclusion in budget documents of more information on: - the impact of tax expenditures on households (see Section 1.1.4), and - the government’s performance in delivering services to specific sectors and social groups (Section 2.3.2). ### Credibility — Independent Evaluation (Assessment: Not Met) - Finding: - The Government’s economic and fiscal forecasts are not discussed or challenged by individuals or entities outside the government. - Absence of publication of the macro-economic assumptions used for the preparation of the General Budget Law (see Section 2.1.2) prevents rigorous evaluation of macroeconomic and fiscal forecasts. - The Financial Committee of the Lower House produces a report on the draft General Budget Law that briefly mentions some macroeconomic forecasts but cannot be considered an evaluation or challenge. - Large biases in growth and fiscal projections noted in Sections 2.1.2 and 2.1.3. - Recommendation / short-term measures to introduce independent validation: - Include in budget documentation comparisons between the government’s projections and those of other public or private institutions. - Possible comparators: - The CBJ’s forecasting model (note: CBJ produces forecasts every quarter; model follows a semi structural Keynesian approach for short-and medium-term forecasting). - Forecasts developed by the IMF, the World Bank, research institutes, and other organizations. - Other countries and/or regions within the IMF’s World Economic Outlook (WEO). ### Supplementary Budget (Assessment: Basic) - Findings: - 2020 showed material changes to the approved budget could take place without prior authorization by Parliament; composition of spending was significantly altered compared with limited reallocations in previous years. - Substantial reallocation from capital appropriations (regularly underspent) to current expenditure appropriations indicates effective increase in expenditure without Parliament’s approval, even though total appropriations remained unchanged and transfer rules were formally abided to. - Information on spending reallocations provided to the Parliament is ex post only and delivered in a form that is difficult to use. - Practices and history: - In-year adjustments are usually managed through transfers published once a year in the final accounts report; supplementary budgets remain exceptional. - There have been no supplementary budgets during the last five years (2016-2020). Even in 2020, authorities did not use a supplementary budget and managed reallocations through transfers and external grants and loans. - 2021 will stand as an exception with the implementation of the first supplementary budget in several years. - The information provided to the legislature on transfers is limited; publication of in-year movements is made once a year and only in the final account report. - Rules governing transfers (voted in each annual General Budget Law; largely unchanged since 2013): - Transfers between chapters are forbidden (Constitutional rule). - No transfer from capital expenditures to any other type of expenditure unless approved by the Council of Ministers. - Transfers between the capital expenditures of different governorates are subject to the authorization of the Minister of Finance. - Transfers from current expenditures to capital expenditures may take place within the same chapter with the authorization of the Minister of Finance. - Transfers between payroll and other expenditures are forbidden. - Other movements within a budget chapter are subject to the authorization of the Director General of the Budget. - Some other rules are occasionally set for special purposes, such as for the allocation of a contingency reserve. - In-year movements (2016–2020): - From 2016 to 2019, in-year movements were limited and did not significantly alter the composition of the budget; capital expenditure was little affected. - In 2020, in-year reallocations were much more substantial, resulting in a reduction by nearly 10 percent of capital expenditure appropriations and an increase of about 2 percent of current expenditure appropriations, even though a supplementary budget was not considered. - In 2021, the government decided to table a supplementary budget and ask for a net increase in expenditures. - Transparency issue: - Reconciliation of reallocations in the final accounts report is made extremely difficult by the absence of a summary table presenting the balance of movements on all categories of expenditure. - Note: - Most in-year adjustments are made to civilian current expenditures which amounts to 60 percent of the budget. ### Forecast reconciliation (Assessment: Not Met) - Findings: - Budget documentation does not highlight differences between successive vintages of fiscal forecasts and does not discuss key factors explaining these differences. - MTBF vintages are presented in the General Budget Law without reference to medium-term projections made in previous years; impacts of new policies, changes in macroeconomic environment, and technical adjustments cannot be identified. - Large optimistic biases in macroeconomic and fiscal projections: even before the COVID crisis, the gap between the revenue forecast for the last year of the MTBF and outturns amounted to at least 2 percentage points of GDP, and sometimes much more. - Recommended phased approach to improve reconciliation: - Short term: - Include a table in the budget documentation showing at aggregate level the differences between forecasts of expenditures, revenues, and financing in the upcoming fiscal year and the forecasts made in the previous year’s budget. - Provide a narrative discussion offering qualitative explanations regarding the impact of economic shocks (such as the COVID-19 pandemic), changed economic conditions, and new policies on macroeconomic forecasts. - Later stage: - Include assessment of the quantitative impact of macroeconomic determinants and new policies. ### Recommendations (Summary priorities from Section 2) - Recommendation 2.1. Build capacity in the MoF for preparing clear fiscal policy objectives and goals that provide an anchor for medium- and long-term fiscal planning (MFD). - Recommendation 2.2. Strengthen the credibility of the MoF’s macroeconomic forecasts and medium-term fiscal forecasts (MFD, GBD): - Short term: prepare more realistic macroeconomic and fiscal forecasts for the budget year and the MTBF. - Short term: Disclose and present macroeconomic and fiscal forecasts in a short report published with the budget documentation. - Medium term: In the same report, benchmark and compare the government’s macroeconomic forecasts with independent institutions’ forecasts. - Medium-term: Prepare and publish a reconciliation of macroeconomic and fiscal forecasts. - Recommendation 2.3. Bring forward the tabling of the budget to the legislature by one month to November 1st each year (GBD). - Recommendation 2.4. Continue improving public investment management (PIM Unit, GBD): - Short term: Bring the NRIP reform to completion. - Medium term: Identify, quantify, and regularly disclose commitments on multi-year investment projects. ### Fiscal risks — overview (start of Chapter III) - Chapter objective: - Assess the quality of Jordan’s fiscal risk analysis, management, and reporting practices against three dimensions of the Code: - General arrangements for the disclosure and analysis of fiscal risks. - Management of risks arising from particular sources (contingencies and guarantees, PPPs, financial sector). - Coordination of fiscal relations and related risks between central government, local governments, and PCs. - Existing reporting environment: - Jordan reports information on fiscal risks in several documents from various sources; many reports are produced by the MoF as part of the annual fiscal policy and budget cycle; other institutions (e.g., the CBJ) disclose relevant information. - Projects underway to create new information flows, e.g., the Fiscal Commitments Unit (FCU) project to consolidate PPP financial information. - Comparative performance: - Jordan does not meet basic levels of performance in six areas of the Code; achieves Basic practice in five areas; meets Advanced practice in one area. - Compared with recent FTEs in the Middle East and Central Asia region, Jordan is somewhat ahead of Tunisia (2016) and Uzbekistan (2018); behind Georgia (2017). ### Disclosure and analysis — Macroeconomic Risks (Assessment: Not Met) - Finding: - Budget documentation includes no discussion of how fiscal outcomes might be affected by different macroeconomic assumptions, primarily due to the absence of comprehensive information on macroeconomic assumptions used to prepare the General Budget Law (see Section 2.1.2). - Volatility context (2010-2019): - Figure 3.0 indicates the volatility of nominal GDP growth rate. - Figure 3.1 indicates the volatility of general government revenue growth rate; general government revenue volatility is high compared to other countries, while GDP volatility is relatively moderate. - Remedy suggested: - Once a full set of macroeconomic forecasts is disclosed and explained in budget documents, include sensitivity analysis of macro-fiscal forecasts to major assumptions. - Short-term: comment on sensitivity of revenues to the GDP growth rate; assess impact of inflation on revenue and expenditure; assess sensitivity of debt service to variations in interest rates. - Second stage: analyze full alternative macroeconomic scenarios. - Such work could be part of the mandate of the new MFD. ### Disclosure and analysis — Specific Fiscal Risks (Assessment: Not Met) - (Section begins; findings and detailed measures for specific fiscal risks follow in subsequent text.) *Source: IMF staff report excerpt (selected sections as provided).* ### 93. Jordan is exposed to many specific fiscal risks, but the government’s reporting and ### 1jorea2021003 - 93. Jordan is exposed to many specific fiscal risks, but the government’s reporting and ### Overview of fiscal risks and reporting - Jordan is exposed to many specific fiscal risks, but government reporting and disclosure of these risks is limited. - Analysis of risks around public debt is most advanced, with public reporting through the country’s EFF program and the government’s Medium-Term Debt Management Strategy (MTDMS). - Some aspects of fiscal risk from the most important public corporations (PCs) are monitored (e.g., revenues and expenditures of main electricity and water companies reported through the budget; most explicit government guarantees to these corporations disclosed). - Risks from the financial sector are reported by the CBJ through their regular Financial Stability Reports (see Section 3.2.5). - Most other sources of specific fiscal risk—including PPPs—are not currently well identified and managed (see Section 3.2.4). ### Magnitude and interlinkages of risks - Explicit and implicit fiscal risks totaled 120 percent of 2020 GDP. - Many explicit and implicit risks are linked, creating the possibility of a cascade of fiscal risks under adverse circumstances (e.g., new or increased conflict in the region, an increase in global energy prices, and/or a sudden recession). - Long-term PPPs in the electricity sector have been contracted by large PCs with precarious finances, receiving regular fiscal transfers and/or explicit government guarantees, and operating under an implicit assumption of government support in case of failure. - The net present value (NPV) of long-term expenditure pressures in health and pensions amounts to an additional 127 percent of 2020 GDP (Health 28 percent + Pensions 99 percent), representing another form of fiscal risk. ### Selected specific fiscal risks (Table-style figures preserved) - Guarantees: JD 3 065; 10 percent of GDP; Year 2020; Reporting practice: Monthly through General Government Finance Bulletin - Full reimbursement of bank deposits /1: JD 6,919; 22.5 percent of GDP; Year 2019; Reporting practice: Annually through JODIC reports. - Public corporation liabilities /2: JD 8 566; 27.1 percent of GDP; Year 2019; Reporting practice: Largely not reported, apart from NEPCO - PPP-related liabilities: JD 6 358; 20.7 percent of GDP; Year 2020; Reporting practice: Not reported, but process in place to start doing so - PPA commitments /3: JD 11 118; 36.2 percent of GDP; Year 2020-2040; Reporting practice: Not reported - Local government debt: JD 526; 1.7 percent of GDP; Year 2019; Reporting practice: Reported - Change in NPV pensions: JD 30 343; 99 percent of GDP; Year 2020-2050; Reporting practice: Not reported - Change in NPV health: JD 8 582; 28 percent of GDP; Year 2020-2050; Reporting practice: Not reported - Other risks — Natural disasters: JD 429; 1.4 percent of GDP; Year 2020-2050; Reporting practice: Not reported - Source note preserved: Source: IMF staff estimates. 1/ Defined as the difference between the estimated reimbursement amount and the current reserves of JODIC. 2/ Excluding the CBJ. 3/ PPAs estimated as the NPV of expected future payments by public entities. ### Long-term fiscal sustainability (findings) - Jordan faces fiscal risks from long-term pressure on health and pensions spending. - Although old-age dependency ratio expected to rise slower than in most comparable countries up to 2050, the expected increase in the cost of pension and healthcare spending over 2020-2050 is among the highest of these countries. - NPV of increases in expenditure to 2050: 28 percent of GDP for health and 99 percent of GDP for pensions. - Previous IMF analysis identified relatively good health outcomes but low system-wide efficiency, relatively high expenditure, arrears, and sustainability issues with prices paid for medical treatment. - COVID-19 has adverse impacts, indicating challenges in health financing sustainability are already emerging. - No publicly disclosed analysis of long-term sustainability of public finances; MoF forecasts do not extend beyond the three-year period of the MTFF. - SSC actuarial analysis of main insurance schemes is done every few years and shared internally with MoF but not published; the 2016 actuarial valuation identified a long-term imbalance for the main pension scheme managed by the SSC. - CHIF undertakes financial forecasts and modelling over a three-year time frame but this analysis is not published. ### Existing reporting and fiscal risk management capacity - A framework for managing overall fiscal risks is currently absent. - Establishment of the new MFD in the MoF offers the chance to build a central fiscal-risk function with formal responsibility for identifying and managing fiscal risk across the public sector, as well as macroeconomic forecasting, fiscal and tax policy, and fiscal statistics. - For many of the largest risks (public debt, public guarantees, PC finances, some large PPPs) substantial data and empirical analysis and regular reporting processes are already in place; these could be used to rapidly develop a basic fiscal risk report and be progressively expanded. ### Budgetary contingencies and asset/liability management - Budget contingencies: - Allocation for contingencies is less than one percent of total expenditure; no information is published on the use of this facility; law does not define criteria to access resources. - Draft OBL will limit use of reserve to ‘unforeseen expenditures and contingencies’ but not defined in detail; no legal ceiling on allocations for contingent expenditure. - Historical use averaged 0.6 percent of total expenditure between 2011 and 2020; usage exceeded one percent only in 2014 and 2015. - Management of assets and liabilities: - All government borrowing is authorized by law; analysis of fiscal risks related to debt is published, but other liabilities or financial assets have limited reporting. - The Medium-Term Debt Management Strategy 2017-2021 analyzes refinancing, interest rate, and foreign exchange risks regarding public debt. - Monthly GGFB discloses only public debt and cash balances included in a net debt definition; final accounts present some but not all outstanding lending by government. - Gross public debt: 89 percent of GDP in 2020 versus 78 percent of GDP in 2019 (increase due to high deficits and negative growth). - Debt portfolio: average maturity lengthened from 3.1 years in 2013 to 6.4 years in 2019. - Share of domestic debt: around 48 percent of total public debt. - Financial assets: government loans include advances to NEPCO amounting to an outstanding balance estimated at 16.5 percent of GDP in 2020; these loans have a high likelihood of default given NEPCO’s financial weaknesses. ### Guarantees - Reporting of government guarantees is limited to disclosing guaranteed debt and does not include a full breakdown by beneficiary. - Monthly GGFB discloses total guaranteed debt and a chart with breakdown by main beneficiaries, but excludes other guarantees (e.g., a comfort letter of JD 50 million to Royal Jordanian Airline is not included). - Information on beneficiaries is limited to only two companies: NEPCO and WAJ. - Stock of guarantees: 10 percent of GDP in 2020. - Three-quarters of guarantees were issued to NEPCO, which faces financial challenges. - Fiscal risks can emanate from possible calls on guarantees or additional advances from the budget to avoid such calls. ### Public-Private Partnerships (PPPs) and PPAs - PPPs are macroeconomically significant and carry significant fiscal risk. - 2018 IMF estimate: PPPs value at 30 percent of total public investment, driven in part by off-budget treatment. - 47 large PPP/PPAs agreed since 2003, concentrated in water, transport, and power sectors. - Liabilities of largest PPP arrangements estimated at 21 percent of 2020 GDP; fiscal commitments to PPAs have an NPV of 36 percent of GDP over 2020-2045. - Many contracting authorities for PPPs and PPAs are themselves PCs with precarious finances (notably NEPCO). - COVID-19 negatively affected many PPPs, notably Queen Alia International Airport (QAIA). - Table 3.3 (Maximum estimated exposure, 2020): - Fiscal costs, explicit — Non-financial assets (stock): JD 4 894; 16.2 percent of 2020 GDP - Fiscal costs, explicit — Liabilities (stock): JD 6 358; 21.0 percent of 2020 GDP - Net worth: JD -1 464; -4.8 percent of 2020 GDP - Fiscal risks, explicit — Early contract termination (flow): JD 3 798; 12.5 percent of 2020 GDP - Source preserved: Source: IMF staff calculations from 2020 based on official data. - Institutional reforms: - 2020 PPP Law divided responsibility between PPP Unit at PMO, Public Investment Management (PIM) Unit at MoPIC, and the FCU at MoF. - For new projects: clarified selection procedure, strengthened value-for-money appraisal, mandated publication of non-security related PPP contracts. - For existing projects: FCU has started gathering financial and non-financial information and creating a comprehensive database. - Recommendation/finding: New information systems must be actively used to support fiscal risk reporting; basic reporting on overall fiscal risks from PPPs can begin before full data gathering is complete. ### Financial sector (reporting and resilience) - Banking dominates Jordan’s financial sector: 93.5 percent of financial assets in 2019 and accounting for 162 percent of 2019 GDP. - Key banking health indicators such as capital adequacy ratios remain robust despite COVID-19 pressures. - CBJ support measures to cope with COVID-19 estimated at 8.1 percent of 2020 GDP. - Outstanding risks: loans and exposures to PCs (e.g., NEPCO) and non-performing loans data highlighted in figures (see Section 3.2.5). *Source: IMF staff estimates.* ### 109. The government’s explicit exposure to the financial sector is limited and its main ### 1jorea2021003 - 109. The government’s explicit exposure to the financial sector is limited and its main ### Government exposure to financial sector — key findings - No state-owned banks or insurance companies; government holds a very small legacy shareholding in one commercial bank disclosed through corporate reporting. - The Postal Savings Fund and the Development and Employment Fund undertake small-scale lending; their revenues, expenditure, and financing are disclosed through the budget law and audited by the AB. - Largest explicit fiscal risk: government’s ultimate responsibility for financing deposit insurance — potential costs of reimbursing deposits stood at 22.5 percent of GDP in 2019. - JODIC (Jordanian Deposit Insurance Fund): - Currently capitalized above the regulatory minimum and has never paid out to depositors. - Regularly publishes its financial statements and other reports. - Governance: under joint supervision of the MoF and the CBJ. ### Interactions between government debt and financial institutions — risks and magnitudes - SSIF invested over half of its resources in government bonds in 2019; government legally liable for pension payments if Fund returns fail to cover obligations. - Banks’ holdings of government debt: - Increased from 14.8 percent of banking assets in 2008 to 24.1 percent at end-2019. - Equivalent to 38.9 percent of 2019 GDP. - JODIC must invest its funds (equivalent to 2.7 percent of 2019 GDP) entirely in government bonds. - Consequence: risk of a government debt default would affect public and private financial institutions, creating additional fiscal risk. - Jordan’s EFF program projection: - Public debt and publicly guaranteed debt projected to peak at 90.9 percent of GDP in 2021 and then be on a downward path to reach less than 80 percent of GDP by 2025. ### Central Bank of Jordan (CBJ) reporting and stress testing - CBJ publishes financial soundness indicators every six months and an annual Financial Stability Report with internal stress test results. - 2019 Financial Stability Report: - Included single-factor and multiple-factor stress tests (baseline, medium, severe macroeconomic shocks). - CBJ conclusion: banking sector resilient across a range of shocks; even the most severe multi-factor shock would result in a manageable increase in non-performing loans and banks’ capital adequacy ratios remaining above CBJ and international benchmarks. ### Natural resources — disclosures and fiscal implications - Government publishes volume of major mining reserves and value/volume of mining sales, but not fiscal revenue from mining operations. - Jordan’s exhaustible resources: mainly phosphate, potash, and bromine. - USGS: Jordan has a 1.4 percent share of global phosphate reserves; exploitable quantity of Dead Sea potash is not known. - APOT and JPMC (government has 26 percent shareholding in each): - Annual sales of these two entities were 3.8 percent of GDP on average between 2015 and 2020. - Government revenues from these companies were equivalent to 0.2 percent of GDP in 2016 and 0.5 percent of GDP in 2019. - JPMC turned from loss-making to profit-making and started paying dividends only in 2018. - Potential: room to increase fiscal revenue from mining by improving JPMC’s efficiency. ### Environmental and natural-disaster risks - NCSCM published “Natural Disaster Risk Reduction Strategy 2019-2022” with analysis of vulnerabilities and qualitative discussions of financing needs; quantitative economic-loss analysis and fiscal-risk quantification not yet undertaken. - UNISDR study: Jordan incurred cumulative economic losses from natural disasters equivalent to 1.4 percent of GDP from 1981 to 2011. - Jordan particularly vulnerable to earthquakes and flash floods (INFORM Risk Index assessments). ### Subnational governments — transparency and fiscal position - Subnational composition: Great Amman Municipality (GAM) and 100 municipalities (Categories A, B, C). - GAM and 12 Category A municipalities accounted for 58 percent and 22 percent of total local government expenditure in 2019, respectively. - Publication: - GGFB presents annual revenue and expenditure aggregating GAM and 100 municipalities. - CVDB and MLA publish an annual “Municipalities Financial Report”; GAM publishes annual financial statements. - Legal borrowing approval: Article 17 of 2015 Law on Municipalities requires PM approval for GAM borrowing and MLA approval for other municipalities, but no statutory ceiling on borrowing. - Planned reform: New Law on Municipalities and Decentralization to require all municipalities to publish budgets and financial statements and implement accrual accounting within two years. - Size and risks: - In 2019 total expenditure and outstanding borrowing of GAM and 100 municipalities was 2.6 percent and 1.7 percent of GDP respectively. - Around 67 percent of total municipal expenditure covered by own revenue. - Central government took over JD 70 million of borrowing from 61 municipalities from the CVDB in 2018. - Some municipalities still have debt close to 100 percent of their annual self-revenue. ### Public corporations (PCs) — fiscal risks and support - Transfers from government to PCs appropriated in annual budget law; no published consolidated financial performance report for all PCs. - GIMC (holding company under MoF covering 15 PCs including Royal Jordanian) preparing consolidated balance sheet of its shareholdings. - NFPCs (non-financial public corporations): - Non-equity liabilities amounted to 26.5 percent of GDP in 2019. - Around 70 percent of these liabilities belong to NEPCO; NEPCO’s assets cover only 19 percent of liabilities (balance sheet insolvent). - In 2019 six out of the 10 largest NFPCs were either making losses or had debt-to-equity ratios exceeding one or negative net assets. - Government financial support to energy and water PCs: - Reached 5.4 percent of GDP in 2014, decreased to around 1-2 percent of GDP in recent years. - Support delivered through advances/on-lending to NEPCO, financing water projects, and capital grants to water PCs. - Royal Jordanian Airline (RJA): - COVID-19 losses by end-Q3 2020 almost exhausted equity and cash resources. - Government support: JD 50 million comfort letter and JD 50 million capital injection. - Need: strengthen financial monitoring and transparency of the public corporation sector. ### Recommendations (selected) - Recommendation 3.1 Improve overall management of fiscal risks (MFD): - Short term: Assign responsibility for gathering data and reporting on fiscal risks to a specific unit in the MoF (likely the forthcoming MFD). - Medium term: Begin generating regular internal reports on the largest fiscal risks with proposed mitigating actions, leading eventually to a comprehensive published fiscal risk statement. - Recommendation 3.2 Develop macroeconomic risk forecasting capability (MFD): - Short term: Include in the budget documentation an assessment of the sensitivity of fiscal forecasts to key economic variables. - Medium term: Include in the budget documentation an assessment of the impact of alternative macroeconomic scenarios on the fiscal forecast. - Recommendation 3.3 Continue strengthening PPP fiscal risk management (FCU): - Short term: Complete efforts to create a comprehensive database of PPP risks. - Medium term: Generate progressively more comprehensive overall PPP risk reports with corresponding mitigating actions. - Recommendation 3.4 Strengthen transparency in financial performance of PCs (MoF, potentially part of MFD): - Short term: Operationalize a unit in the MoF/GBD with responsibility for oversight of PCs. - Medium term: Publish annually a comprehensive report on the financial performance of all PCs. *Source: IMF staff summary of content unit 1jorea2021003.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1jorea2021003.pdf_