## 1jorea2022001 ## Source details **Canonical URL:** [1jorea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1jorea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1jorea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1jorea2022001.pdf.json) --- ### EXECUTIVE SUMMARY — Context and recent developments - Preventive actions and a robust vaccination campaign mitigated the effects of COVID-19 variants on the economy. - A full economic re-opening became possible over the summer after daily new COVID cases fell from a peak of over 800 per million in March to 80 at end-August; positivity rate was less than 5 percent between June and October. - Near-40 percent “fully vaccinated” population share (Annex I). - New daily cases and hospitalization rates began rising since late October; the evolution of the Omicron variant will bear close monitoring. - Core inflation was 0.7 percent y-o-y in September, subdued despite higher fuel prices, reflecting slow pass-through and weak domestic demand. - Reserves reached close to US$18 billion at end-October and are expected to remain above 100 percent of the ARA metric through end-year. - Dollarization is declining. ### MACROECONOMIC OUTLOOK AND KEY INDICATORS - Real GDP growth: 2 percent in 2021; strengthening to 2.7 percent in 2022. - Inflation: headline inflation rose from -0.3 in December 2020 to 1.8 percent by end-July; core inflation 0.7 percent y-o-y in September. - Public debt: projected at 91.7 percent of GDP at end-2021, 0.8 ppt of GDP higher than in the second review. - Current account: revised up from 8.3 to 9.7 percent of GDP in 2021; projected to decline to around 4.7 percent of GDP in 2022. - Gross international reserves: close to US$18 billion at end-October. - IMF financing: completion of the review will make SDR 240.2 million available, bringing total purchases under the EFF to SDR 590.1 million. - Macro outlook table key figures (selected): - Real GDP at market prices: 2020 Act. -1.6; 2021 2.0; 2022 2.7; 2023 2.7; 2024 3.1; 2025 3.3; 2026 3.3. - Nominal GDP at market prices ($ millions): 2020 43,759; 2021 45,344; 2022 47,500; 2023 47,744; 2024 50,455; 2025 53,423; 2026 56,565. - Consumer price inflation (annual average): 2020 0.4; 2021 2.3; 2022 2.0; 2023 2.5; 2024 2.5; 2025 2.5; 2026 2.5. - Unemployment rate (period average, percent) 1/ 22.7 (note: DOS changed methodology in 2017; reports unemployment for Jordanians only). ### LABOR MARKET AND SOCIAL CONDITIONS - Recovery in jobs weaker than expected; significant slack remains. - Unemployment and youth unemployment: 24.8 and 53.6 percent in Q2, respectively — 6 and 10 ppts. above 2019 levels. - Labor force participation rates remain below pre-pandemic levels, with a notable decline for young men, raising risks of scarring. - High unemployment likely to continue weighing on consumption. - Social policy measures and targets: - Phase out temporary support programs while allocating more resources into permanent Takaful program, improving its targeting methodology, moving towards fully virtual payments, and easing registration requirements for women. - National Employment Scheme to be launched by Q1 2022 potentially creating 100 thousand new job opportunities. ### EXTERNAL SECTOR AND FINANCING - Non-energy imports increased, driven by consumer durables; intermediate imports and fuel prices are higher. - Higher exports partly offset the trade impact, supported by sharp increases in prices of fertilizers and phosphates. - Tourism receipts outperformed expectations in Q3 2021 but remain well below historical levels. - Remittances expected to recover close to their long run average, aided by higher growth in host GCC countries; some recovery may be missed in official data due to large errors and omissions (US$ 2 billion). - Financing composition meeting gross external financing requirements over 2021–22: - Larger private capital flows (driven by a decrease of US$1 billion in commercial banks’ NFA). - The EFF and SDR allocation (together around US$1.4 billion). - Multilateral and bilateral official loans (US$2.8 billion), and grants (US$3 billion). - A Eurobond issuance of US$1.5 billion (now baselined for Q2 2022) to rollover a US$1 billion maturing Eurobond in June 2022. - Balance of payments selected figures (USD millions): - Current account: 2019 -948; 2020 -3,712; 2021 -3,785; 2022 -4,399; projections 2022 -1,850; 2023 -2,222. - Travel receipts: 2019 5,794; 2020 1,411; 2021 2,257; 2022 2,562; projections 2022 5,437; 2023 5,475. - Gross usable international reserves (USD millions): 2019 13,512; 2020 15,127; 2021 15,269; 2022 16,085; projections 2026 17,930. ### PROGRAM IMPLEMENTATION, CONDITIONALITY, AND FINANCING - Program implementation strong: all end-June quantitative performance criteria (QPCs) met, as well as most indicative targets (ITs) for end-September. - End-December 2021 fiscal QPCs are within reach thanks to robust revenue collection. - Most structural benchmarks (SBs) met; authorities made strong progress on the structural reform agenda. - IMF/EFF access and phasing (SDR million, percent of quota): Board approval Mar-25-2020 102.9 (30.0); subsequent purchases include Sept-30-2021 240.1 (70.0); total 1,070.4 SDR million (312.0 percent of quota). Jordan's quota is SDR 343.1 million. - Indicators of Fund credit: stock 2020 365.1 SDR million; 2021 720.4; 2022 1,091.8; series through 2034 shown. - Structural conditionality highlights (selected new proposed SBs and resets): - Prior Action met — submit to Parliament a budget consistent with a JD1,066 million (3.1 percent of GDP) primary deficit central government (excluding grants and transfers to NEPCO and WAJ) by Dec-21. - Proposed new SBs: draft "Regulating the Investment Environment and Doing Business Law" by May-22; competition framework legislation by Jun-22; expand JONEPS coverage to Education and Health by Dec-22; publish PPP fiscal costs and risks by Jun-22; ex-post audits of COVID-related spending by Jun-22; macro-fiscal unit reporting by Jun-22. - Delayed SBs proposed resets: unify ASEZA tax/customs to national systems (reset to end-March-2022); recruitment for macro-fiscal unit (reset to end-Jan-2022). ### FISCAL STANCE AND 2022 BUDGET - Staff proposes a more gradual fiscal consolidation path consistent with debt sustainability. - On November 28, authorities met prior action submitting to parliament a draft budget for 2022 consistent with a JD 1,066 million (3.1 percent of GDP) primary central government deficit target (excluding grants and transfers to NEPCO and WAJ); implies a 0.7 percent of GDP fiscal target relaxation relative to the Second Review. - Budget details and contingencies: - Relative to staff’s projection, the budget envisages both domestic revenues and capital expenditures to be around 0.4 percent of GDP higher, while current expenditure projections are aligned. - Authorities affirmed that should revenues underperform, they will adjust spending to meet the 3.1 percent of GDP primary deficit target. - The budget allows for up to JD110 million (0.3 percent of GDP) in additional contingency spending under the 2022 COVID-adjustor. - Authorities will publish information on 2021 COVID-related spending and conduct and publish results of an ex-post audit (new proposed end-June 2022 SB). - Sources of the envisaged primary balance improvement in 2022: - Cyclical rebound of about 0.4 percent of GDP from revenue momentum. - Measures to close tax loopholes, strengthen tax compliance, tackle cigarette and alcohol smuggling, reduce customs brackets, etc., expected to yield an additional 0.5 percent of GDP in revenues. - Expenditure-side savings of 0.7 percent of GDP from economizing non-priority items, improving procurement, unwinding COVID-related expenditure, and expiration of the March 2021 spending package (Istidamah program extended till June 2022). - Note: "Domestic revenues are more sensitive to COVID-related shocks and normalization than nominal GDP. When nominal GDP declined by 1.8 percent in 2020, revenues dropped by 9.4 percent." ### REVENUE MOBILIZATION, TAX ADMINISTRATION, AND EXPENDITURE REPRIORITIZATION - Revenue effort target: 0.5 percent of GDP from broadening tax base, closing loopholes, and fighting tax evasion. - Legislative/administrative measures: - Implement GST place-of-taxation rules; economic substance requirements for SEZs; bring ASEZA into single tax administration and customs; give MOF central role in granting and managing fiscal incentives (new proposed SB end-May-2022). - Fully implement digital volume verification (track-and-trace) system for cigarette companies. - Harmonize tax and customs levies on alcoholic drinks; reduce number of tariff brackets. - Enhance ISTD: upgrade IT infrastructure; strengthen audit function; fully automate income and sales tax registration for new companies (by mid-2022). - Plan RFP to launch an e-invoicing system in Q3 2022. - Expenditure-side measures: - Economize on goods and services, improve procurement, contain public wage bill growth guided by public wage bill study (study completed end-October SB met). - Reprioritize to protect inclusive growth and increase capital spending. ### PUBLIC DEBT, DSA, AND FINANCING CAPACITY - Public debt trajectory and drivers: - Public debt (consolidated gross direct and guaranteed) reached 88 percent of GDP at end-2020; projected to peak at 91.7 percent of GDP in 2021; projected to decline below 80 percent of GDP by 2025. - Foreign-currency denominated debt is half of total public debt. - Domestic debt maturity (excluding T-bills) average maturity ~6 years since 2018. - Public gross financing needs (GFNs): projected to peak at 19.3 percent in 2022 before declining to 13–16 percent over the medium term. - Risks to debt sustainability: - Longer lasting pandemic, weaker fiscal consolidation, tightening global liquidity conditions, losses from SOEs and PPPs, contingent liabilities. - Policy imperatives: - Initiate and maintain growth-friendly fiscal consolidation post-pandemic; accelerate structural reforms; mitigate broader public sector losses. - External DSA highlights: - Public external debt ~40 percent of GDP in 2020; expected to rise to 46 percent in 2022; fall below 40 percent by 2026. - Private external debt expected to remain in 31–39 percent of GDP range. ### MONETARY POLICY, RESERVES, AND FINANCIAL SECTOR - Reserves and peg: - CBJ preserved financial stability and maintained robust international reserve buffers. - Jordan's peg to the U.S. dollar continues to serve as an effective anchor. - Reserves buoyant due to strong official inflows including the $469 million SDR allocation, and retrenchment of banks’ net foreign assets due to a rise in non-resident deposits. - CBJ’s total net purchases of USD in 2021 amounted to $306.5 million as of end-October 2021. - Revised NIR path for 2021–22 reflects higher-than-expected stock of NIR and larger current account deficits while ensuring reserves above 100 percent of ARA metric. - Monetary policy stance: - Monetary policy should remain flexible and data driven, continuing to support the peg. - Private sector credit growth slowed to around 4½ percent y-o-y (in September). - CBJ should maintain flexible unwinding of crisis support measures but remain alert to liquidity needs and possible sudden BoP pressures (e.g., sharper/faster-than-expected rise in U.S. interest rates). - Banking sector soundness (as of end-June 2021): - Risk-weighted capital adequacy ratio: 18.3 percent (regulatory minimum 12 percent). - NPLs: 5.3 percent. - Provisions (In percent of classified loans): 75.2. - Liquidity ratio: 136.2. - Return on assets: 1.2. - Loans to deposits ratio: 86.0. - Bank profits recovered to pre-pandemic level in June, after large provisioning in 2020. - Debt deferment period for affected borrowers expires end-2021; asset quality effects may still materialize—continued close monitoring required. - Subsidized lending schemes: - CBJ expanded subsidized lending scheme for SMEs by JD 200 million in March 2021; scheme accessed by 5,678 companies by end-October 2021; demand remained soft; scheme extended to June 2022 and borrowing limits raised for tourism and trade. - Recommendation: schemes should become more targeted and gradually be phased out as recovery gains momentum. - FSAP and TA: - Authorities leveraging Fund TA to update monetary policy and banking supervision frameworks and payment systems; preparing for FSAP update in 2022. ### ELECTRICITY AND WATER SECTORS — FINANCIAL SUSTAINABILITY AND REFORMS - NEPCO financials and outlook: - NEPCO losses projected: contained to 0.5 percent of GDP in 2021, rising to 1 percent of GDP in 2022 as Attarat comes online. - NEPCO continued accumulating arrears (JD 90 million by end-September); end-June and end-September ITs on the stock of electricity sector arrears were not met. - NEPCO operating balance (QPC): 2020 -89 JD million; 2021 -282; 2022 -157 (2nd Rev); projections: 2022 -315; 2023 -325; 2024 -313; 2025 -285; 2026 -272; 2027 -249. - NEPCO reform measures: - Electricity export agreements signed with neighboring countries (Iraq and Lebanon); regional infrastructure upgrades needed. - Plans to optimize PPA costs; with World Bank support updating NEPCO’s Roadmap for Financial Sustainability to be adopted first half of 2022; consider migrating NEPCO legacy debt to MOF. - Electricity tariff reform: - Authorities preparing rollout to reduce cross-subsidization and support competitiveness (end-March 2022 SB). - Mid-August reform reduces business tariffs amounting to JD 40 million annually. - Online platform for household subsidy applications; less than 15 percent of Jordanian households expected to lose partial or full access to subsidies. - Donor assistance essential to support refugees after subsidies for lowest income quartile of Syrian refugees expire in September 2022. - Water sector challenges and reforms: - Water sector losses elevated at 1.1 percent of GDP in 2021. - WAJ and distribution companies incurred arrears (JD 45 million each by September 2021); end-June and end-September ITs were not met. - Financial Sustainability Roadmap for the water sector to be adopted by end-March 2022. - Aqaba-Amman Conveyor (AAC) RFP being prepared; AAC would deliver an additional 300 MCM of water starting 2028. ### AML/CFT, GOVERNANCE, AND TRANSPARENCY - AML/CFT reforms: - New AML/CFT law enacted in September 2021; Jordan placed on the FATF watch list in October 2021. - Authorities committed to an action plan to resolve strategic deficiencies and facilitate exit from the watch list by October 2023 (new proposed SB for October 2023). - Intermediate steps: assessment to identify vulnerable non-profit organizations and addressing AML/CFT deficiencies by June 2022 (new proposed SB). - Governance and transparency measures: - Dedicated government website for COVID-related procurements continuously updated, including beneficial ownership information. - Ex-post audit of all COVID-related spending published (end-August SB). - Fiscal Transparency Evaluation (FTE) published in September. - Structural benchmarks for governance: expand JONEPS coverage, FCCL unit publishing PPP fiscal costs and risks by Jun-22, ex-post audits of COVID-related spending by Jun-22. ### STRUCTURAL POLICIES TO PROMOTE JOBS, INCLUSION, AND BUSINESS ENVIRONMENT - Employment, gender, and youth policies: - Removing gender-biased articles from labor legislation; tightening sexual harassment and workplace violence protection; improving access to safe and affordable transportation (BRT for Amman). - Lowered social security contributions in agricultural and IT sectors; authorities considering extending reduced rates for new workers under age 30 for 10 years in all sectors. - Strengthening vocational training and internship/employment programs targeted at youth. - Business environment, competition, and trade facilitation: - Streamlining licensing requirements; lowering electricity tariffs for businesses; strengthening competition framework and operationalizing insolvency framework. - Draft competition legislation to be submitted by end-June 2022 (new proposed SB). - Public investment focus on Government Economic Priorities Plan for 2021–23 and mobilizing private financing via PPPs; projects to market in Q1 2022. ### RISKS TO THE OUTLOOK - Downside risks considerable: - Ongoing pandemic and emergence of new variants could delay rebound in tourism and services. - Persistently high unemployment risks additional scarring given declines in labor force participation. - Expectations of earlier Fed policy normalization and repositioning of market participants could tighten global financial conditions and raise external borrowing costs. - Risk of contingent liability materializations from the broader public sector, including higher-than-expected outlays to address water scarcity. - Social discontent from rising unemployment and poverty could complicate reform rollout. - Mitigants and upside: - Downside risks partially mitigated by authorities’ commitment to the program, additional donor support, and a resilient financial sector. - Upside: improving regional relations may boost exports, remittances, and aid inflows. ### POLICY PRIORITIES AND PROGRAM FOCUS - Near-term policies to support fragile recovery while ensuring debt sustainability: - Gradual fiscal consolidation in 2022 with structural fiscal reforms to close tax loopholes, protect jobs, support the most vulnerable, and mitigate fiscal risks. - Proactive measures and oversight to preserve monetary and financial stability. - Ensure financial sustainability of electricity and water sectors while accounting for energy and water needs. - Continued structural reforms to strengthen job creation, competitiveness, and governance. - Fund support recommendation: - Staff supports the authorities’ request for completion of the third review under the extended arrangement and modification of targets on primary central government and combined public sector deficits, citing strong program performance, fragile recovery, high unemployment, and risks of scarring. - Emphasis on critical role of robust and timely development partner support and acknowledgment of Jordan’s inclusive vaccination program and continued provision of flexible work permits to refugees. *Source: IMF staff report (excerpts from the chapter).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and recent developments - Preventive actions and a robust vaccination campaign mitigated the effects of COVID-19 variants on the economy. - A full economic re-opening became possible over the summer after daily new COVID cases fell from a peak of over 800 per million in March to 80 at end-August; positivity rate was less than 5 percent between June and October. - Near-40 percent “fully vaccinated” population share (Annex I). - New daily cases and hospitalization rates began rising since late October; the evolution of the Omicron variant will bear close monitoring. - Core inflation was 0.7 percent y-o-y in September, subdued despite higher fuel prices, reflecting slow pass-through and weak domestic demand. - Reserves reached close to US$18 billion at end-October and are expected to remain above 100 percent of the ARA metric through end-year. - Dollarization is declining. ### Macroeconomic outlook and key indicators - Real GDP growth: 2 percent in 2021; strengthening to 2.7 percent in 2022. - Inflation: headline inflation rose from -0.3 in December 2020 to 1.8 percent by end-July; core inflation 0.7 percent y-o-y in September. - Public debt: projected at 91.7 percent of GDP at end-2021, 0.8 ppt of GDP higher than in the second review. - Current account: revised up from 8.3 to 9.7 percent of GDP in 2021; projected to decline to around 4.7 percent of GDP in 2022. - Gross international reserves: close to US$18 billion at end-October. - IMF financing: completion of the review will make SDR 240.2 million available, bringing total purchases under the EFF to SDR 590.1 million. ### Labor market and social conditions - Recovery in jobs weaker than expected; significant slack remains. - Unemployment and youth unemployment: 24.8 and 53.6 percent in Q2, respectively — 6 and 10 ppts. above 2019 levels. - Labor force participation rates remain below pre-pandemic levels, with a notable decline for young men, raising risks of scarring. - High unemployment likely to continue weighing on consumption. ### External sector developments - Non-energy imports increased, driven by consumer durables; intermediate imports and fuel prices are higher. - Higher exports partly offset the trade impact, supported by sharp increases in prices of fertilizers and phosphates. - Tourism receipts outperformed expectations in Q3 2021 but remain well below historical levels. - Remittances expected to recover close to their long run average, aided by higher growth in host GCC countries (some recovery in remittances may be missed in official data due to large errors and omissions (US$ 2 billion)). - Jordan’s EMBIG spreads remain among the lowest in the region. ### Program implementation and structural reforms - Program implementation strong: all end-June quantitative performance criteria (QPCs) met, as well as most indicative targets (ITs) for end-September. - End-December 2021 fiscal QPCs are within reach thanks to robust revenue collection. - Most structural benchmarks (SBs) met; authorities made strong progress on the structural reform agenda. - To support the recovery, staff proposes a more gradual fiscal consolidation path in 2022 consistent with putting debt on a downward path; the authorities submitted to parliament a 2022 budget consistent with this path. - New SBs proposed to support efforts in fiscal, AML/CFT, and business environment areas. - Two delayed structural measures proposed to be reset: unification of Aqaba special economic zone (ASEZ) tax and customs with national systems; and reform of fiscal incentives for investment. ### Fiscal performance and fiscal policy measures - Domestic tax revenues—led by income and sales taxes—were ahead of expectations. - Spending aligned with the supplementary budget, which accommodated the March 2021 social protection and job-support package. - End-June fiscal QPCs and end-September ITs for central government primary deficit (excluding grants) and combined public deficit were met. - June and September ITs on the floor on social spending and stock of public debt were met. - Authorities are on track to meet end-December fiscal deficit targets after incorporating relevant adjustors for COVID spending, grants, and arrears. - Fiscal SBs met include: - Issuance of circular setting timetable for elimination of end-2020 central government domestic arrears and adopted procedures to prevent new energy arrears. - Implementation of digital volume verification (track-and-trace) system for three largest cigarette companies. - Issuance of secondary legislation requiring adoption of Public Investment Management (PIM) appraisal documents for all new public investments and PPPs. - Completion of study on drivers of the public sector wage bill with recommendations. - Development of a revenue mobilization plan with FAD support. - Delayed SBs and proposed resets: - GST “place-of-taxation” rules: end-July SB implemented with delay by submitting draft legislation to parliament; committed to timely implementation. - Legislation to bring ASEZA into a single Jordan tax administration and single customs service: end-September SB not met; proposed reset to end-March-2022. - Recruitment of four new division heads and four staff for new macro-fiscal unit at MOF: end-October SB not met; proposed reset to end-January-2022. - Early parliamentary passage of the above two legislative reforms is critical to close major tax loopholes and sustain revenue momentum. ### Risks to the outlook - Downside risks considerable: - Ongoing pandemic and emergence of new variants could delay rebound in tourism and services. - Persistently high unemployment risks additional economic scarring given declines in labor force participation. - Expectations of earlier Fed policy normalization and repositioning of market participants could tighten global financial conditions and raise external borrowing costs. - Risk of contingent liability materializations from the broader public sector, including higher-than-expected outlays to address water scarcity. - Social discontent from rising unemployment and poverty could complicate reform rollout. - Downside risks partially mitigated by authorities’ commitment to the program, additional donor support, and a resilient financial sector. - Upside: improving regional relations may boost exports, remittances, and aid inflows. ### Policy priorities and program focus - Near-term policies to support fragile recovery while ensuring debt sustainability: - Gradual fiscal consolidation in 2022 with structural fiscal reforms to close tax loopholes, protect jobs, support the most vulnerable, and mitigate fiscal risks. - Proactive measures and oversight to preserve monetary and financial stability. - Ensure financial sustainability of electricity and water sectors while accounting for energy and water needs. - Continued structural reforms to strengthen job creation, competitiveness, and governance. *December 8, 2021 — EXECUTIVE SUMMARY (Jordan), International Monetary Fund* ### 9. To support the recovery and accommodate priority social and infrastructure spending, ### 1jorea2022001 - 9. To support the recovery and accommodate priority social and infrastructure spending ### Fiscal stance and 2022 budget - Staff proposes a more gradual fiscal consolidation path consistent with debt sustainability (Annex IV, MEFP ¶9). - On November 28, the authorities met the prior action on submitting to parliament a draft budget for 2022 consistent with a JD 1,066 million (3.1 percent of GDP) primary central government deficit target (excluding grants and transfers to NEPCO and WAJ); this implies a 0.7 percent of GDP fiscal target relaxation relative to the Second Review. - Relative to staff’s projection, the budget envisages both domestic revenues and capital expenditures to be around 0.4 percent of GDP higher (text table, MEFP para 9), while current expenditure projections are aligned. - The authorities affirmed that should revenues underperform budget expectations, they will adjust spending to meet the 3.1 percent of GDP primary deficit target. - The budget allows for up to JD110 million (0.3 percent of GDP) in additional contingency spending under the 2022 COVID-adjustor, should weekly COVID cases, COVID-related hospitalizations, and/or the share of the non-fully vaccinated population exceed expected thresholds (these will be specified by Cabinet). - The authorities will continue publishing information on 2021 COVID-related spending, including beneficial ownership of entities awarded contracts, and conduct and publish the results of an ex-post audit (new proposed end-June 2022 SB). - The revised fiscal targets for 2022: - Allow support for a higher level of aggregate demand to help reduce unemployment and accommodate key job-support and social protection schemes and growth-enhancing capital spending. - Still imply a significant y-o-y primary balance improvement of 1.6 ppts. of GDP, sufficient to put public debt/GDP on a downward path (text chart, right panel). - Note: Risks to debt sustainability remain, and continued fiscal consolidation efforts will be needed over the medium term. ### Sources of the envisaged primary balance improvement in 2022 - Revenue momentum observed in 2021 expected to continue, implying a cyclical rebound of about 0.4 percent of GDP. - Measures to close tax loopholes, strengthen tax compliance, tackle cigarette and alcohol smuggling, reduce customs brackets, etc., expected to yield an additional 0.5 percent of GDP in revenues. - Expenditure-side savings of 0.7 percent of GDP from: - Significant reductions in current primary spending through economizing non-priority items; - Improving procurement procedures; - Unwinding COVID-related expenditure (e.g., building temporary quarantine sites and hospitals, purchasing and administering vaccines, security to enforce curfews); - Expiration of the March 2021 spending package (with the exception of the Istidamah program, which has been extended till June 2022) (MEFP paras 10–12). - Note: "Domestic revenues are more sensitive to COVID-related shocks and normalization than nominal GDP. When nominal GDP declined by 1.8 percent in 2020, revenues dropped by 9.4 percent." ### Structural fiscal reforms and public finance efficiency (MEFP ¶14) - Investment incentives: - New regime to give MOF the central role in granting and management of all fiscal incentives. - Authorities will submit to Parliament a new draft law which will: - set out the incentives framework—including clear principles to be administered by a fiscal incentives ministerial committee including MOF that takes full account of the benefits and costs, especially foregone government revenues, associated with the incentives; - consolidate the governance of new and existing fiscal incentives under MOF apparatus; - stipulate that all new fiscal incentives will be granted by the fiscal incentives ministerial committee (new proposed SB for end-May, 2022). - Authorities will consider sunset clauses for already-granted tax incentives as per amendments to the JIL submitted to Parliament in December 2020. - Tax administration: - Enhancements to ISTD capacity including: (i) upgrading its IT infrastructure; (ii) strengthening its audit function; (iii) staff training; (iv) fully automating the income and sales tax registration process for new companies; and (v) implementing a digital track-and-trace system for all cigarette companies. - Social safety net: - Phase out temporary support programs while allocating more resources into permanent Takaful program, improving its targeting methodology, moving towards fully virtual payments, and easing registration requirements for women. - Public sector wage bill and efficiency: - Commitments to contain growth in the public wage bill and enhance quality of service delivery, leveraging findings of recently completed study on drivers of the public wage bill (MEFP ¶14, (iii)). - Public procurement: - Accelerate rollout of the eGovernment Procurement system, JONEPS, including amending the relevant Bylaw and regulations to clarify conditions for direct purchasing and committee arrangements (end-December 2021 SB). - Expand JONEPS to the Education and Health Ministries (new proposed SB for end-December 2022), and Greater Amman Municipality (GAM) by June 2023. - Fiscal transparency and fiscal risks management: - Published a comprehensive Fiscal Transparency Evaluation (FTE). - New macro-fiscal unit at MOF will prepare and publish a Fiscal Risk Statement with the 2023 budget, including fiscal risk analysis of four major SOEs. - FCCL at MOF will gather key financial and non-financial information on three major PPPs and all new PPPs, and, subject to confidentiality limitations, publish both explicit fiscal costs and fiscal risks (new proposed end-June 2022 SB). - Investment quality and predictability: - By end-2021, launch the National Registry of Investment Projects (NRIP) comprising the Public Investment Project (PIP) Databank and the PPP Project Databank, including all PIPs in the 2023 General Budget and all prepared PPP projects. - Fiscal policy and debt management capacity: - Macro-fiscal unit to strengthen MOF capacity to generate medium-term forecasts, assess distributional impacts of measures, monitor public balance sheet risks, and carry out debt management and debt sustainability analyses; first report on macro-fiscal outlook and risks by June 2022 (new proposed SB). - Update and publish (by end-March 2022) a Medium-Term Debt Management Strategy (MTDS). ### Ensuring monetary stability and financial sector resilience - Reserves and peg: - The CBJ preserved financial stability and maintained robust international reserve buffers. - Jordan's peg to the U.S. dollar continues to serve as an effective anchor. - Reserves buoyant due to strong official inflows including the $469 million SDR allocation, and a significant retrenchment of banks’ net foreign assets driven by a rise in non-resident deposits. - The CBJ has been a net foreign-exchange buyer in 2021 thus far. - The revised NIR path for 2021–22 reflects higher-than-expected stock of NIR to date and larger current account deficits while continuing to ensure reserves above 100 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric. - The CBJ’s total net purchases of USD in 2021 amounted to $306.5 million as of end-October 2021. - Monetary policy stance: - Monetary policy should remain flexible and data driven, continuing to support the peg. - Comfortable liquidity led CBJ to unwind its reverse repo position around pre-pandemic levels. - ITs on net domestic assets (NDA) of the CBJ for June and September 2021 were met. - Private sector credit growth slowed to around 4½ percent y-o-y (in September). - CBJ should maintain flexible unwinding of crisis support measures but remain alert to liquidity needs and possible sudden BoP pressures (e.g., sharper/faster-than-expected rise in U.S. interest rates). - Subsidized lending schemes: - CBJ expanded subsidized lending scheme for SMEs by JD 200 million in March 2021 (MEFP ¶16). - Scheme accessed by 5,678 companies by end-October 2021. - Demand remained soft; CBJ extended the scheme by six months (to June 2022) and raised borrowing limits for certain sectors (tourism and trade). - Recommendation: schemes should become more targeted and gradually be phased out as recovery gains momentum. - Banking sector soundness and risks: - Risk-weighted capital adequacy ratio: 18.3 percent as of end-June 2021, above regulatory minimum of 12 percent. - NPLs: 5.3 percent (June 2021 data). - Provisions (In percent of classified loans): 75.2 (June 2021 data). - Liquidity ratio: 136.2 (June 2021 data). - Return on assets: 1.2 (June 2021 data). - Loans to deposits ratio: 86.0 (June 2021 data). - Bank profits recovered to pre-pandemic level in June, after large provisioning in 2020. - Debt deferment period for affected borrowers expires end-2021; asset quality effects may still materialize—continued close monitoring required. - Recommendation: CBJ should ensure banks swiftly resolve NPLs and require weaker banks to prepare prudent but feasible capital restoration plans if downside risks materialize. - AML/CFT: - New AML/CFT law enacted in September 2021, but Jordan was placed on the FATF watch list in October 2021 (consistent with 2019 mutual evaluation). - Authorities committed to an action plan to resolve strategic deficiencies and facilitate exit from the watch list by October 2023 (new proposed SB for October 2023). - Intermediate steps include assessment to identify vulnerable non-profit organizations and addressing AML/CFT deficiencies such that Jordan would no longer qualify for referral to the FATF’s ICRG process on the basis of its technical compliance ratings (new proposed SB for June 2022). - Fund technical assistance and FSAP: - Authorities leveraging Fund TA to update monetary policy and banking supervision frameworks and payment systems, and preparing for the financial sector assessment program update in 2022 (MEFP ¶23–24). ### Reforming the electricity and water sectors - NEPCO financials and outlook: - NEPCO’s financial losses undershot expectations in 2021 but will be higher in 2022. - NEPCO losses projected to be contained to 0.5 percent of GDP in 2021, but will rise to 1 percent of GDP in 2022 as Attarat comes online. - NEPCO continued accumulating arrears (JD 90 million by end-September); end-June and end-September ITs on the stock of electricity sector arrears were not met. - Long-term gas supply contracts and delays in Attarat commissioning shielded NEPCO from global commodity price surges. - NEPCO reform measures: - Authorities signed electricity export agreements with neighboring countries (notably Iraq and Lebanon); completion of regional infrastructure upgrades needed for transmission. - Plans to optimize costs related to PPA commitments which impose large capacity charges. - With World Bank support, preparing an update of NEPCO’s Roadmap for Financial Sustainability to be adopted in the first half of 2022; will consider options to migrate NEPCO’s legacy debt to MOF to reduce cost. - Note: This debt migration would have no first-order implications on the DSA, which considers consolidated debt of the central government and NEPCO; there may be second-order benefits if MOF can manage and refinance combined debt at lower cost. - Electricity tariff reform: - Authorities preparing rollout of electricity tariff reform to reduce cross-subsidization and support private sector competitiveness (end-March 2022 SB). - Mid-August announcement of revenue-neutral reform for NEPCO detailed planned reductions in business tariffs amounting to JD 40 million annually, mostly in commercial and industrial sectors. - Authorities preparing an online platform for households applying to retain access to subsidized rates; less than 15 percent of Jordanian households are expected to lose partial or full access to subsidies as a result of the reform—these are on the high end of the income distribution. - Donor assistance essential to support refugees potentially affected, especially after subsidies for the lowest income quartile of Syrian refugee households expire in September 2022. - Water sector challenges and reforms: - Water sector losses elevated at 1.1 percent of GDP in 2021. - Rising costs due to near-record-low rainfall requiring deeper underground extraction and renting of private wells; administrative and technical losses remain elevated. - WAJ and distribution companies incurred arrears (JD 45 million each by September 2021); end-June and end-September ITs were not met. - Authorities preparing a Financial Sustainability Roadmap for the water sector to be adopted by end-March 2022, proposing concrete reforms to improve sector financial position. - Critical to arrest accumulation of arrears, including ensuring MOF’s automatic monthly transfers to WAJ are adequate; electricity sector arrears also have implications for NEPCO’s liquidity management. - Water scarcity projects: - Major desalination PPP project (Aqaba-Amman Conveyor, AAC) RFP presently being prepared; AAC would deliver an additional 300 MCM of water starting 2028. - Authorities committed to transparent and competitive tendering, aligning project due diligence with PPP law requirements, and careful assessment of fiscal risks (including contingent liability materialization) to ensure consistency with debt sustainability. - Recent declaration of intent to supply solar power in exchange for water from Israel could contribute to reducing water scarcity in the medium term. *Sources: National authorities; and IMF staff calculations.* ### 23. The program supports policies aimed at addressing structural impediments to formal ### 23. The program supports policies aimed at addressing structural impediments to formal employment. ### Employment, gender, and youth policies - Government actions to address obstacles to female employment: - Removing gender-biased articles from labor legislation. - Tightening sexual harassment and workplace violence protection (MEFP ¶29). - Improving access to safe and affordable transportation (recently-launched Bus Rapid Transit for Amman). - Policies to promote youth employment: - Lowered social security contributions in the agricultural and IT sectors. - Authorities are looking to extend these reduced rates for new workers under the age of 30 for a period of 10 years in all sectors. - Skills and labor-market interventions: - Strengthening vocational training and internship/employment programs targeted at the youth. - Note: IMF team is working with the ILO on a collaboration concept note to provide more focused structural recommendations during the upcoming 2022 Article IV discussions. ### Business environment, governance, and competition framework - Measures to reduce the cost of doing business: - Streamlining licensing requirements. - Lowering electricity tariffs for businesses. - Strengthening the competition framework and operationalizing the insolvency framework. - Legislative and institutional reforms: - A new draft legislation to strengthen the competition framework, empower the relevant regulatory body, and strengthen antitrust legislation, in line with the UNCTAD Model Law on Competition, will be submitted to Parliament by end-June 2022 (new proposed SB). - Strengthening the anti-corruption legal framework and the capacity of the Integrity and Anti-Corruption Commission, including implementing the amended Illicit Gains Law recently passed by Parliament. ### Program financing and donor engagement - Donor and financing developments: - Grant projections for 2021–22 combined are around US$100m higher than at the Second Review, with larger USAID and EU contributions. - Concessional loans are projected to be US$280 million weaker primarily due to later-than-anticipated disbursement of the EU MFA III (2022Q4 at the earliest) and some reprofiling of World Bank disbursements into outer years. - Staff’s projections do not yet include new World Bank projects totaling around US$0.7–1.2 billion over 2022–24. - Financing composition meeting gross external financing requirements over 2021–22: - Larger private capital flows (driven by a decrease of US$1 billion in commercial banks’ NFA). - The EFF and SDR allocation (together around US$1.4 billion). - Multilateral and bilateral official loans (US$2.8 billion), and grants (US$3 billion). - A Eurobond issuance of US$1.5 billion (now baselined for Q2 2022) to rollover a US$1 billion maturing Eurobond in June 2022. - SDR treatment: - SDR allocation is held as reserves at the CBJ pending a decision on its final treatment expected in 2022; any use should be monitored and reported in line with best international practices of governance and transparency. ### Capacity to repay and safeguards - IMF exposure and repayment capacity: - IMF lending constitutes around 17 percent of disbursed and committed official budget support over 2020–24. - Fund credit outstanding will peak at 3.9 percent of GDP in 2022, 11.5 percent of exports of goods and services in 2021, and 12 percent of gross usable reserves in 2023. - Fund repurchases and charges peak at 1.5 percent of exports of goods and services and 1.8 percent of gross usable reserves in 2024. - Downside risks could strain capacity to repay, but donors’ ongoing commitment to Jordan and strong market access are important safeguards. - CBJ safeguards progress: - Continued implementation of the 2020 safeguards recommendations (MEFP ¶19). - Guidelines for the Emergency Liquidity Assistance (ELA) framework approved by the CBJ Board (end-June SB) to strengthen lender-of-last-resort function. - CBJ reexamined provisions in the central bank law affecting compliance with IFRS; resolved to maintain accounting policies unchanged; resolution endorsed by the CBJ’s Audit Committee and agreed with external auditors, disclosed in audited financial statements for FY2020. ### Staff appraisal — macro performance, risks, and policy priorities - Macroeconomic performance and outlook: - Recovery underway supported by targeted fiscal and monetary measures and gradual reopening. - Reserves are comfortable; dollarization is at the lowest point since 2018; banking sector is well-capitalized. - Government on track to narrow the primary fiscal deficit by 1 percent of GDP in 2021 due to robust revenue collection and institutional efforts to broaden the tax base and improve tax compliance. - Program implementation and reform progress: - Authorities remain strongly committed to the program; all QPCs and most ITs have been met with steady progress on structural conditionality. - Legislative reforms advanced to broaden the tax base and close tax loopholes; commitment to passing an appropriate 2022 budget to continue gradual fiscal consolidation and safeguard debt sustainability and market access. - Risks and constraints: - Large part of population still unvaccinated; uncertainty on new strains and timing of exit from the pandemic. - Unemployment is elevated, especially among the youth, risking permanent scarring and social unrest. - Elevated public debt at 92 percent of GDP in 2021 limits fiscal space for large infrastructure projects. - Vulnerability to a faster-than-expected rise in U.S. interest rates as an emerging market. - Policy recommendations and priorities: - Maintain and further strengthen policy buffers while supporting the recovery. - Continue efforts to broaden the tax base and improve public spending efficiency. - Promptly implement legislative reforms to: - Unify the tax and customs administration in ASEZA under ISTD and Jordan Customs respectively. - Introduce place-of-taxation rules into the GST. - Reform the governance of tax incentives for investment. - Monetary policy should remain data-driven while safeguarding the peg and financial stability. - Maintain vigilance and agility in supervision to ensure banks can support good-quality credit creation during a potentially protracted recovery. - Accelerate structural reforms to remove obstacles to private-sector job creation, female labor participation, and investment; strengthen competition and anti-corruption frameworks; streamline licensing; reduce the economic footprint of the state; and address climate-change challenges, especially water scarcity, in a financially responsible manner. - Fund support recommendation: - Staff supports the authorities’ request for completion of the third review under the extended arrangement and modification of targets on primary central government and combined public sector deficits (Table 7), citing strong program performance, fragile recovery, high unemployment, and risks of scarring. - Emphasis on the critical role of robust and timely development partner support for Jordan’s reform program and its ability to host 1.3 million Syrian refugees; acknowledgment of Jordan’s inclusive vaccination program and continued provision of flexible work permits to refugees. *Source: IMF staff report (excerpts from the chapter).* ### 437.4 M USD ### 1jorea2022001 - 437.4 M USD ### Tourist Arrivals and Receipts (pre-pandemic percent comparisons) - Pre-pandemic reference period: May '18 to August '19 (e.g., total arrivals May '20 were 0% of May '18 arrivals; total arrivals August '21 were 55% of August '19 arrivals). - Series plotted (percent of same month, pre pandemic): Total Travel Receipts; Total Arrivals; Non-Jordanian Arab Arrivals; Jordanians (Domestic Tourists); Non-Arab Arrivals; EU Arrivals. - Timeline shown: May-20 through Aug-21 (monthly). ### Monetary and Financial Indicators (CBJ policy and banking developments) - CBJ cut its main policy rate in March 2020 and has kept it there since. - Interest rate series (percent): Re-Discount Rate; Overnight Deposit; Main Policy Rate (one-week repo); Federal Funds Rate; Interbank rate; Overnight Repo (2013–2021 series shown). - Deposit and lending rates eased; banks’ liquidity positions improved. - Banks' JD Liquidity (Billions, Jan-20 to Sep-21): components shown — Excess reserves deposited at CBJ; Deposits at CBJ's overnight facility; CDs issued by CBJ; Total JD liquidity. - Domestic credit of the banking system (percent): Private sector credit growth (y-o-y); Private sector credit growth exc. refinery; Government credit to total credit (rhs) (2013–2021 series). - CBJ subsidized lending programs expanded (amounts in JD millions, Jan-19 to Sep-21) with notable recent slowing in demand. - Adequate reserves have reduced dollarization to its lowest levels in recent years. Key exact series excerpts: - Banks' JD Liquidity (sample monthly values across 2020–21 shown in charts; exact numeric monthly datapoints in figure). - Private sector credit growth (annual percent change) example entries: 6.3, 3.3, 3.9, 4.5, 4.5, 4.8, 5.9, 6.5, 7.0 (Table 1 Monet. sector). ### Selected Indicators for Jordanian Banks (as of end-June 2021) - Sample: 14 Jordanian banks (weighted by total assets). - Capitalization: Tier 1 Capital to Risk Weighted Assets (Percent) — series 2010–2021 (p75, Median, p25, Average displayed). - Asset quality: Non-Performing Loans less Provisions 1/ (Percent) — series 2010–2021. - Profitability: Return on Total Assets (Percent) — series 2010–2021; profitability recovering as most provisioning took place in 2020. - Liquidity: Liquidity 2/ (Percent) — series 2010–2021; liquidity has deteriorated in recent years. - Funding and growth: Total Loans to Total Deposits (Percent) and Annualized Loan Growth (Percent) — series 2011–2021; loans remain stably funded by deposits and loan growth has held up despite the pandemic. - Notes: 1/ Non-performing loans to gross loans, less ratio of provisions to gross loans. 2/ Liquid assets to customer deposits and short-term funding. ### Macro Outlook: Selected Economic Indicators and Projections (2020–26) — key figures (annual percent change or percent of GDP unless noted) - Real GDP at market prices: 2020 Act. -1.6; 2021 2.0; 2022 2.0 (2nd Rev); Projections: 2022 2.7; 2023 2.7; 2024 3.1; 2025 3.3; 2026 3.3. - GDP deflator at market prices: 2020 -0.3; 2021 1.6; 2022 1.6 (2nd Rev); Projections: 2022 2.0; 2023 2.5; 2024 2.5; 2025 2.5; 2026 2.5. - Nominal GDP at market prices ($ millions): 2020 43,759; 2021 45,344; 2022 45,355 (2nd Rev); Projections: 2022 47,500; 2023 47,744; 2024 50,455; 2025 53,423; 2026 56,565; 2027 59,893 (table extends to 2026 shown). - Consumer price inflation (annual average): 2020 0.4; 2021 2.3; 2022 1.3 (2nd Rev); Projections: 2022 2.0; 2023 2.5; 2024 2.5; 2025 2.5; 2026 2.5. - Unemployment rate (period average, percent) 1/ 22.7 (note: DOS changed methodology in 2017; reports unemployment for Jordanians only). - Overall central government balance (percent of GDP): 2020 -7.3; 2021 -5.8; 2022 -6.6 (2nd Rev); Projections: 2022 -4.1; 2023 -4.4; 2024 -3.4; 2025 -2.2; 2026 -1.8. - Overall central government balance excluding grants (percent of GDP): 2020 -9.9; 2021 -8.4; 2022 -9.0 (2nd Rev); Projections: 2022 -6.4; 2023 -7.1; 2024 -5.1; 2025 -3.5; 2026 -2.8. - Primary government balance (excluding grants, percent of GDP): 2020 -5.7; 2021 -4.3; 2022 -4.7 (2nd Rev); Projections: 2022 -2.4; 2023 -3.1; 2024 -1.1; 2025 0.4; 2026 1.1. - Government and guaranteed gross debt (percent of GDP): 2020 109.0; 2021 113.6; 2022 113.9 (2nd Rev); Projections: 2022 114.7; 2023 114.7; 2024 113.6; 2025 110.4; 2026 107.0; 2027 103.6. - Government and guaranteed gross debt, net of SSC's holdings (percent of GDP): 2020 88.0; 2021 90.9; 2022 91.7 (2nd Rev); Projections: 2022 90.6; 2023 90.9; 2024 88.6; 2025 84.3; 2026 79.8; 2027 75.9. - Current account balance (including grants, percent of GDP): 2020 -8.5; 2021 -8.3; 2022 -9.7 (2nd Rev); Projections: 2022 -3.9; 2023 -4.7; 2024 -3.3; 2025 -2.7; 2026 -2.7; 2027 -2.4. - Exports of goods, f.o.b. ($ billions): 2019 8.0; 2020 8.6; 2021 8.9; 2022 9.2; projections increase to 11.8 by 2026. - Imports of goods, f.o.b. ($ billions): 2019 15.4; 2020 16.6; 2021 17.8; 2022 17.7; projections reach 20.5 by 2026. - Gross usable international reserves ($ millions) memo: 2019 15,127; 2020 15,137; 2021 15,269; 2022 16,085; projections: 2023 15,954; 2024 15,863; 2025 17,007; 2026 17,930; 2027 18,846. - Population (millions): 2019 10.2; 2020 10.3; 2021 10.3; projections 2022–26 around 10.4–10.7. Notes from table: - 3/ Estimated amount of fiscal measures needed to meet programmed fiscal adjustment over 2022-25. - 6/ Government's direct and guaranteed debt (including NEPCO and WAJ debt). SSC = Social Security Corporation. ### Central Government Fiscal Operations (Tables 2a/2b) — selected amounts (JD millions and percent of GDP) - Total revenue and grants (JD millions): 2019 7,677; 2020 7,029; 2021 7,946; 2022 7,972 (2nd Rev); Projections: 2022 8,752; 2023 8,923; 2024 9,280; 2025 9,704; 2026 10,228. - Domestic revenue (JD millions): 2019 6,889; 2020 6,238; 2021 7,183; 2022 7,135 (2nd Rev); projections to 9,852 by 2026. - Tax revenue (JD millions): 2019 4,823; 2020 4,958; 2021 5,550; 2022 5,362 (2nd Rev); projections to 7,459 by 2026. - Taxes on income and profits (JD millions): 2019 1,020; 2020 1,103; 2021 1,178; 2022 1,062 (2nd Rev); projections to 1,657 by 2026. - Sales taxes (JD millions): 2019 3,302; 2020 3,534; 2021 3,993; 2022 3,892 (2nd Rev); projections to 5,289 by 2026. - Nontax revenue (JD millions): 2019 2,066; 2020 1,279; 2021 1,633; 2022 1,774 (2nd Rev). - Grants (JD millions): 2019 789; 2020 791; 2021 763; 2022 836 (2nd Rev). - Total expenditures, inc. other use of cash (JD millions): 2019 9,220; 2020 9,294; 2021 10,067; 2022 9,841 (2nd Rev); projections to 12,259 by 2026. - Current expenditure (JD millions): 2019 7,913; 2020 8,434; 2021 9,025; 2022 8,852 (2nd Rev). - Wages and salaries (JD millions): 2019 1,553; 2020 1,677; 2021 1,779; 2022 1,759 (2nd Rev); projections to 2,108 by 2026. - Interest payments (JD millions): 2019 1,147; 2020 1,289; 2021 1,360; 2022 1,324 (2nd Rev); projections to 1,616 by 2026. - Overall central government balance at current policies (JD millions): 2019 -1,543; 2020 -2,266; 2021 -2,121; 2022 -1,870 (2nd Rev); projections: 2022 -1,493; 2023 -1,691; 2024 -1,820; 2025 -1,952; 2026 -2,043. - Overall central government balance after fiscal measures (JD millions): 2019 -1,543; 2020 -2,266; 2021 -2,125; 2022 -1,870 (2nd Rev); projections: 2022 -1,486; 2023 -1,234; 2024 -849; 2025 -739; 2026 -760. - Financing (JD millions): 2019 2,055; 2020 2,634; 2021 2,482; 2022 2,282 (2nd Rev); projections: 2022 1,895; 2023 1,521; 2024 1,196; 2025 1,073; 2026 1,098. - Foreign financing (net) (JD millions): 2019 194; 2020 1,156; 2021 1,099; 2022 1,437 (2nd Rev); projections: 2022 1,033; 2023 476; 2024 378; 2025 58; 2026 -12. - Domestic financing (net) (JD millions): 2019 1,860; 2020 1,478; 2021 1,383; 2022 846 (2nd Rev); projections: 2022 862; 2023 1,045; 2024 818; 2025 1,015; 2026 1,110. - Government and guaranteed gross debt (JD millions): 2019 30,768; 2020 33,828; 2021 36,627; 2022 36,524 (2nd Rev); projections: 2022 38,837; 2023 40,633; 2024 41,807; 2025 42,909; 2026 44,010. - Government and guaranteed gross debt, net of SSC's holdings (JD millions): 2019 24,651; 2020 27,295; 2021 29,486; 2022 29,219 (2nd Rev); projections: 2022 30,779; 2023 31,681; 2024 31,916; 2025 32,015; 2026 32,182. Notes: - 3/ For 2023-25, unallocated discretionary fiscal measures are unidentified cumulative fiscal measures needed to reach program deficit targets. - 6/ In 2021, JD100 million in arrears will be resolved through securitization. ### NEPCO (National Electric Power Company) — operating balance and financing (2020–26, JD millions) - Revenues (NEPCO): 2020 1,326; 2021 1,429; 2022 1,334 (2nd Rev); projections: 2022 1,452; 2023 1,443; 2024 1,482; 2025 1,540; 2026 1,581; 2027 1,624. - Electricity sales (1/): same series as revenues in projections. - Expenses (NEPCO): 2020 1,415; 2021 1,711; 2022 1,491 (2nd Rev); projections: 2022 1,768; 2023 1,768; 2024 1,795; 2025 1,824; 2026 1,853; 2027 1,873. - Purchase of electricity 2/: 2020 1,254; 2021 1,518; 2022 1,302 (2nd Rev); projections: 2022 1,544; 2023 1,544; 2024 1,566; 2025 1,579; 2026 1,594; 2027 1,600. - Depreciation: 2020 30; 2021 30; 2022 30 (2nd Rev); projections show 31 across years. - Interest payments: 2020 114; 2021 133; 2022 134 (2nd Rev); projections: 2022 164; 2023 170; 2024 185; 2025 199; 2026 213. - Operating balance (QPC) (JD millions): 2020 -89; 2021 -282; 2022 -157 (2nd Rev); projections: 2022 -315; 2023 -325; 2024 -313; 2025 -285; 2026 -272; 2027 -249. - Total net domestic financing equals the negative of operating balances each year (e.g., 2020 89; 2021 282; 2022 157; projections up to 325). - Memorandum: Brent oil prices (USD per barrel) series shown (e.g., 2020 41; 2021 59; projections varying). Projection assumptions and notes: - 1/ Projections include prospects for increased revenues from exports to the West Bank and Iraq. - 2/ Projected costs assume saving measures of 3 percent of the annual cost from 2022 onwards (about JD55 million per year) from negotiations of LNG contracts and PPAs, and/or the debt optimization plan. ### WAJ and Water Distribution Companies (2020–26, JD millions) - WAJ Total Revenues: 2020 45; 2021 47; 2022 34 (2nd Rev); projections 49 in 2022; projections to 42 by 2026. - WAJ Current Expenditure: 2020 164; 2021 160; 2022 156 (2nd Rev); projections around 159 yearly. - Primary balance (WAJ) 2/: 2020 -75; 2021 -68; 2022 -76 (2nd Rev); projections through 2026 -70, -81, -83, -84, -86, -88. - WAJ Overall balance: 2020 -299; 2021 -284; 2022 -304 (2nd Rev); projections -293, -304, -306, -297, -287, -290. - Overall balance of Distribution Companies: 2020 -139; 2021 -69; 2022 -66 (2nd Rev); projections -61, -51, -48, -45, -41, -42. - Consolidated Water Sector overall balance: 2020 -438; 2021 -353; 2022 -370 (2nd Rev); projections -353, -355, -354, -342, -329, -333. - Total net financing for water sector (2020–26): 438, 353, 370, 353, 355, 354, 342, 329, 333. - Memorandum items: Domestic payment arrears of WAJ in JD million: 230 0 0 0 0 0 0 0 0 (table line shows 230 then zeros); Domestic payment arrears of Aqaba, Miyahuna and Yarmouk Distribution Companies: series including 88, 157, 154, 218, 205, 253, 298, 339, 381 (row shows historical levels). Notes: - 1/ Current expenditure includes other expenses such as pensions. - 5/ Transfers from Central Government information from Ministry of Finance. - 2/ Primary balance excludes interest payments and grants. ### Balance of Payments and External Financing (Tables 3a–3d) — selected USD figures and ratios - Current account (USD millions): 2019 -948; 2020 -3,712; 2021 -3,785; 2022 -4,399 (2nd Rev); projections: 2022 -1,850; 2023 -2,222; 2024 -1,660; 2025 -1,463; 2026 -1,542; 2027 -1,455. - Trade balance (USD millions): 2019 -8,747; 2020 -7,396; 2021 -8,011; 2022 -8,882 (2nd Rev); projections: 2022 -8,329; 2023 -8,857; 2024 -8,428; 2025 -8,418; 2026 -8,557; 2027 -8,742. - Travel receipts (USD millions): 2019 5,794; 2020 1,411; 2021 2,257; 2022 2,562 (2nd Rev); projections: 2022 5,437; 2023 5,475; 2024 6,225; 2025 6,790; 2026 7,209; 2027 7,614. - Current transfers net (USD millions) and remittances: remittances series e.g., 2019 3,338; 2020 3,033; 2021 3,034; projections up to 3,589 by 2027. - Capital and financial account (USD millions): 2019 -313; 2020 1,029; 2021 2,140; 2022 2,013 (2nd Rev); projections: 2022 1,708; 2023 1,847; 2024 882; 2025 3,087; 2026 2,697; 2027 2,590. - Gross reserves (USD millions) (memo): 2019 15,402; 2020 16,960; 2021 16,970; 2022 17,102 (2nd Rev); projections 2022 17,918; 2023 17,787; 2024 17,696; 2025 18,839; 2026 19,763; 2027 20,679. - Gross usable reserves (USD millions): 2019 13,512; 2020 15,127; 2021 15,138; 2022 15,269 (2nd Rev); projections: 2022 16,085; 2023 15,954; 2024 15,863; 2025 17,007; 2026 17,930; 2027 18,846. - Current account (percent of GDP): 2019 -2.1; 2020 -8.5; 2021 -8.3; 2022 -9.7 (2nd Rev); projections: 2022 -3.9; 2023 -4.7; 2024 -3.3; 2025 -2.7; 2026 -2.7; 2027 -2.4. - Total external debt (percent of GDP) memo: 2019 68.0; 2020 78.8; 2021 83.1; projections to 2026 70.9. External financing and needs (Table 3b): - (1) Gross financing requirements (USD millions): 2019 4,265; 2020 6,916; 2021 5,796; 2022 6,348 (2nd Rev); projections 2022 4,735; 2023 5,283; 2024 4,797; 2025 3,342; 2026 4,492; 2027 4,295. - (3) Gross financing sources (USD millions): 2019 3,562; 2020 4,943; 2021 3,431; 2022 4,450 (2nd Rev); projections 2022 4,268; 2023 4,383; 2024 3,573; 2025 4,385; 2026 5,416; 2027 5,211. - Official public external financing identified (USD millions) for various years shown (e.g., 2019 1,425; 2020 1,805; 2021 2,374; 2022 2,040 (2nd Rev)). General Government FX needs and sources (Table 3c): - General Government Gross Needs (USD millions) and Sources across 2019–2026 shown; examples: Gross needs 2019 3,656; 2020 3,669; 2021 3,042; 2022 3,252 (2nd Rev); projections vary by year. - Identified official budget support under the EFF (USD millions): 2019 1,260; 2020 1,115; 2021 1,818; 2022 1,490 (2nd Rev); projections to 1,014 in 2023 and 1,190 in 2024. External Budget Financing (Table 3d) — selected commitments (USD millions) - Budget grants (2019–2026 series): total budget grants 2019 972; 2020 1,047; 2021 1,089; 2022 1,006 (2nd Rev); components include EU, GCC, United States, Other; details by source shown in table. - Loans (2019–2026 series): total loans 2019 1,471; 2020 1,438; 2021 1,969; 2022 1,706 (2nd Rev); multilateral, bilateral, IMF purchases, sovereign issuance lines provided. ### Monetary Survey and Central Bank Accounts (Tables 4a/4b) - Broad money (JD millions): 2019 34,968; 2020 37,007; 2021 38,347; 2022 38,357 (2nd Rev); projections: 2022 40,170; 2023 40,027; 2024 42,299; 2025 44,787; 2026 47,422; 2027 50,212. - Currency in circulation (JD millions): 2019 4,631; 2020 5,939; 2021 6,116; 2022 6,118 (2nd Rev); projections to 7,632 by 2026. - Jordanian dinar deposits (JD millions): 2019 24,100; 2020 24,848; 2021 25,785; 2022 25,952 (2nd Rev); projections up to 34,702 by 2026. - Foreign currency deposits (JD millions): 2019 6,237; 2020 6,219; 2021 6,446; 2022 6,287 (2nd Rev); projections to 7,877 by 2026. - Net foreign assets (JD millions): 2019 7,513; 2020 7,528; 2021 7,715; 2022 6,610 (2nd Rev); projections 2022 8,395; 2023 7,249; 2024 8,219; 2025 9,371; 2026 10,190; 2027 10,995. - Net domestic assets (JD millions): 2019 27,455; 2020 29,479; 2021 30,633; 2022 31,747 (2nd Rev); projections 31,775; 32,778; 34,080; 35,416; 37,232; 39,217. - Private sector claims (JD millions): 2019 24,700; 2020 26,262; 2021 27,119; 2022 27,318 (2nd Rev); projections rising to 36,099 by 2026. - Memorandum items: - Year-on-year broad money growth (percent): 2019 4.8; 2020 5.8; 2021 3.6; 2022 3.6 (2nd Rev); projected 4.8, 4.4, 5.7, 5.9, 5.9, 5.9. - Year-on-year private sector credit growth (percent): 2019 4.2; 2020 6.3; 2021 3.3; 2022 3.3 (2nd Rev); projections 3.9, 4.5, 4.5, 4.8, 5.9, 6.5, 7.0. - Foreign currency/total deposits (percent): 2019 20.6; 2020 20.0; 2021 20.0; 2022 19.5 (2nd Rev); projections 19.5 through 18.5 across years. Central Bank of Jordan summary accounts (Table 4b) — selected stocks (JD millions) - Net foreign assets: 2019 9,981; 2020 10,765; 2021 10,455; 2022 10,201 (2nd Rev); projections 10,922; 10,485; 11,243; 12,182; 13,001; 13,806. - Jordanian dinar reserve money (JD millions): 2019 8,083; 2020 9,148; 2021 9,437; 2022 9,516 (2nd Rev); projections 9,791; 9,475; 9,679; 10,212; 10,752; 11,319. - Gross usable international reserves (USD millions) memo: 2019 13,512; 2020 15,127; 2021 15,137; 2022 15,269 (2nd Rev); projections 16,084; 15,954; 15,863; 17,006; 17,930; 18,846. ### IMF Financing under the Extended Fund Facility (EFF) and Program Conditionality - Access and phasing under EFF (SDR million and percent of quota): - Board approval March 25, 2020: 102.9 SDR million (30.0 percent of quota). - Subsequent reviews and purchases: Sept-30-2020 102.9 (30.0); Mar-30-2021 144.1 (42.0); Sept-30-2021 240.1 (70.0); Mar-30-2022 137.2 (40.0); Sept-30-2022 137.2 (40.0); Mar-30-2023 68.6 (20.0); Sept-30-2023 68.6 (20.0); Mar-15-2024 68.6 (20.0). - Total: 1,070.4 SDR million (312.0 percent of quota). - Note: Jordan's quota is SDR 343.1 million. - Indicators of Fund Credit (Table 6, SDR million and percent metrics): stock of existing and prospective Fund credit (end‑period) example: 2020 stock 365.1 (SDR million); 2021 720.4; 2022 1,091.8; 2023 1,349.2; series through 2034 shown. - Proposed Quantitative Performance Criteria and Indicative Targets (Table 7): Primary fiscal deficit central government excluding grants and net transfers to NEPCO and WAJ (flow, cumulative ceiling) and Combined public deficit (flow, cumulative ceiling) among PCs; Net International Reserves of CBJ (USD million, stock, floor) values and "Met" status reported for several dates. Specific target numbers and adjustments listed for Jun-21, Sep-21, Dec-21, Mar-22, Jun-22, Sep-22, Dec-22 columns. - Structural conditionality (Table 8): Prior Action met — submit to Parliament a budget consistent with a JD1,066 million (3.1 percent of GDP) primary deficit central government (excluding grants and transfers to NEPCO and WAJ) by Dec-21. Proposed new structural benchmarks with time frames and policy rationales (e.g., draft "Regulating the Investment Environment and Doing Business Law" by May-22; competition framework legislation by Jun-22; expand JONEPS coverage to Education and Health by Dec-22; publish PPP fiscal costs and risks by Jun-22; ex-post audits of COVID-related spending by Jun-22; macro-fiscal unit reporting by Jun-22; AML/CFT assessments by Jun-22 and implementation by Oct-23). Status columns indicate Met / Not met / Proposed deadlines. *Source: Jordanian authorities; and IMF staff estimates and projections.* ### Annex I. Jordan’s Vaccination Rollout ### Annex I. Jordan’s Vaccination Rollout ### Vaccine supplies and coverage - The authorities have secured a total of 12 million vaccine doses and are in the process of obtaining an additional 5 million. - As of November 30, around 36 percent of the total population in Jordan has been fully vaccinated against COVID-19, and an additional 4 percent has been partially vaccinated. - Jordan has begun vaccinating children aged 12 and above. - A complementary Pfizer booster shot was recommended for eligible immunocompromised groups. - The number of vaccines administered daily has declined rapidly since the summer, leaving Jordan exposed to new fast-spreading variants such as Omicron. - The evolution of COVID cases and hospitalizations continues to bear close monitoring. ### Policy measures to encourage vaccination and ensure testing - Under the mandate of several Defense Orders, unvaccinated employees in both the public and private sectors were asked to submit negative PCR tests or face fines. - Work permits and annual residencies will not be renewed for those who are not vaccinated. - Registering on an electronic government platform to access the vaccination certificate is now a requirement to enter many facilities including public institutions. - Fully vaccinated people are exempted from curfew hours and restrictions. - To encourage vaccination, the government opened several vaccination centers where one can receive a vaccine without an official appointment. - Testing rates peaked from an average of 3 per one thousand per week to 10 in July. ### Vaccination of refugees and equitable access - Jordan extended COVID-19 vaccination to refugees under a policy of equitable and free access: all residents, refugees, and asylum seekers have equal access to the vaccine. - As of November 15, the number of vaccinated refugees in the Azraq and Zaatari camps exceeded 35,000. - Initial data shows that 33 percent of the eligible urban refugee population has been vaccinated. - Over 44,000 refugees are registered on the government platform to receive the vaccine, representing 66 percent of the eligible refugee population. - 51 percent of refugees has already received at least one dose. *Source: Annex I. Jordan’s Vaccination Rollout (from the provided IMF content).* ### 1. Public debt increased sharply in 2020 due to the COVID crisis but should be on a firmly ### 1. Public debt increased sharply in 2020 due to the COVID crisis but should be on a firmly ### Public debt trajectory and drivers - Public debt (consolidated gross direct and guaranteed debt of the central government, NEPCO, WAJ, water distribution companies, and the state-owned Social Security Corporation (SSC)) reached 88 percent of GDP at end-2020. - Projected to peak at 91.7 percent of GDP in 2021. - Projected to decline thereafter to below 80 percent of GDP by 2025, consistent with the Second Review projection. - Contributing factors to the higher debt-to-GDP ratio: the COVID shock in 2020, somewhat higher deficits going forward, and weaker economic growth. - Offsetting factors supportive of a downward debt trajectory after 2021: the authorities’ intention to restart fiscal consolidation, implementation of structural reforms to raise growth potential, and continued investment by the SSC in government debt. ### Pressures outside the central government sector and non-traditional debt instruments - Staff considers issuance of “comfort letters” by the Ministry of Finance to a commercial bank that enable Royal Jordanian to borrow up to JD50 million to amount to a government guarantee, which increases the debt stock. - The SSC’s net income: - Deteriorated by about 15 percent in 2020 compared to 2019 (reduced social security contributions, contraction of the economy, lower investment income, increased payouts). - Rebounded strongly through end-September 2021, mostly due to better-than-expected returns on its equity investments. - SSC interest in government bonds appears strong; government debt accounts for about 58 percent of the SSC’s investment portfolio. - Non-traditional debt instruments (“comfort letters” / “securitized arrears”): - At end-2020, amounted to 2.5 percent of GDP. - In 2021, the MOF issued an additional JD 100 million in “comfort letters” to the refinery to securitize energy arrears owed to it, which increases public debt stock in 2021. - FTE recommended the authorities record these “securitized arrears” as debt and staff encouraged starting to include them (initially as a separate line) in future reports. ### Structure of public debt and financing capacity - Foreign-currency denominated debt is half of total public debt. - A large part is held by multilateral and official bilateral creditors; this pattern will continue given pledges under the Jordan Compact and the 2019 London Initiative. - Domestic debt maturity extension: excluding treasury bills, the average maturity has almost doubled to six years since 2018. - Public gross financing needs (GFNs): - Projected to peak at 19.3 percent in 2022 before declining to 13–1 6 percent over the medium term. - Stress tests indicate GFNs are robust to shocks. - Factors supporting manageable GFNs: significant projected concessional financing; little private external debt maturing during the program; pre-COVID domestic debt maturity extension; maintained external market confidence (a $1.75 billion Eurobond issuance in June 2020 that was more than 6 times oversubscribed); adequately capitalized Jordanian banks; recent domestic bond issuances significantly oversubscribed and domestic interest rates at historic lows; SSC’s ability to scale up purchases of government bonds before its exposure cap binds. - GFNs are projected to decline over the medium term in line with envisaged fiscal consolidation. ### Risks to debt sustainability and policy implications - Significant risks identified: - A longer lasting pandemic with deeper hysteresis effects. - Weaker fiscal consolidation effort. - Tightening of global liquidity conditions. - Losses from SOEs and costs related to PPPs (especially in the water sector) exceeding those already captured in the baseline debt projections. - Policy imperatives highlighted by staff: - Initiate and maintain momentum on growth-friendly fiscal consolidation once the pandemic abates. - Accelerate structural reforms to protect the recovery and boost potential growth. - Mitigate losses from the broader public sector. ### External sector DSA—coverage, projections, and risks - Coverage in the External DSA includes: - Public and publicly guaranteed external debt; and - External liabilities of the banking sector and private corporations (coverage of private external debt, especially the non-banking sector, is likely underestimated due to data limitations). - Public external debt projections: - Around 40 percent of GDP in 2020. - Expected to rise to 46 percent in 2022 reflecting higher external financing support post-COVID-19. - Projected to fall back slightly below 40 percent by 2026. - Composition remains favorable due to sizable share of concessional borrowing (Jordan Compact, 2019 London Initiative). - Private external debt: - Expected to remain in the 31–39 percent of GDP range. - As of end-2020, 77 percent of total private external debt was owed by banks (mostly non-resident deposits); the remainder by non-financial corporations. - Over the medium term, the share of firms’ external debt is expected to gradually increase from roughly a quarter to one third of total private external debt. - External financing requirements: - Sizable through mid-program and gradually declining thereafter, reflecting the post-COVID widening of the current account deficit and amortizations of U.S.-guaranteed Eurobonds falling due in 2022 (assumed rolled-over on market terms). - Upside external pressures could stem from a further sharp rise in fuel prices and/or faster than expected rises in policy rates in advanced countries. - External debt robustness and cautionary note: - Standardized stress-tests suggest sensitivity of external debt to current account and combined shocks is relatively low; interest rate and real growth shocks would have marginal impact. - Assumptions underpinning moderate external debt risk: gradual pickup in FDI inflows due to structural adjustment; sustained international market access; accumulation of additional external buffers under the program. - A large and permanent real depreciation shock would bring the ratio of external debt to GDP well above baseline projections, underscoring importance of safeguarding the peg through prudent policies. *Source: IMF staff Public and External Debt Sustainability content for Jordan as presented in the provided chapter.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Background and macroeconomic context - Jordan has faced severe economic challenges from the COVID-19 pandemic, with interruptions to domestic activity and global supply chains, reduced tourism and remittances, and record high unemployment. - Two back-to-back COVID waves in late 2020 and early 2021 delayed economic reopening; daily new COVID cases declined from a peak of over 800 per million in March to 80 at end-August 2021, allowing complete reopening in September 2021. - Recovery in the first half of 2021 was tepid, concentrated in sectors less affected by the pandemic; heavily affected sectors continue to lag pre-pandemic levels. - Unemployment remains elevated, with youth unemployment rising over 50 percent; the gap between male and female unemployment increased. - Donor shortfalls remain material: as of August 2021, the shortfall between planned and received donor financing for refugees remained in the region of US$1 billion; funding for the Jordan Response Plan stood at 18 percent of 2021 needs. - Over one third of residents have been vaccinated (as stated in the source). ### Pandemic response and social protection measures - Fiscal measures taken included increased social protection spending, deferral of tax, customs and key utility payments, and temporary reduction of consumption tax rates on tourism. - The government used program adjustors to expand healthcare capacity for COVID-19 and to keep parts of the economy open during two significant waves. - The Central Bank of Jordan (CBJ) introduced a subsidized lending scheme for SMEs in 2020 (government bears interest cost where loans are used for payroll) and expanded the scheme’s size in March 2021. - The CBJ extended deferment on debt repayments by affected borrowers to banks to end-December 2021. - The government committed to gradual and carefully sequenced withdrawal of supportive policies to avoid hysteresis and permanent scarring. ### Program performance, governance, and transparency actions - Jordan completed the first two EFF reviews, meeting all key quantitative targets and delivering many structural benchmarks. - The authorities met all end-June 2021 quantitative performance criteria (QPC) and several key indicative targets (IT); most indicative targets for end-September 2021 were also met. - Domestic revenue collections exceeded budgetary targets; domestic revenues are expected to increase by 15 percent relative to 2020, and 4 percent relative to 2019 (pre-COVID year). - The combined public sector deficit and public debt are projected at 6.4 percent of GDP and 91.5 percent of GDP, respectively, at end-2021. - Actions to strengthen governance and transparency: - Implemented digital track-and-trace system for the three largest cigarette companies (end-July SB). - Completed and published ex-post audits of all COVID-related spending, including beneficial ownership information (end-August SB). - Undertook and published an IMF Fiscal Transparency Evaluation (FTE) in September (Jordan was the second country in MENA to do so). - Issued, ahead of schedule, by-laws requiring appraisal documents for all new public investments and PPPs (end-October SB). - Completed a comprehensive study of the wage bill (end-October SB). - Set out timetable to eliminate the end-2020 stock of domestic central government arrears and adopted procedures to prevent new energy arrears (end-July SB). ### Fiscal policy stance and 2022 targets - The government is requesting a relaxation of fiscal targets for 2022 to avoid premature withdrawal of support to vulnerable households and businesses. - 2022 primary deficit target (excluding grants): targeted level of 3.1 percent of GDP (represents a 0.7 ppt of GDP relaxation relative to the 2.4 percent of GDP target for 2022 envisioned at the time of the second review). - The submitted budget is consistent with a JD 1066 million (3.1 percent of GDP) primary central government deficit (excluding grants and transfers to NEPCO and WAJ). - The budget provides for up to JD 110 million (0.3 percent of GDP) in contingency health spending under the 2022 COVID adjustor. - The combined public sector deficit and public debt projections at end-2021: 6.4 percent of GDP and 91.5 percent of GDP, respectively. - If revenues underperform, the authorities commit to adjust spending downward to deliver the 3.1 percent of GDP target; the next review will assess revenue performance and necessary expenditure adjustments. ### Revenues, expenditures, and reforms to meet targets - Domestic revenues expected to outperform 2019 levels due to stronger CIT and sales tax rebounds and continued anti–tax evasion measures. - Planned fiscal consolidation approach for 2022: - Unwind most pandemic-induced temporary measures adopted in 2020–21 (e.g., temporary quarantine sites/hospitals, vaccine procurement and administration, additional security for curfews/quarantines). - Expiration of Defense orders deferring collection of sales taxes and customs duties to increase revenues. - Unwinding of March 31, 2021 fiscal stimulus package except for the Istidamah program, which was extended until June 2022. - Adopt discretionary revenue and expenditure measures to reach the 3.1 percent of GDP primary balance while accommodating higher capital spending. - Commitment to apply Public Investment Management (PIM) appraisal standards to public investments and PPPs. ### Monetary and financial sector policy - The CBJ maintained the peg to the US dollar and an accommodative monetary stance to support credit growth while preserving international reserves. - CBJ actions included two subsidized lending programs supporting businesses and SMEs, guidelines for Emergency Liquidity Assistance (ELA) framework, and enactment of a new AML/CFT law (parliament passed in August). - The authorities will continue to provide data and information necessary to monitor performance under the program as specified in the Technical Memorandum of Understanding (TMU). ### Program requests, monitoring, and next steps with the IMF - Authorities request completion of the third review under the extended arrangement, approval of the related purchase, reset of completion dates of delayed structural conditionality, and modification of performance criteria. - The government and the CBJ expect the fourth review to be completed on or after March 30, 2022, and the fifth review on or after September 30, 2022. - The implementation of the program will continue to be monitored through semi-annual quantitative performance criteria, structural benchmarks, and quarterly indicative targets as described in the MEFP and TMU. - The government authorizes the Fund to publish this Letter of Intent and its attachments, as well as the accompanying staff report. *Source: Appendix I. Letter of Intent (Amman, Jordan, December 8, 2021).* ### 11. A revenue effort of 0.5 percent of GDP will come from measures to broaden the tax ### 11. A revenue effort of 0.5 percent of GDP will come from measures to broaden the tax base, close existing tax loopholes, and aggressively fight tax evasion ### Revenue measures and tax administration - Target: a revenue effort of 0.5 percent of GDP from broadening the tax base, closing loopholes, and combating tax evasion. - Legislative and administrative actions to be promptly implemented (per the recently-completed revenue mobilization plan): - Implement legislative changes related to GST place-of-taxation rules; economic substance requirements for SEZs; bring ASEZA into a single tax administration and a single customs service; give MOF the central role in granting and managing all fiscal incentives for investment in Jordan (see ¶14(i)). - Fully implement the digital volume verification system to reduce cigarette smuggling for all cigarette companies by end-December 2021. - Start harmonizing tax and customs levies on alcoholic drinks within and outside ASEZA to eliminate arbitrage opportunities. - Improve customs revenue collections by significantly reducing the number of tariff brackets to remove personal discretion in classifications and limit corruption opportunities. - Strengthen tax compliance through modernizing ISTD and customs audit operations, greater outreach and training of taxpayers, and continued active anti-tax evasion campaigns. - Specific ISTD and digital initiatives: - Enhance ISTD capacity by upgrading IT infrastructure; strengthen audit function using risk-based practices; build specialized audit teams for high-risk sectors in the large taxpayer directorate (LTD); collaborate with local universities for training. - Fully automate income and sales tax registration process for new companies, including granting tax identification numbers and VAT certificates (by mid-2022). - Implemented a digital track-and-trace system with the three largest cigarette companies; full implementation in the rest of the sector by end-2021. - Plan to launch an e-invoicing system to strengthen monitoring of economic activity and discourage under-invoicing; RFP to select implementer will be released in Q3 2022. - Revenue mobilization and legislative timelines: - Revenue mobilization plan developed with IMF FAD support (end-November SB met). - GST place-of-taxation rules introduced (end-July SB implemented in October 2021). - Parliamentary approval of the ASEZA unification law envisaged by end-March 2022 (SB proposed to be reset from end-September 2021). - New proposed submission to Parliament: “Regulating the Investment Environment and Doing Business Law” (new proposed SB for end-May, 2022) to centralize fiscal incentives under MOF and consider sunset clauses for existing incentives. ### Expenditure reprioritization and public wage bill - Expect significant savings in non-priority current expenditures to create space for budgeted increase in capital expenditures. - Measures to improve current spending efficiency and reprioritize to protect inclusive growth: - Economize on goods and services by postponing non-priority items and improving procurement (competitive bidding and e-procurement). - Continue measures to improve civil service efficiency, including containing growth of the public wage bill while enhancing service delivery quality. - Civil service wage bill study (end-October SB met) findings and implications: - Public-private wage premium not outsized relative to peers. - Civil service employment in education and health growing commensurate with demographic changes. - Identified scope to align compensation packages (including allowances) with market comparators, improve portability of benefits, merge public agencies, and strengthen budgetary oversight and human resource planning. - Discuss study findings with Fund staff in the Article IV consultation in early 2022. ### Public enterprises and local government units — monitoring and corrective measures - Royal Jordanian (RJ): - Five-month suspension of commercial passenger flights in 2020 and slow airport re-opening pressured RJ’s finances. - RJ resumed operations and started new routes to Europe but continued to make losses in 2021. - Government committed to facilitate orderly restructuring to enable quick return to profitability; any support will be measured and conditional on a plan to increase operational efficiency and its implementation. - Greater Amman Municipality (GAM): - Pandemic containment measures led to a decline in GAM’s own-source revenues. - GAM measures: strengthen revenues, decrease operating costs (including reducing wage bill), improve service delivery, stretch debt maturities. - GAM completed the Bus Rapid Transportation (BRT) project to provide reliable, affordable, and safe transportation. ### Structural fiscal reforms (i–viii) (i) Tax policy and revenue administration - New investment regime to centralize fiscal incentives under MOF; submission of “Regulating the Investment Environment and Doing Business Law” to Parliament (new proposed SB for end-May, 2022). - Analysis of tax expenditures with IMF TA; publish estimates and methodology in the 2023 budget. - Commitments on GST, economic substance, transfer pricing, ASEZA unification as detailed under Revenue measures. (ii) Social safety net - Comprehensive review of social spending envelope; publish and implement an action plan to enhance effectiveness and efficiency by end-March 2022. - National Unified Registry (NUR) brought online as single gateway for social assistance. - Program floor on social spending (IT) includes: (i) non-wage components of education and health current expenditure envelope; (ii) NAF’s and other entities’ social protection programs; (iii) school feeding program. - Increased allocations to NAF in the 2021 budget. - Phase out temporary Takaful programs, allocate more resources to Takaful 1, improve targeting methodology, move towards fully virtual payments, and ease registration requirements for women. (iii) Public sector wage bill and efficiency - Study findings (end-October SB met) and proposed reforms described under Expenditure reprioritization and public wage bill. (iv) Public financial management (PFM) - Reduced central government arrears to the health sector by JD 100 million between end-December 2019 and end-September 2021. - Minister of Finance issued circulars and decisions to eliminate end-2020 stock of domestic arrears during 2021–22 and to prevent future energy arrears (end-July 2021 SB). - IMF TA on cash management forthcoming to help prevent new arrears. - Strengthen top-down budgeting, improve fiscal projections, and prohibit treasury advances for unbudgeted expenditures. - Guidance issued to main trust account holders to submit monthly financial transaction information and explanations for changes over JD3 million. (v) Public procurement - Issued regulations for Unified Public Procurement Bylaw implementation. - Accelerate rollout of eGovernment Procurement system, JONEPS: - Amend Bylaw/regulations by end-December 2021 (SB) to clarify direct purchasing conditions and committee issues; ensure staffing for rollout. - Expand JONEPS coverage to include Education and Health Ministries (new proposed SB for end-December 2022). - Start JONEPS implementation at GAM in 2022, with full coverage expected by June 2023. - Expand JONEPS coverage to municipalities by end-December 2022, starting with GAM. (vi) Fiscal transparency and fiscal risks management - Conducted and published a comprehensive Fiscal Transparency Evaluation (FTE). - New macro-fiscal unit at MOF to prepare and publish a Fiscal Risk Statement with the 2023 budget, including fiscal risk analysis of four major SOEs: Royal Jordanian, the Post Office, Al Mutakamela Public Transport, and NEPCO (leveraging FAD’s SOE Health Check Tool). - Fiscal Commitments and Contingent Liabilities Unit (FCCL) to gather information on three major PPPs—powerplants IPP3 and IPP4, and AIG—and all new PPPs; publish explicit fiscal costs and fiscal risks on the MOF website by June 2022 (new proposed end-June 2022 SB), subject to confidentiality. - Expand coverage to an additional 3 of the largest PPPs by end-December 2022. (vii) Investment quality and predictability - Issued Cabinet decisions clarifying PPP law bindingness for new projects whose tendering had not started by April 2020. - Require all ministries and agencies to provide FCCL with documents for established and new PPPs. - Issued secondary legislation requiring PIM appraisal documents for all new PIPs and PPPs (end-Oct 2021 SB). - By end-2021, prepare legislative basis and launch the National Registry of Investment Projects (NRIP) comprising PIP Databank and PPP Project Databank; include all PIPs in the 2023 General Budget and all prepared PPP projects. (viii) Fiscal policy and debt management capacity - Strengthen MOF capacity to produce medium-term forecasts, assess distributional impacts, monitor public balance sheet risks, and carry out debt management and debt sustainability analyses. - Advanced recruitment of 4 new division heads and 4 staff for a new macro-fiscal unit at MOF (end-October 2021 SB, reset end-January 2022 SB); unit to produce first macro-fiscal outlook and risks report by June 2022 (new proposed SB). - Update and publish a Medium-Term Debt Management Strategy (MTDS) by end-March 2022 (building on recent MCM TA). ### Monetary and financial policies and access to finance - Monetary policy anchored by commitment to the exchange rate peg. - CBJ measures during crisis totaled about 8 percent of GDP to support economic activity. - Credit growth (y-o-y) to the private sector: around 6 percent through early 2021, and 4.4 percent through Q3 2021. - CBJ allowed banks to postpone installments of affected customers without commission or penalty interest until end-2021; evaluating further extension. - Objective: maintain international reserves above 100 percent of the Fund’s Reserve Adequacy Metric. - SME support: - JD 500 million SME lending program created in 2020; envelope increased to JD 700 million in March (this year). - Raised borrowing limits for especially hard-hit sectors and extended loan terms; scheme extended to June 2022 with raised borrowing limits for tourism and trade sectors. - Banking system soundness and supervisory actions: - System-wide capital adequacy ratio: 18.3 percent at end-June 2021 (same level as in 2019 and 2020); CBJ regulatory minimum: 12 percent. - CBJ restrictions on profit distribution: no distribution of 2019 profits; 12 percent cap on distribution of 2020 profits as share of paid-in capital. - Non-performing loans: 5.3 percent as of June 2021. - NPL coverage ratio increased from 71.5 percent at end-2020 to 75.2 percent at end-June 2021. - CBJ conducts stress tests; requires strict provisioning in line with IFRS9’s forward-looking expected loss approach. - If any bank’s capital adequacy falls below 12 percent, CBJ will require a credible capital restoration plan. - CBJ framework strengthening: - CBJ approved guidelines to implement the Emergency Liquidity Assistance framework in June (end-June 2021 SB). - Reexamined central bank law provisions that could impede IFRS compliance; resolved to maintain accounting policies unchanged; resolution endorsed by CBJ Board’s Audit Committee and agreed with external auditors, with transparent disclosure in 2020 audited financial statements. *Source: 1jorea2022001 - 11. A revenue effort of 0.5 percent of GDP will come from measures to broaden the tax base, close existing tax loopholes, and aggressively fight tax evasion* ### 20. We are continuing to strengthen the regime for Anti-Money Laundering/Combating ### 1jorea2022001 - 20. We are continuing to strengthen the regime for Anti-Money Laundering/Combating ### AML/CFT reforms and FATF action plan - Enacted a new AML/CFT law in September 2021 to better align with Financial Action Task Force (FATF) standards and address Mutual Evaluation Report (MER) recommendations. - National implementation arrangements: - AML/CTF National Committee formed a national team headed by the Deputy Chairman to ensure effective implementation of the RAs. - Action plans established for each concerned institution based on MER RAs. - CBJ (as chair of the national AML/CFT committee and the AMLU) coordinating with other agencies; lead agencies required to develop their own action plans. - CBJ created a separate AML/CFT supervision department for supervised entities under CBJ responsibility. - FATF status and timelines: - Jordan was placed on the FATF grey list in October 2021. - Committed to a comprehensive and time-bound action plan to resolve remaining deficiencies by October 2023 with a view to exiting the grey list in October 2023. - Aim to complete some items earlier: (i) assessment to identify non-profit organizations vulnerable to terrorist financing abuse; and (ii) addressing AML/CFT deficiencies so Jordan would no longer qualify for referral to the FATF’s ICRG process on the basis of its technical compliance ratings (new proposed SB for June 2022). - Capacity development and outreach: - National AML/CFT committee engaged in capacity development/technical assistance with the Fund, the European Union, and USA. - CBJ outreach to banks to monitor correspondent banking relationships; so far no observed impact, though some banks receive enquiries. - Government signaled hiring freezes will not apply to FATF action plan initiatives and financing will be made available. ### Nonbank financial sector and supervision - Insurance Regulatory Law No. (12) of the Year 2021 entered into effect mid of June 2021 and transfers supervision of the insurance sector to the CBJ. - Statutory objectives: protect policyholders’ interests and ensure safety and soundness of the insurance sector. - CBJ working to modernize and update the regulatory and supervisory framework in accordance with the new law. ### Financial inclusion and access to finance - National Financial Inclusion Strategy: - The National Financial Inclusion Strategy (2018–20) achieved significant success. - CBJ is developing a new National Financial Inclusion Strategy (2023–25) expected to be launched in Q3 2022; it targets low-income segments, women, youth, refugees, and MSMEs and is aligned with the UN SDGs. - Microfinance support: - In Q3 2021, CBJ launched a financing program allocating USD 30 million from the new Arab Fund for Economic and Social Development loan to be lent directly to microfinance institutions at zero interest rate, with government partly subsidizing the cost. ### FSAP update and IMF technical assistance (TA) requests - Requested an update of the Financial Sector Assessment Program (FSAP) in late 2022 with preparatory work starting in early-2022, noting the last FSAP update occurred in 2008. - Additional IMF TA requested to update: - Monetary policy, payment systems and banking supervision frameworks. - Comprehensive monetary and economic policy modeling framework. - Follow-on TA on liquidity forecasting and analysis of components of excess liquidity (e.g., precautionary holdings). - Central bank digital currency (CBDC) analysis. - Risk-based banking supervision. - Update monetary statistics to reflect expanded coverage after mid-2021 when some nonbank financial corporations came under CBJ supervision. ### Electricity sector: NEPCO financial sustainability and reforms - NEPCO losses trajectory: - Losses expected to widen from 0.3 percent of GDP in 2020 to 0.5 percent of GDP in 2021 and 1 percent of GDP in 2022 and outer years. - Strategy to restore NEPCO financial viability includes: - Revenue-enhancing measures: - Incentivize distribution companies to reduce administrative and technical losses. - Install electricity meters for every house connected to the grid. - Promote electrification of different end-users. - Electricity exports revenue expectations: around JD 25 million in 2022 from West Bank; JD 20 million expected from exports to Iraq starting in 2024. - Agreement signed to start electricity exports to Lebanon; coordinating regional infrastructure upgrades. - Cost-reducing measures: - Reduce LNG storage and regasification costs. - Retire old power plants. - Explore options to optimize PPA costs and ensure equitable risk distribution. - Debt optimization: - Government and NEPCO engaged with the World Bank to develop a plan likely to include transferring some legacy NEPCO debt to the central government to facilitate refinancing maturing debt in 2022 and 2023 at slightly lower costs and longer maturities while limiting pressure on the domestic banking system. - Requires strengthening corporate governance at NEPCO with EBRD-supported reforms. - Financial Sustainability Roadmap: - With World Bank support, update the Roadmap and adopt the updated version in the first half of 2022. - Arrears and repayments: - Between January and April 2021, NEPCO cleared JD 69.5 million in arrears to IPPs accumulated during the lockdown. - NEPCO incurred an additional JD 90 million in arrears with SAMRA as of end-September 2021; government will work with SAMRA on a repayment schedule. ### Electricity tariff reform implementation - Reform features: revenue neutral for NEPCO; reduces electricity tariffs for key business sectors; reforms household tariff system to reduce distortions and generate savings progressively. - Expected impacts: enhance private sector competitiveness and support job creation. - Implementation timeline: on track to begin implementation early next year (end-March 2022 SB). - Preparatory measures: - Developing an online platform to process household subsidy applications, with trial runs before implementation. - Committed transitional subsidies for six months to the 35,000 most vulnerable Syrian refugee households; UNHCR asked to identify these households. - Seeking donor assistance to support vulnerable groups, especially refugees. ### Water sector reforms and financial sustainability - Challenges: Jordan is among the driest countries; low water resources depleting rapidly, raising pumping/treatment costs and risk of water shortage crisis; developing new infrastructure will substantially increase capital and current expenditures. - Commitments and measures: - Arrest accumulation of arrears: - MOF established an automatic monthly transfer of JD 7 million to WAJ, with the possibility of an additional JD 5–7 million if needed. - Despite transfers, WAJ accumulated JD 17 million in arrears on electricity payments and JD 28 million in arrears for other charges between January and September 2021. - Adopt a Financial Sustainability Roadmap for the water sector: - Leveraging the “Action Plan to Reduce Water Sector Losses”. - Comprehensive analysis and roadmap to be completed by March 2022. - Address water-electricity nexus: - Design a joint electricity-water multi-year strategy to arrest arrears by the water sector to electricity distribution companies and enable efficient electricity purchase by the water sector. - Continue engaging MEMR on efficient energy use when designing new infrastructure projects. - Ensure due process for new projects and PPPs consistent with the new PPP law: - For the Aqaba-Amman National Conveyor Project (tender started before PPP law), ensure FCCL framework analysis for fiscal commitments, involve PPP Unit staff in tendering committees, and prepare tender documents and draft contracts in coordination with PPP unit. - Complete a competitive tender process consistent with international best practices and transparency. ### Structural policies to promote jobs and growth - Labor market context and indicators: - Unemployment rate for Jordanians at 24.8 percent in 2021Q2. - Youth and young female unemployment at 53 percent and 64 percent respectively. - Labor force participation rate at 34 percent; female labor force participation at 14 percent. - Policy pillars and measures: i) Boost female labor force participation and gender equality: - Ministry of Social Development to review nursery licensing and design a revised model by March 2022. - Submitted to Parliament an amended Labor law to enhance protection for women, including harassment and violence protections and removal of restrictions on female employment in certain professions and industries. - Government will revise social security survivor benefits legislation to eliminate gender discrimination. ii) Reduce youth unemployment: - Streamline and enhance TVET efforts; legislation to consolidate initiatives; strategy to transition beneficiaries into the labor market. - TVSDC adopted a national criterion for accreditation of training curriculums and qualifications of training service providers. - Amend Social Security Law to lower social security contribution rates for new workers hired under the age of 30 for a period of 10 years in all sectors (commitment under Pillar II of the Government Economic Priorities Plan for 2021-2023). - Launch a new National Employment Scheme by the first quarter of 2022 potentially creating 100 thousand new job opportunities. iii) Encourage formality: - Ministry of Labor issued approximately 22,000 flexible working permits for Syrian refugees since January 2021. - A total of 49,868 work permits were issued between January 1 and October 31, 2021. - Ministry of Labor issued instructions specifying acceptable working conditions in the agriculture sector to address barriers to formality. - New instructions to simplify work permit procedures for non-Jordanian skilled labor based on the ISCO-8 profession classification by March 2022. ### Business environment, competition, and trade facilitation - Public investment and PPPs: - With limited fiscal space, public investment will focus on alignment with the Government Economic Priorities Plan for 2021–23 and mobilizing private financing via PPPs. - Plan to bring projects to market in Q1 2022 including King Hussein Bridge Land Border Crossing Terminal and construction of 15 new public schools, avoiding excessive public balance sheet risk. - Administrative streamlining and insolvency: - Implement Property Values Estimation Bylaw (No. 4 of 2019) with Amman Directorates’ property value estimations on track to be completed by end of 2021. - Fully automated income and sales tax registration process for new companies. - Operationalized the new insolvency framework; ongoing capacity building; establishment of the Insolvency Committee and launch of an electronic insolvency registry by end of 2022. - Competition policy and market analysis: - Will submit draft legislation to strengthen competition framework and antitrust legislation in line with UNCTAD Model Law on Competition (new proposed SB for end-June 2022). - Conduct market analysis to identify sectors demonstrating unfair practices and assess government policies that hinder competition or entry for SMEs; provide recommendations based on findings. - Trade and transport facilitation: - Continue implementing measures consistent with the WTO Trade Facilitation Agreement (pre-arrival procedures, advance ruling, acceptance of copies, removing red tape). - Issued a new bylaw for the “Advanced Ruling“ mechanism and will launch a new electronic portal by end of 2021 for importers to apply for Advanced Ruling status. - Jordan Customs to upgrade infrastructure to fully leverage the National Single Window and launch a trade and permit issuance system connected to four licensing GoJ agencies. *Source: Excerpt from the provided IMF content unit.* ### 31. Strengthening governance and increasing transparency remains a key pillar of our ### 1jorea2022001 - 31. Strengthening governance and increasing transparency remains a key pillar of our ### Governance, transparency, and anti-corruption measures - Ongoing publication and updates: - Dedicated government website for COVID-related procurements is being continuously updated, including beneficial ownership of entities awarded contracts. - An ex-post audit (end-August 2021 SB) of all COVID-related spending in 2020 was published; it included an assessment of procurement process transparency and beneficial ownership information provided by firms. - Integrity and Anti-Corruption Commission (IACC): - Efforts to ensure the IACC is adequately resourced to implement amendments to the Illicit Gains Law passed in August 2021. - Support provided for the IACC’s communications strategy and capacity to raise public awareness on good governance and strengthen public trust in the anti-corruption framework. - Structural benchmarks and actions linked to governance and fiscal transparency (selected): - Expand coverage of the e-Government Procurement system (JONEPS) to Education and Health Ministries. — Dec-22 (Governance and fiscal transparency). - FCCL Unit to collect key financial and non-financial information on three major existing PPPs (IPP3 and IPP4 power plants and AIG), and all new PPPs, and subject to confidentiality limitations publish both explicit fiscal costs and fiscal risks on MOF website. — Jun-22 (Managing fiscal risks and fiscal transparency). - Undertake ex-post audits of all COVID-related spending in 2021, and publish the results. — Jun-22 (Governance and fiscal transparency). - Undertake ex-post audits of all crisis-mitigating inflows and spending, assess procurement transparency, and take stock of publication of beneficial ownership of entities awarded such contracts since end-June 2020 and publish the results. — Aug-21 (Met). ### Statistical capacity and economic data improvements - Rationale: - The abruptness and severity of the COVID-19 shock underscored the importance of timely and accurate economic data for policy calibration. - Department of Statistics (DOS) actions: - Continue efforts to increase quality of primary statistics derived from annual industry surveys and ensure consistency with data compiled from quarterly surveys. - With METAC technical support, DOS finalized development of an annual compilation system based on a supply-use framework at end-August and expects to publish 2017–18 annual GDP and revised quarterly GDP estimates by end-December 2021. - Going forward, DOS will adhere to a regular publication and revision schedule that includes revisions to quarterly GDP based on annual GDP estimates. ### Program monitoring, performance criteria, and conditionality - Monitoring framework: - Progress monitored through semi-annual reviews, quantitative performance criteria (PCs), indicative targets, and structural benchmarks; detailed in Tables 1 and 2 and the attached Technical Memorandum of Understanding (TMU). - Quantitative targets for December 2021 and June 2022 are PCs. - IMF disbursements will be on-lent to the government during the program period. - Memorandum of Understanding signed between the CBJ and the Ministry of Finance on responsibilities for servicing financial obligations to the IMF. - Prior Action: - Submit to Parliament a budget consistent with a JD1066 million (3.1 percent of GDP) primary deficit central government (excluding grants and transfers to NEPCO and WAJ). — Dec-21 (Met). - Selected existing structural benchmarks (status highlights): - MOF to complete and share an FAD-supported plan for tax policy and administration reforms. — Nov-21 (Met). - Minister of Finance to issue circular/timetable for elimination of end-2020 stock of central government domestic arrears during 2021–22 and decision on procurement procedures from Jordan Petroleum Refinery Company. — Jul-21 (Met). - Implement the Digital Volume Verification System (track-and-trace) to monitor tobacco production and reduce cigarette smuggling. — Jul-21 (Met). - Issuance of secondary legislation requiring adoption of PIM appraisal documents for all new public investments and PPPs. — Oct-21 (Met). - Recruitment of four new division heads and four staff for new macro-fiscal unit at MOF. — Oct-21 (Not met); Proposed to be reset to Jan-22. - Cabinet approval of the amended Procurement Bylaw and related Instructions based on one year of implementation. — Dec-21 (Transparency). - Roll out of new electricity tariffs for subsidized and unsubsidized households and for business sectors. — Mar-22 (NEPCO's financial viability and cost of doing business). - Introduce into the GST Law "place-of-taxation" rules for GST. — Jul-21 (Not met. Implemented with delay in Oct). - Pass legislation to impose a single tax administration and a single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control. — Sep-21 (Not met); Proposed to be reset to Mar-22. ### Key program quantitative definitions and targets (TMU summary) - Main performance criteria and indicative targets (as specified in Table 1 attached to the MEFP): - Performance criterion (ceiling) on the primary fiscal deficit of the central government excluding grants and net transfers to NEPCO and the Water Authority of Jordan (WAJ) and Aqaba, Miyahuna, and Yarmouk water companies (“state-owned water sector”). - Performance criterion (ceiling) on the combined primary deficit of the central government, the operational loss of NEPCO, the overall deficit of WAJ, and the overall deficit of Aqaba, Miyahuna, and Yarmouk water companies (“combined public deficit”). - Performance criterion (floor) on the net international reserves (NIR) of the Central Bank of Jordan (CBJ). - Continuous performance criterion (zero ceiling) on the accumulation of external debt service arrears. - Indicative target (floor) on social spending by the central government. - Indicative target (ceiling) on public debt, net of SSC’s holdings of government debt. - Indicative target (ceiling) on domestic payment arrears of NEPCO. - Indicative target (ceiling) on domestic payment arrears of WAJ. - Indicative target (ceiling) on domestic payment arrears of Aqaba, Miyahuna, and Yarmouk Water Companies. - Indicative target (ceiling) on net domestic assets (NDA) of the CBJ. - Indicative target (ceiling) on the Social Security Investment Fund’s net financing to the central government. - Monitoring cadence: - Central government primary fiscal deficit, combined public deficit, and social spending by the central government are monitored semi-annually (with indicative targets for other quarters) on a cumulative basis from the beginning of the calendar year. - NIR, public debt, short-term public debt, domestic payment arrears of NEPCO/WAJ/Aqaba-Miyahuna-Yarmouk, and NDA of the CBJ are monitored semi-annually (with indicative targets for other quarters) in terms of stock levels. - Accumulation of external debt service arrears is monitored on a continuous basis. ### TMU exchange rates, gold price, and program conventions - Exchange rate conventions for program measurement: - The exchange rate of the Jordanian dinar to the U.S. dollar is set at JD 0.709 = $1. - Gold price is set at JD 1046.52 per fine troy ounce for the measurement of the program performance criterion on net international reserves. - Program exchange rates (Jordanian Dinar per unit of foreign currency): - British Pound: 0.911106 - Japanese Yen: 0.006505 - Euro: 0.786889 - Canadian dollar: 0.538721 - SDR: 0.975744 - Debt definition and program response: - Debt is defined as set forth in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107), adopted December 5, 2014. - Any developments that could lead to a significant deviation from quantitative program targets will prompt discussions between the authorities and staff on an appropriate policy response. *Source: 1jorea2022001 - 31. Strengthening governance and increasing transparency remains a key pillar of our (PDF).* ### 16. Net external financing of the central government is defined as cash external debt ### 16. Net external financing of the central government is defined as cash external debt ### Definitions: central government financing and transfers - Net external financing of the central government: cash external debt disbursements received by the central government, less external debt repayments paid by the central government. Debts covered: debts of the central government (excluding debts outside the general budget) and any foreign debts channeled through the central government to finance operations of the rest of the public sector. - Receipts from the sale of government assets: all transfers of monies received by the central government in connection with such operations, including receipts from the sale of shares, the sale of non-financial assets, leases, and the sale of licenses or exploration rights with duration of 10 years and longer. - Net domestic bank financing of the central government: change in the banking system’s claims in Jordanian dinars and in foreign currency on the central government, net of the balance of the General Treasury Account with the CBJ. - Net domestic nonbank financing of the central government: central government borrowing from, less repayments to, the non-bank sector (including the nonfinancial public sector not covered by the general budget, and, specifically, the Social Security Investment Fund). Equivalent to the cumulative change from the level existing on December 31 of the previous year in the stocks of government debt held by nonbanks and in the float. - Net transfers from the central government to NEPCO and the state-owned water sector: (i) direct transfers from the central government to NEPCO and the state-owned water sector (or their creditors) on behalf of NEPCO and the state-owned water sector (including subsidies, cash advances, and payment of debt or government guarantees if called), minus (ii) any transfers of cash from NEPCO and the state-owned water sector to the central government (including repayments of debt, arrears or cash advances). ### Adjustors to the ceiling on the primary deficit (excluding grants and net transfers to NEPCO and state water sector) - Downward adjustment: extent to which foreign budgetary grants received by the central government (as specified in Table 1) during the relevant period falls short of the levels specified in Table 1 of the MEFP, up to a maximum of 50 percent of the shortfall. - Upward adjustment: extent to which foreign budgetary grants received by the central government (as specified in Table 1 of the MEFP) during the relevant period exceed the levels specified in Table 1 of the MEFP, up to a maximum of 50 percent of the overperformance. - Exception: For the end-December 2021 QPC, the 50 percent limit does not apply to the first US$200 million in overperformance in grants (applicable limit for which will be 100 percent) deployed for protecting the livelihoods of workers severely affected by the pandemic (spending not covered under paragraph 26 of the TMU). - Downward adjustment: extent to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation (such as the write-off of intra-governmental claims). - Downward adjustment: extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million (the programmed stock as specified in Table 1 of the MEFP) in case of the end-year indicative target or performance criterion. - Upward adjustment for COVID-19 related unbudgeted spending: - For 2020 and 2021: upward by the equivalent amount of unbudgeted spending directly related to efforts to prevent, detect, control, treat and/or contain the spread of COVID-19, authorized by cabinet resolution and funded through exceptional treasury advances, with amounts and nature of expenses reported to staff monthly. - For 2021: if treasury advances for these purposes exceed ½ percent of GDP, the authorities will consult Fund staff on program adaptation. - For 2022: upward by up to JD 110 (0.3 percent of GDP) should weekly cases, hospitalizations or the share on non-fully-vaccinated population exceed levels agreed in the Cabinet. ### Ceiling on the Combined Public Deficit — definitions and adjustors - Combined public deficit (for program monitoring): sum of: - (i) the primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (as defined above); - (ii) the operational loss of NEPCO; and - (iii) the overall deficit of the state-owned water sector. - Operational loss of NEPCO: difference between total operating revenues and total costs for normal operations as reported in the unaudited income statement. - Total operating revenues: sum of (i) sales of operating power; and (ii) all other revenue, excluding proceeds from central government transfers or payments of NEPCO’s obligations on NEPCO’s behalf. - Total costs: sum of (i) purchase of electric power (including fuel costs, capacity and energy charges, and all costs related to electricity generation to be borne by NEPCO); (ii) any fuel transportation costs; (iii) depreciation costs; (iv) all other maintenance and operating expenses, including on wages and remuneration of the board of directors, and provisions; and (v) interest expense and any other financial costs. - Overall balance of the state-owned water sector: difference between total revenues and current and capital expenditures. - Total revenues: sum of (i) sales of goods and services; (ii) property income; and (iii) all other revenue, excluding grants and proceeds from central government transfers or payments of WAJ, Aqaba, Miyahuna or Yarmouk water companies’ obligations on their behalf. - Current and capital expenditures: sum of (i) salaries, wages and allowances; (ii) social security contributions; (iii) use of goods and services, including energy costs; (iv) interest payments on domestic and foreign loans; (v) any other expenses, including pensions; and (vi) capital expenditures. - Adjustors to the ceiling on the combined public deficit mirror those for the primary deficit: - Downward by shortfalls in foreign budgetary grants up to 50 percent of the shortfall. - Upward by overperformance in foreign budgetary grants up to 50 percent of the overperformance. - Exception: For the end-December 2021 QPC, the first US$200 million in overperformance in grants may be treated at 100 percent if deployed for protecting livelihoods of workers affected by containment measures (spending not covered under paragraph 35 of the TMU). - Downward by excess combined health and energy arrears relative to Table 1 projections (excluding one-off settlements). - Downward by excess uncashed checks above JD 200 million for end-year targets. - Upward for COVID-19 unbudgeted spending under the same terms as for the primary deficit (including the ½ percent of GDP consultation trigger and the JD 110 (0.3 percent of GDP) provision for 2022 tied to epidemiological/vaccination thresholds). ### Floor on the Net International Reserves (NIR) of the CBJ - NIR definition: foreign assets of the CBJ minus its foreign liabilities, measured in U.S. dollars. - Foreign assets of the CBJ include: foreign exchange (foreign currency cash, deposits with foreign correspondents, and holding of foreign securities), monetary gold, IMF reserve position, and SDR holdings. - Exclusions from foreign assets: any assets pledged, collateralized, or otherwise encumbered; CBJ’s claims on resident banks and nonbanks; subsidiaries or branches of Jordanian commercial banks located abroad; claims in foreign exchange arising from derivatives in foreign currencies vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid swaps. - Specific exclusion: outstanding balance of bilateral accounts with the Central Bank of Iraq of USD 1,081.67 million. - Foreign liabilities of the CBJ: all foreign exchange liabilities to residents and nonresidents, including commitments to sell foreign exchange arising from derivatives and Jordan’s outstanding liabilities to the IMF. - Exclusions from reserve liabilities: government foreign exchange deposits with the CBJ, deposits from public institutions and government departments with independent budgets, commercial companies with state participation, deposits from donors (including grants received from the GCC and donor term deposits with the CBJ with remaining maturity not less than 360 days), the two technical swaps with Citibank Jordan for USD 88.5 million, and amounts received under any SDR allocations received after March 31, 2016. - Valuation: stock of foreign assets and liabilities of the CBJ shall be valued at program exchange rates. - As of September 30, 2021, the stock of NIR amounted to USD 14,323 million (at program exchange rates). - Adjustors to NIR floors: - Floors adjusted upward (downward) by extent to which the sum of foreign budgetary grants and foreign budgetary loans—excluding programmed guaranteed and non-guaranteed Eurobonds—received by the CBJ (as specified in Table 1) during the relevant period exceeds (falls short of) the levels specified in Table 1 of the MEFP within any calendar year. - For end-year floor on the NIR, the downward adjustment is capped at 75 percent of the aforementioned shortfall. - Given uncertainty on timing of Eurobond issuance assumed under program in Q2 2022 for a minimum of US$1 billion, the floor of the NIR for end-June 2022 will be adjusted downward by the programmed amount (which is $1.5 billion) if the issuance is delayed to Q3 2022. - Floors also adjusted upward by the amount that the outstanding balance of bilateral accounts with the Central Bank of Iraq is repaid, including both principal and interest payments. ### Ceiling on the accumulation of external debt service arrears - External debt service arrears: debt service payments (principal and interest) arising in respect of obligations to non-residents incurred directly or guaranteed by the central government or the CBJ, that have not been made at the time due, taking into account any contractual grace periods. ### Floor on social spending by the central government - Social spending defined to include central government spending on: - (i) non-wage components of the education and health sectors’ current expenditure envelope, including all spending directly related to efforts to prevent, detect, control, treat and/or contain the spread of COVID-19 spending; - (ii) NAF’s and other entities’ social protection programs; and - (iii) the school feeding program. ### Ceiling on public debt - Public debt defined as the sum of: - (i) central government direct debt (including off budget project loans); - (ii) central government guarantees extended to NEPCO, WAJ and other public entities; and - (iii) the stock of the CBJ’s liabilities to the IMF (excluding SDR allocations) not lent on to the central government; minus the Social Security Corporation (SSC) holdings of government debt. - Guarantee definition: arises from any explicit legal obligation of the central government, or any agency acting on its behalf, to service such a debt in the event of nonpayment by the recipient, or from any implicit legal or contractual obligation to finance partially or fully any shortfall incurred by the debtor. - Adjustor: ceiling on public debt will be adjusted downward by the extent to which the cumulative disbursements under the EFF during the relevant period falls short of the levels specified in Table 1. ### Ceilings on domestic payment arrears - NEPCO domestic payment arrears: belated settlement of liabilities due under obligation (contract) for more than 60 days, or creditor’s refusal to receive a settlement duly offered. Covered arrears include outstanding payments on wages and pensions; social security contributions; tax payments; and obligations to banks and other private companies and suppliers. Excludes obligations to the central government arising from net transfers as specified in paragraph 12. - WAJ, and Aqaba, Miyahuna, and Yarmouk Distribution Companies domestic payment arrears: same definition and coverage as NEPCO arrears; excludes obligations to the central government arising from net transfers as specified in paragraph 12. ### Ceiling on the Net Domestic Assets (NDA) of the CBJ - Reserve money of the CBJ: sum of (i) currency in circulation (currency outside banks and commercial banks’ cash in vaults); and (ii) non-remunerated deposits of licensed banks with the CBJ in Jordanian dinars. - NDA of the CBJ: difference between the reserve money of the CBJ and its NIR as defined above. - NDA Adjustors: - Upward (downward) by the extent to which the floors on the net international reserves of the CBJ are adjusted downward (upward). - Downward (upward) by the extent to which the CBJ decreases (increases) reserve requirements on Jordanian dinar deposits of the banking system. The adjustment equals the change in the required reserve ratio multiplied by the stock of deposits with licensed banks at the start of the first month when the new reserve requirement ratio applies that are: (i) denominated in Jordanian dinars and; (ii) subject to reserve requirements. ### Data provision requirements (monitoring and transparency) - The government will provide to the IMF (Division B of the Middle East and Central Asia Department) the following information: - Standard fiscal data tables as prepared by the ministry of finance covering detailed information on: revenue (including expanded information on revenues from oil derivatives, vehicles, and cigarettes, as agreed with IMF staff); expenditure; balances of government accounts with the banking system; foreign grants; domestic and external amortization and interest; net lending; debt swaps with official creditors; and monthly change in the stocks and the monthly value of stocks of uncashed checks and trust accounts. - Government financing information from the Treasury account, as agreed by both the Ministry of Finance and the Central Bank of Jordan, and any potential discrepancy between the government financial data and the monetary survey data (monthly). - Gross transfers to and from NEPCO and WAJ detailing the amounts paid or received in connection with debt transactions, transfers to cover losses, and any amount directed to repay any outstanding arrears of NEPCO or WAJ (monthly). - Stock of all pending bills of the central government not paid for more than 60 days at the end of each quarter (quarterly), including those of the health insurance fund, to distribution electricity companies, and to the Jordan Petroleum Refinery Company. - Value and quantity of fuel products consumed by public sector entities from the Jordan Petroleum Refinery Company (monthly). - All information specified in paragraph 28 related to the combined public sector deficit. - NEPCO: full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days (quarterly) prepared by NEPCO’s accounting department; latest audited income statement signed by the auditor (usually available twice yearly with a six-month delay) with full explanation of any changes to the unaudited version as soon as available to NEPCO’s management. - WAJ and water distribution companies (Aqaba, Miyahuna, and Yarmouk): full unaudited income statements and the stock of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by WAJ’s Directorate of Finance and Accounting and by each distribution company. *Source: 1jorea2022001 - 16. Net external financing of the central government is defined as cash external debt* ### 67. Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the ### 1jorea2022001 - 67. Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the ### Data reporting requirements and timelines - Items to be reported (selected highlights from items 67–90): - Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the central government (quarterly). - Monthly gas flows from Egypt in million cubic meters (quarterly). - Monthly Liquefied Natural Gas (LNG) flows in the LNG terminal in Aqaba in million British Thermal Units and their average price, and breakdown of these flows between local use and re-exports to Egypt (quarterly). - CBJ’s foreign exchange reserves and preliminary data on dollarization (weekly). - CBJ’s monthly FX interventions in the interbank market. - Data on CD auctions (following each auction). - Monetary statistics (monthly). - The outstanding balance of bilateral accounts with the Central Bank of Iraq (monthly). - Banking FSI (quarterly; starting 2021 Q1). - Details of official arrears accumulated on interest and principal payments to non-resident creditors; external arrears data provided using actual exchange rates and on a daily basis. - Fiscal tables on the central government’s domestic and external debt (monthly). - Tables on the stock of debt guarantees extended to NEPCO, WAJ, and other public entities (monthly). - Data on short-term public debt (monthly). - A table on the amount of central government spending on each of the components of the social spending definition under the program (monthly). - Interest rates and consumer prices; and exports and imports; travel receipts and tourist arrivals; remittances; outstanding balance of non-resident purchases of domestic treasury bills and bonds; and GCC grants received by the CBJ and grants transferred by the CBJ to the Ministry of Finance (monthly). - Balance of payments (current and capital accounts) and external debt developments (quarterly). - List of short-, medium- and long-term public and publicly-guaranteed external loans contracted during each quarter, identifying for each loan: the creditor, the borrower, the amount and currency, the maturity and grace period, interest rate arrangements, and the amortization profile (quarterly). - National accounts statistics (quarterly). - Reporting timetables and lags: - Weekly data and data on CD auctions: sent to the Fund with a lag of no more than one week. - Monthly and quarterly monetary and fiscal variables: sent within a period of no more than six weeks. - Other monthly and quarterly data: sent within a period of no more than eight weeks. - National accounts statistics and balance of payments and external debt statistics: sent within three months. - Data related to the continuous performance criterion (arrears): sent within one week after the date when the arrear was incurred. - Any revisions to previously reported data: communicated to staff in the context of regular updates. ### Recent developments and macroeconomic context - Pandemic and recovery: - Jordan continues to face unprecedented social and economic challenges due to the COVID-19 pandemic, after a decade of deep exogenous shocks. - Preventive actions and a strong vaccination campaign mitigated the effects of COVID-19 variants; a nascent recovery is underway supported by targeted fiscal and monetary measures. - Unemployment remains high, concentrated in the services sector, particularly among youth and women; over half of young job seekers are out of work. - External and financial buffers: - International reserves are comfortable and are expected to remain above 100 percent of the ARA metric through end-year. - The financial sector remains resilient, dollarization is at the lowest point since 2018, and the EMBIG spreads remain among the lowest in the region. - Refugees and humanitarian context: - Jordan continues to host 1.3 million Syrian refugees; equitable access to vaccination has been provided to both citizens and refugees. - Adequate and timely international support is critical for Jordan to continue shouldering the burden of hosting the Syrian refugees. ### Performance under the EFF (findings and institutional actions) - Program implementation and results: - All end-June 2021 quantitative performance criteria (QPC) and several key indicative targets were met; most indicative targets for end-September were met. - Several critically important structural benchmarks (SBs) were delivered. - Governance, transparency, and revenue measures: - Amendments introducing “place-of-taxation” rules into the GST law submitted to parliament. - Digital track-and-trace system implemented for the three largest cigarette companies. - Completed and published ex-post audits of all COVID-related spending, including beneficial ownership information. - Jordan undertook a Fiscal Transparency Evaluation. - Robust anti-tax evasion policy and enhanced tax administration capacity implemented. - By-laws issued requiring appraisal documents for all new public investments and PPPs. - Conditionality burden: - Number of SBs under the third review remained large at ten; authorities consider this burdensome during the pandemic and hope for more streamlined future conditionality. ### Fiscal policy, projections, and reform priorities - 2022 fiscal stance and medium-term balance: - For 2022, the primary deficit target is 3.1 percent of GDP. - This implies a 0.7 ppt of GDP relaxation relative to the target envisaged at the time of the second review. - Revised targets for 2022 still imply a significant year-on-year primary balance improvement of 1.6 ppts of GDP, sufficient to put public debt/GDP on a downward path. - Revenue and expenditure measures: - Revenue momentum observed in 2021 is expected to continue. - A revenue effort of 0.5 percent of GDP will come from measures to broaden the tax base, strengthen tax compliance, close existing tax loopholes, and aggressively fight tax evasion. - MOF expects significant savings in non-priority current expenditures to allow space for the budgeted increase in capital expenditures. - Social protection and targeting: - Additional fiscal space (the 0.7 ppt of GDP relaxation) will allow a more gradual withdrawal of fiscal support measures, notably health, social and job protection measures, to limit scarring effects of the pandemic. - Fiscal strategy remains anchored in equitable tax reforms to create fiscal space for higher social protection spending. - Structural fiscal reforms (MEFP commitments): - Strengthen investment incentives, administration capacity, the adequacy and efficiency of the social safety net, civil service efficiency, fiscal transparency and fiscal risks management, investment quality and predictability, and debt management capacity. ### Monetary, exchange rate, and financial-sector policies - Exchange rate regime and reserve policy: - Monetary policy anchored by the peg to the US dollar; peg has maintained market confidence. - CBJ maintained an accommodative monetary stance while keeping international reserves at a comfortable level. - CBJ targets reserve coverage that exceeds 100 percent of the Fund’s ARA Metric. - Liquidity and targeted programs: - At the onset of the pandemic, the CBJ provided liquidity of about 8 percent of GDP to the market. - The CBJ implemented two subsidized lending programs supporting businesses and SMEs; postponed loan installments for affected customers without commission or penalty interest until end-2021 (further extension under evaluation). - Subsidized lending scheme extended to June 2022 and borrowing limits raised for the tourism and trade sectors. - Financial soundness and supervision: - Banking system remained liquid and well-capitalized. - Non-performing loans are low; coverage ratio increased at end-2020. - CBJ conducts stress tests and requires strict provisioning in line with IFRS9’s forward-looking expected loss approach. - Should capital adequacy fall below the 12 percent CBJ threshold for any bank, the bank must submit a credible capital restoration plan. - CBJ requested the Fund to conduct an update of the FSAP in late 2022, with preparatory work starting in early-2022. - AML/CFT priorities: - AML/CFT law enacted in September 2021 in line with international best practices. - Jordan placed on the FATF’s list of countries under increased monitoring in October 2021. - Authorities put in place a comprehensive plan to address remaining RAs and to facilitate exit from the FATF list by October 2023. - Intermediate commitments include assessment of vulnerable non-profit organizations and addressing AML/CFT deficiencies to avoid referral to the FATF’s International Co-operation Review Group process. ### Other structural reforms and sectoral strategies - Electricity sector: - Authorities working to reduce NEPCO’s losses and restore financial sustainability. - Cleared NEPCO arrears accumulated in 2020 and signed electricity export agreements with neighboring countries. - Preparing, with World Bank support, an update of NEPCO’s Roadmap for Financial Sustainability to be adopted in the first half of 2022. - Roadmap will consider options to migrate NEPCO’s legacy debt to MOF to reduce its cost; electricity tariff reform adopted in second review to reduce cross-subsidization. - Water sector: - Authorities committed to scaling up reforms and adopting a Financial Sustainability Roadmap for the water sector by March 2022. - Actions aim to stop accumulation of arrears and ensure sustainable water supply. - Labor market and job creation: - Reforms aimed at increasing labor force participation and encouraging formal, female, and youth employment. - Measures include removing gender-biased articles from labor legislation, tightening sexual harassment and workplace violence protection, improving access to safe and affordable transportation. - Lowered social security contributions in the agricultural and IT sectors; considering extending reduced rates for new workers under age 30 for a period of 10 years in all sectors. - Strengthening vocational training and internship/employment programs targeted at youth. - Business environment and competition: - Streamlining licensing requirements, lowering electricity tariffs for businesses, strengthening competition and insolvency frameworks. - Plan to submit draft legislation aimed at strengthening the competition framework, in line with the UNCTAD Model Law on Competition, by end-June 2022. - Strengthening anti-corruption legal framework and capacity of the Integrity and Anti-Corruption Commission. ### Key policy recommendations and commitments - Maintain macroeconomic stability and external buffers while supporting a nascent recovery through a calibrated fiscal adjustment consistent with debt sustainability. - Preserve monetary and financial sector stability by sustaining the peg to the US dollar and maintaining international reserves above 100 percent of the ARA metric. - Continue targeted support to vulnerable households, SMEs, and pandemic-affected sectors while gradually withdrawing broad-based emergency measures. - Strengthen revenue mobilization through measures that broaden the tax base, enhance compliance, and combat tax evasion to achieve a revenue effort of 0.5 percent of GDP. - Advance structural reforms in electricity, water, labor markets, competition, and anticorruption to boost private-sector-led and more inclusive growth. - Complete AML/CFT action plan to facilitate exit from FATF increased monitoring by October 2023. - Ensure timely, high-frequency reporting of fiscal, monetary, external, and arrears-related data per the specified lags to enable program monitoring. ### Conclusion (authorities' assessment) - The Jordanian authorities value the strong partnership with the Fund and demonstrate strong ownership and commitment to the EFF-supported program. - Program implementation remains strong; authorities are committed to maintaining macroeconomic stability, pursuing economic reforms, and protecting the most vulnerable. *Statement by Mahmoud Mohieldin, Executive Director for Jordan, Ali Alhosani, Alternate Executive Director for Jordan, and Maya Choueiri, Senior Advisor for Jordan December 20, 2021* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1jorea2022001.pdf_