## 1jorea2022003 - conclusion of the fourth review will augment Jordan’s access under the EFF to SDR 1,145.954 million ## Source details **Canonical URL:** [1jorea2022003 - conclusion of the fourth review will augment Jordan’s access under the EFF to SDR 1,145.954 million](https://www.imf.org/-/media/files/publications/cr/2022/english/1jorea2022003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1jorea2022003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1jorea2022003.pdf.json) --- ### Summary and outlook - Augmented EFF access: SDR 1,145.954 million (about US$1.526 billion, equivalent to 334 percent of Jordan’s quota in the IMF). - Recovery status: - Recovery underway supported by reopening and targeted fiscal and monetary measures. - Growth expected: 2.4 percent in 2022 (marked down by 0.3 ppts. from the third review). - Inflation: 3.6 percent (end-April 2022). - Unemployment: 23 percent (staff note); unemployment in 2021: 23.3 percent; youth unemployment still over 50 percent (Q4 2021: youth total 56.4 percent; young female 67 percent). - External position: - Current account deficit: 8.8 percent of GDP in 2021; projected around 6.7 percent of GDP in 2022. - Gross usable international reserves: 15,954 ($ millions) in 2021 (table entries); Net international reserves: 13,762 ($ millions) in 2021. - Fund financing adjustments: - Fund increasing planned disbursements in 2022 by SDR 120.085 million including augmenting access by SDR 75.482 million. ### Fiscal policy and program implementation - Program performance and targets: - All December 2021 quantitative performance criteria (QPCs), and many end-March 2022 indicative targets (ITs), were met. - Primary deficit target for 2022 (excluding grants): 3.4 percent of GDP (including a 0.3 percent of GDP COVID adjustor). - Domestic revenues overperformed 2021 projections by 0.5 percent of GDP; tax revenues up 13 percent y-o-y. - Recent fiscal actions and costs: - Blanket fuel subsidies (Feb–end-April 2022) cost [0.5] percent of GDP; Cabinet decision to contain 2022 fuel subsidy cost to JD 350 million. - Phasing out subsidies: (i) 60 fils increase in octane 95 for June; full removal of octane 95 subsidy by end-August 2022; (ii) remove fuel subsidies on other oil derivatives by end-2022 while protecting the vulnerable. - Wheat subsidy expected to increase by 0.1 percent of GDP as strategic stocks are replenished. - Social spending: NAF allocation increased by JD 30 million (0.1 percent of GDP) above budget. - Medium-term consolidation and fiscal gap: - Revised consolidation pace: averaging 0.8 percent of GDP per year over medium term to reach zero primary balance by 2027. - Revised central government primary balance (percent of GDP, excl. grants): 2021–2027 revised path: -4.5, -3.4, -2.7, -1.7, -0.9, -0.3, 0.0. - Additional discretionary measures needed: cumulative 1.7 percent of GDP by 2027. - Identified revenue and expenditure yields (cumulative percent of GDP): total expected yield 0.2 (2023), 0.6 (2024), 1.7 (2027); revenue reforms: 0.2 (2023), 0.4 (2024), 1.2 (2027); expenditure reforms: 0.0 (2023), 0.2 (2024), 0.5 (2027). ### Monetary policy, external sector, and financial stability - Exchange rate and reserves: - Peg operational detail: nominal exchange rate 1.411 (program reference); JD 0.709 = $ 1 (TMU). - Gross usable reserves (USD millions): 15,127 (2020), 15,269 (2021), 15,954 (2022 proj). - Reserves reached 115 percent of the reserve adequacy metric (ARA) at end-2021; operational reserve buffer target: above 100 percent of ARA. - Monetary policy guidance: - Monetary policy to remain focused on supporting the peg; CBJ should continue data-driven adjustments in response to Fed actions and maintain adequate reserve buffers. - CBJ actions: two rate hikes since March (cumulative 75 basis points); CBJ sold USD$262 million in FX market in March–May 2022. - Financial sector soundness: - Capital adequacy (risk-weighted): 18.0 (2021); regulatory minimum: 12 percent. - NPLs: 5.0 percent (2021). - Provisions (percent of classified loans): 79.9 (2021). - Liquidity ratio: 141.5 (2021). - Return on assets: 1.0 (2021). - Private sector credit growth: around 5 percent y-o-y in 2021 and 5.7 percent y-o-y in March 2022. - Subsidized lending schemes: - JD 700 million SME scheme accessed by 5,914 companies by April 2022; scheme extended to September 2022; intended unwinding no later than 2023. - JD 1.3 billion subsidized scheme extended to March 2023; authorities to review interest rate over medium term. - AML/CFT and supervision: - New AML/CFT law enacted September 2021; Jordan placed on FATF watch list October 2021; authorities committed to action plan to exit watch list by October 2023. - CBJ will develop a risk-based solvency regime for insurance (SB due June 2023) and implement an Inspection Management System (IMS). ### Structural reforms, public enterprises, and climate adaptation (water and electricity) - Objectives: - Boost female labor force participation; reduce youth unemployment; increase labor market flexibility; promote competition; reduce costs of doing business; strengthen governance and transparency. - Labor and social measures: - National Employment Program to support 60,000 private sector jobs for youth. - Female labor force participation: 13.6 percent (Q1 2022); women earn on average 17 percent less than men for the same work. - Proposed measures: labor law amendments (SB proposed Nov 2022), childcare instructions, Amman BRT to improve women’s transport access. - Electricity sector: - New electricity tariff rollout (April 1, 2022) designed revenue-neutral for NEPCO; around 1.1 million households applied for subsidies online. - NEPCO losses: contained at around ½ percent of GDP in 2021; projected NEPCO deficit 0.3 percent of GDP in 2022; NEPCO arrears JD 100 million by end-March 2022. - Financial Sustainability Roadmap being developed; revenue-enhancing measures (Time of Use tariffs, universal metering), cost-reducing measures, governance reforms supported by EBRD. - Water sector and climate adaptation: - Jordan water scarcity: per capita renewable water resources 96 cubic meters per year. - Non-revenue water (NRW): 50 percent current level; targets: 40 percent by 2030, 25 percent by 2040. - Aqaba-Amman Conveyance (AAC) project: ~US$2.5 billion PPP; donor pledges US$1.8 billion; staff baseline fiscal cost: US$70 million annually over 2023-2027 during build stage; potential long-term government guarantee of at least 1 percent of GDP annually for 21 years from 2028. - Water sector combined losses: 1.2 percent of GDP; WAJ arrears JD 90 million and water sector arrears JD 152 million at March 2022. - Financial Sustainability Roadmap for water to be adopted by August 2022 (prepared with international partners). - Procurement, SOEs, and PPPs: - FCCL unit gathering PPP fiscal costs; NRIP (National Registry of Investment Projects) to be launched by end-2022; ensure PPPs follow new PPP law and transparent competitive procurement. - Monitoring of SOEs: Royal Jordanian may require JD 70 million capital injection in 2022. ### Access, program financing, debt sustainability, and risks - IMF access and phasing: - Staff proposes augmentation by SDR 75.482 million; rephasing to increase 2022 disbursements by SDR 120.085 million relative to third review. - Augmentation brings EFF access to SDR 1,145.954 million (334 percent of quota); cumulative access to peak just below 435 percent of quota in 2023Q3; annual access peaks at 115 percent of quota in 2022Q4. - Program financing adjustments and sovereign issuance: - Eurobond activity: authorities issued US$650 million 5½ year Eurobond at 7.75 percent coupon on June 8; considering issuing US$1 billion (rather than US$1.5 billion) in 2022. - Authorities approached GCC creditors to convert US$1,166 million deposits at CBJ into long-term loans. - Use of reserve buffers about US$1 billion mostly in 2022 while maintaining reserves around 100 percent of ARA metric over 2022-23. - Debt path projections: - Public debt-to-GDP: 91.9 percent in 2021 → 91 percent in 2022 → 80 percent by 2027 under revised path (slower than third review projection where 80 percent was projected in 2025). - Public gross financing needs (GFNs): peak at 18.8 percent in 2022, then 15–18 percent over medium term. - SSC holdings: SSIF holdings significant; SSIF assets outside general government equal 16.6 percent of GDP implying net debt position of 75.3 percent of GDP. - Debt sustainability mitigation and risks: - Mitigants: long-term gas contracts (17 percent of energy mix), strategic wheat reserves (12 months), relatively low net food imports (2 percent of GDP), strong donor engagement and concessional financing, SSIF capacity to purchase government bonds. - Key downside risks: larger commodity price shocks, faster Fed hikes tightening global financial conditions, climate change adaptation costs (e.g., additional JD100 million annual water investments), realization of contingent liabilities (AANCP guarantees up to 0.9–3.6 percent of GDP), and regional geopolitical tensions. - Stress tests: large permanent real depreciation would materially worsen external debt metrics; safeguarding peg is critical. ### Policy recommendations, conditionality, and monitoring - Fiscal policy: - Maintain macro-fiscal stability while protecting the most vulnerable. - Continue revenue mobilization: broaden income tax base, broaden GST via place-of-taxation rules, close ASEZA loopholes, digital track-and-trace for cigarettes and alcohol. - Phase out blanket fuel subsidies and replace with targeted transfers; contain 2022 fuel subsidy to JD 350 million. - Implement discretionary measures cumulatively totaling 1.7 percent of GDP by 2027 if needed. - Monetary and financial policy: - Focus on protecting the peg; maintain reserves above 100 percent of ARA metric. - CBJ to remain data-driven and ready to adjust policy rates; closely monitor banks’ asset quality and require capital restoration plans if needed. - Phase out subsidized lending schemes as recovery consolidates. - Structural reforms and governance: - Complete Financial Sustainability Roadmaps for electricity and water sectors; ensure due financial diligence and transparency for megaproject procurement. - Advance labor market reforms to boost female participation and reduce youth unemployment; implement Public Sector Modernization plan and TVET improvements. - Strengthen procurement, e-procurement rollout (JONEPS), fiscal risk monitoring (MFU to publish Fiscal Risk Statement with 2023 budget), and FCCL transparency on PPP fiscal costs. - Monitoring and program conditionality: - Progress monitored via semi-annual reviews, QPCs, ITs, and structural benchmarks as defined in the TMU. - Key structural benchmarks and SB status: rollout of new electricity tariffs (Met); ASEZA tax/custs integration (implemented with delay); procurement bylaw approved (Met); macro-fiscal unit report produced (Met); other SBs reset or rescheduled (see TMU schedule). - TMU definitions and data provision requirements specified for NIR, primary deficit, combined public deficit, arrears reporting, and other monitoring tables. *Source: IMF staff report — Jordan: Staff Report for the 2022 Article IV Consultation and Fourth Review under the Extended Arrangement under the Extended Fund Facility, request for augmentation and rephasing of access, and modification of performance criteria (June 14, 2022).* ### conclusion of the fourth review will augment Jordan’s access under the EFF to SDR 1,145.954 million ### 1jorea2022003 - conclusion of the fourth review will augment Jordan’s access under the EFF to SDR 1,145.954 million ### Summary and outlook - The conclusion of the fourth review will augment Jordan’s access under the EFF to SDR 1,145.954 million (about US$1.526 billion, equivalent to 334 percent of Jordan’s quota in the IMF). - Recovery is underway helped by the economic reopening and supported by targeted fiscal and monetary measures. - Growth is expected to strengthen to 2.4 percent in 2022, but is being marked down by 0.3 ppts. from the third review, reflecting tighter financial conditions and spillovers from the war in Ukraine. - Inflation, contained in 2021, rose slightly in 2022, reaching 3.6 percent at end-April. - Unemployment remains very high, particularly among youth; the staff report notes unemployment of 23 percent. - The current account deficit is projected to narrow from 8.8 percent of GDP in 2021 to around 6.7 percent of GDP in 2022, but external financing needs have increased due to elevated fuel import prices and tighter global financial conditions. - The Fund is increasing planned disbursements in 2022 by SDR 120.085 million including through augmenting access under the EFF by SDR 75.482 million. ### Fiscal policy and program implementation - Program implementation is described as firmly on track: all December 2021 quantitative performance criteria (QPCs), and many end-March 2022 indicative targets (IT), were met. - Revenue mobilization has overperformed, reflecting efforts to reduce tax evasion and close tax loopholes. - The blanket fuel subsidies introduced in February were fiscally costly and are being phased out in favor of targeted support for the vulnerable. - The 2022 primary deficit target of 3.4 percent of GDP remains within reach owing to revenue overperformance and amenable nonpriority spending. - The program has been recalibrated to allow for a more gradual pace of medium-term fiscal consolidation to protect the vulnerable while safeguarding debt sustainability. - Authorities requested augmentation of access by SDR 75.482 million, accompanied by some rephasing, increasing 2022 disbursements by SDR 120.085 million relative to the third review. - Near-term fiscal strategy priorities: - Maintain macro-fiscal stability while protecting the most vulnerable. - Implement remaining legislative and administrative reforms to broaden the tax base and close tax loopholes. - Phase out blanket fuel subsidies in favor of targeted support. - Pursue a more gradual medium-term fiscal consolidation path underpinned by high-quality measures bringing debt under 80 percent of GDP by 2027. ### Monetary policy, external sector, and financial stability - Monetary policy should remain focused on supporting the peg (nominal exchange rate 1.411) in an increasingly volatile external environment. - Authorities should remain alert to emerging balance of payments pressures and ensure reserve adequacy is preserved. - The financial sector is assessed as sound overall, but banks’ asset quality should be closely monitored until pandemic effects and current headwinds are fully absorbed. - Subsidized lending schemes should become more targeted and be gradually phased out as the recovery gains momentum. - To enhance the AML/CFT regime, authorities committed to an action plan to resolve remaining strategic deficiencies identified by the FATF. - Memo figures of interest: - Gross usable international reserves: 15,954 ($ millions) in 2021 (table entries show a sequence with 15,954 for 2021 and other years). - Net international reserves: 13,762 ($ millions) in 2021. - Real GDP at market prices: 2.4 percent (proj. 2022 per table and narrative consistency). ### Structural reforms, public enterprises, and climate adaptation - Structural reforms are critical to boost female labor force participation, enhance youth employment and labor market flexibility, promote competition, reduce the costs of doing business, and strengthen governance and transparency. - Key reform measures and priorities: - Advance legislation to support female labor force participation and improve the competition regulatory framework. - Continue rollout of new electricity tariffs (noted as welcome) and address water scarcity. - Adopt financial sustainability roadmaps for the water and electricity sectors and ensure due financial diligence and transparency of megaproject procurement, particularly to address water scarcity. - Improve transparency and efficiency in public spending and SOEs to accommodate priority social and capital spending. - Stepped-up and timely donor support remains critical, including to aid Jordan in hosting 1.3 million Syrian refugees. ### Executive Board assessment and staff appraisal highlights - Directors commended swift and decisive policy actions and strong ownership of the IMF-supported program. - Given high unemployment and global headwinds (high commodity prices and rising global interest rates), Directors supported more gradual fiscal consolidation and emphasized continued revenue mobilization and replacing costly fuel subsidies with targeted support within the approved 2022 budget envelope. - Directors stressed improving the financial viability of electricity and water sectors, curtailing arrears, monitoring contingent liabilities, and completing the Financial Sustainability Roadmap for water. - Monetary policy should be data driven with focus on supporting the peg and financial stability; continued interest rate adjustments in response to Fed actions and adequate reserve buffers were emphasized. - Directors urged accelerating structural reforms to remove obstacles to job creation, labor participation, and investment, and to strengthen fiscal governance and transparency. ### Selected key figures (as presented in the report narrative and tables) - Augmented EFF access: SDR 1,145.954 million (about US$1.526 billion, equivalent to 334 percent of Jordan’s quota). - Additional 2022 disbursements increase: SDR 120.085 million (of which SDR 75.482 million is an augmentation of access). - Growth: 2.4 percent (expected in 2022; marked down by 0.3 ppts. from the third review). - Unemployment: 23 percent (highlighted in the Executive Summary). - Inflation: 3.6 percent (end-April 2022). - Current account deficit: 8.8 percent of GDP in 2021; around 6.7 percent of GDP in 2022 (projected). - Refugees hosted: 1.3 million Syrian refugees cited as a fiscal and financing consideration. - Debt target: bring debt under 80 percent of GDP by 2027. *Source: IMF staff report — Jordan: Staff Report for the 2022 Article IV Consultation and Fourth Review under the Extended Arrangement under the Extended Fund Facility, request for augmentation and rephasing of access, and modification of performance criteria (June 14, 2022).* ### 5. Access and Phasing Under the Extended Fund Facility (EFF) Arrangement ____________________ 44 ### 5. Access and Phasing Under the Extended Fund Facility (EFF) Arrangement ____________________ 44 ### Context — Recent Developments - Pandemic trajectory and health indicators - Daily new COVID cases fell to less than 100 as of May 12 from a peak of 20,000 in February. - Vaccination rate plateaued around 47 percent. - Jordan experienced the sixth highest death rate among MCD countries to date. - Mobility and restrictions - Nearly all COVID-related restrictions were lifted by the start of Q2 (2022). - Economic output and labor market - 2021 growth was 2.2 percent, 0.2 ppt. above third review projections. - The output gap is estimated at -2.5 percent in 2021, to be closed gradually by 2026. - Unemployment in 2021: 23.3 percent (compared to 19 percent in 2019); youth unemployment still over 50 percent. - Inflation, commodity exposure, and policy responses - Inflation in 2022Q1: 2.3 percent; picked up to 3.6 percent y-o-y in April. - Oil derivatives prices have surged 30 percent since the start of the war in Ukraine. - Strategic wheat reserves at 12 months; long-term stable-price gas import contracts for electricity. - Authorities re-introduced blanket fuel subsidies in February (reversing a decade-old reform). ### External and Financial Position - Current account and reserves - 2021 current account deficit (CAD): 8.8 percent of GDP, 1 ppt. tighter than envisaged in the third review. - Reserves reached 115 percent of the reserve adequacy metric (ARA) at end-2021. - External sector assessment - Staff’s external balance assessment suggests Jordan’s external sector position is broadly in-line with fundamentals and desirable policies (Annex II). ### Program Performance - Pre-pandemic and pandemic context - By 2019: unemployment 19 percent; public debt 78 percent of GDP; Syrian refugees added about 15 percent to Jordan’s population. - Program recalibrated to provide space for critical spending and rephase structural conditionality. - Key achievements and reforms - Delivered adjustments in electricity tariffs to reduce cross-subsidization by businesses. - Legislative and administrative measures to broaden the tax base by closing loopholes and reducing evasion. - Two important reforms implemented under the review: rollout of new electricity tariffs (March 2022 SB met) and parliamentary approval to bring ASEZA’s tax and customs functions within national systems (March 2022 SB implemented with delay). - Cabinet approved amended Procurement Bylaw (December 2021 SB met). - Quantitative performance against targets - Primary deficit and combined public deficit QPCs (adjusted for unbudgeted COVID spending of 0.5 percent of GDP and grants overperformance of 0.1 percent of GDP) were each met by a margin of ½ percent of GDP. - December 2021 QPCs on non-accumulation of external arrears and on NIR, and ITs on SSC net financing, on public debt stock, and on NDA, were met. - Floor on social spending was surpassed by 0.3 percent of GDP (IT). - NEPCO, WAJ, and water distribution companies continued to accumulate arrears; related ITs were not met in December 2021 or in March 2022. - Structural conditionality status - Draft law on Regulating the Investment Environment and Doing Business not yet submitted to parliament (May 2022 SB not met); reformulated and reset to August 2022. - Recruitment for new macro-fiscal unit (MFU) at MOF: two division heads and four staff hired; two remaining hires expected over the summer (SB due Jan 2022, not met). MFU produced first macro-fiscal outlook report ahead of schedule (June 2022 SB met). - FCCL unit gathered key information on three major PPPs and all new PPPs; expected to publish explicit fiscal costs and fiscal risks on schedule (June 2022 SB). ### Outlook and Risks - Growth and inflation projections - GDP growth projected: 2022: 2.4 percent (down from 2.7 percent in the third review); 2023: 2.7 percent (down from 3.1 percent); 2024: 3.0 percent (down from 3.3 percent). - Medium-term growth projected at 3.3 percent. - Inflation: 2022: 3.8 percent (up from 2.5 percent); 2023: 3.0 percent; 2024: 2.5 percent. - Current account and public debt outlook - CAD projected: 6.7 percent of GDP in 2022 (two percentage points higher than at third review); medium-term CAD around 3½ percent of GDP (one percentage point higher than third review). - Public debt-to-GDP projected: 91.9 percent in 2021 → 91 percent in 2022 → 80 percent by 2027 (more gradual decline than projected at third review, where 80 percent was projected in 2025). - Key downside risks - Increased economic scarring from the pandemic, deeper/longer impact on growth and unemployment, and limited policy space. - Faster/larger-than-expected Fed interest rate hikes weakening global growth and tightening global financial conditions. - Larger/more permanent surge in commodity prices (including prolonged war in Ukraine) adding to external and fiscal pressures. - Inflationary passthrough producing popular backlash if vulnerable are not protected. - Climate change exacerbating water scarcity, necessitating fiscal outlays exceeding baseline. - Regional geopolitical tensions undermining stability and economic ties. - Key upside risks - Potentially higher grants from the U.S., additional remittances and support from oil-rich GCC countries, and a major pick-up in exports (notably electricity). ### Policy Discussions — Key Focus Areas - Central questions addressed - (I) Implications of the emerging conjuncture for the 2022 fiscal targets and medium-term fiscal strategy, including the case for a more phased consolidation path. - (II) Appropriate monetary policy response to Fed tightening and measures to preserve financial stability. - (III) Reforms in the electricity and water sectors, including addressing water scarcity. - (IV) Structural reforms to boost potential growth, competitiveness, governance, and employment (especially via higher female labor participation). - (V) Financing strategy — including a Fund augmentation/rephasing, alongside stepped-up donor support — to close the 2022–23 funding gap. ### Fiscal Strategy — Entrenching Recovery, Protecting Vulnerable, Safeguarding Debt Sustainability - Revenue and spending developments - Domestic revenues overperformed 2021 projections by 0.5 percent of GDP; tax revenues up 13 percent y-o-y. - Social spending increased by 0.6 percent of GDP relative to 2020. - Central government primary deficit (excluding grants) consolidated by 1.2 percent of GDP relative to 2020. - Public debt reached 91.9 percent of GDP at end-2021. - Near-term measures and costs - Re-introduction of untargeted fuel subsidies (freezing prices at the pump from February to end-April) cost [0.5] percent of GDP. - Phasing out subsidies starting in May: Prior Action announced (i) 6 piastre increase in the price of 95 octane gasoline for June and full removal of that subsidy by end-August 2022; (ii) commitment to remove fuel subsidies on all other oil derivatives by end-2022, while protecting the most vulnerable through targeted support. - Cabinet decision to contain (i) the 2022 fuel subsidy cost to JD 350 million, and (ii) the 2022 primary deficit (excluding grants) to 3.4 percent of GDP (new proposed August 2022 SB). - Wheat subsidy expected to increase by 0.1 percent of GDP as strategic stocks are replenished later in the year. - Social spending expected to be JD 30 million (0.1 percent of GDP) higher than third review projections. - 2022 deficit target and fiscal adjustment measures - Target: 3.4 percent of GDP primary deficit (excluding grants) for 2022 (corresponds to third review target after factoring in 0.3 percent of GDP COVID adjuster). - Measures expected to offset higher spending: - Stronger revenue performance by 0.25 percent of GDP. - Adjustment in the real estate registration tax: additional 0.15 percent of GDP. - Claw back of overpaid transportation costs from oil marketing companies: 0.2 percent of GDP. - Expected deferral of 0.6 percent of GDP in non-priority spending, while keeping capex at its 2021 percent of GDP level. - Structural fiscal reforms and trade-offs - Customs reform approved in January 2022: reduces tariff brackets from 16 MFN rates and 31 bound rates to just four (three after 2028); expected to reduce tax evasion and corruption but lower customs revenue by 0.3 percent of GDP in the near term. - Efforts to integrate digital and administrative systems to bring ASEZA under single tax and customs administrations. - Draft amendments to adopt GST place-of-taxation rules expected to be tabled in the 2022 extraordinary session (new July 2022 SB). - Fiscal risk monitoring and management - MFU will prepare and publish a Fiscal Risk Statement with the 2023 budget, including fiscal risk analysis of four major SOEs. - To limit PPP-related fiscal risks: (i) continue staffing the FCCL at MOF; (ii) launch the electronic National Registry of Investment Projects (NRIP) by end-2022; (iii) coordinate PMU at MOPIC and PPP unit at MOF to gather information on major planned PPP projects; include all new PIPs from the 2023 General Budget in NRIP. - Monitoring large public corporations and subnational governments is critical (e.g., Royal Jordanian may require further capital injection of JD 70 million in 2022; GAM expected to continue running deficits; next phase of rapid bus transit project will involve significant costs). - Government support to public enterprises or local governments should be measured and conditional on credible plans to increase operational efficiency. *Source: 1jorea2022003 - 5. Access and Phasing Under the Extended Fund Facility (EFF) Arrangement ____________________ 44 — https://www.imf.org/-/media/files/publications/cr/2022/english/1jorea2022003.pdf* ### 16. Given the challenging outlook, a more gradual medium-term fiscal consolidation path ### 16. Given the challenging outlook, a more gradual medium-term fiscal consolidation path can help entrench the recovery ### Fiscal consolidation path and near-term stance - Rapid reduction of the central government primary balance (excl. grants) envisioned at the third review could impart a significant drag on growth due to: - global economic headwinds, - monetary tightening, - residual economic slack (which, together with the peg, implies a high fiscal multiplier), and - high unemployment. - A revised pace of consolidation averaging 0.8 percent of GDP per year over the medium-term is proposed; this pace would imply reaching a zero primary balance by 2027. - Central Government Primary Balance (In percent of GDP, excl. grants) — outcomes by year: - 2021–2027 years mapping shown in source. - Revised path: -4.5, -3.4, -2.7, -1.7, -0.9, -0.3, 0.0 (for 2021, 2022, 2023, 2024, 2025, 2026, 2027 respectively). - Third review: -4.7, -3.1, -1.1, 0.4, 1.1, 1.1 (for 2021–2026 as reported). ### Debt sustainability and mitigating factors - The proposed fiscal consolidation path safeguards debt sustainability: - Under the new path, general government debt would fall to below 80 percent of GDP by end-2027 and below 85 percent of GDP by end 2025. - Risks to debt sustainability remain elevated but manageable given available buffers, including: - (i) Overperformance of the Social Security Investment Fund (SSIF), which has ample balance sheet-space to take on more government debt over the medium term (see Annex I). - (ii) The increased horizon for surpluses by the Social Security Corporation (see Annex I). - (iii) Expectations of continued robust donor financing at favorable terms. ### Revenue and expenditure reforms to close the medium-term fiscal gap - Additional discretionary measures of 1.7 percent of GDP will be needed to meet the envisaged targets (see MEFP para. 11, and Annex V). - Expected cumulative yields from envisioned reforms (percent of GDP) — totals and components: - Required discretionary effort to close the fiscal gap (cumulative): - 2023: 0.2 - 2024: 0.6 - 2027: 1.7 - Total expected yield from envisioned reforms (cumulative): - 2023: 0.2 - 2024: 0.6 - 2027: 1.7 - Revenue reforms (cumulative): - 2023: 0.2 - 2024: 0.4 - 2027: 1.2 - Expenditure reforms (cumulative): - 2023: 0.0 - 2024: 0.2 - 2027: 0.5 - Potential additional reforms (cumulative, subject to FAD technical assistance): 0.5 - Revenue measures (expected yields and timing): - Broaden income tax base by rationalizing new CIT incentives and improving compliance for large taxpayers and free professionals (starting 2023): yields 0.1 (2023), 0.1 (2024), 0.4 (2027). - Broaden GST base via introducing place of taxation rules; rationalizing new GST incentives; and reduced smuggling after customs reform: yields 0.1 (2023), 0.1 (2024), 0.4 (2027). - Close key tax loopholes by bringing ASEZA within national tax and customs systems (law passed May 2022): yields 0.0 (2023), 0.1 (2024), 0.3 (2027). - Introduce digital track-and-trace system for all cigarette companies by end-2022 and for alcohol by end-2023: yields 0.0 (2023), 0.1 (2024), 0.1 (2027). - Total expected revenue yield by 2024: 0.4 percent of GDP; by 2027: 1.2 percent of GDP. - Expenditure measures: - Further contain public wage bill growth to below nominal GDP growth from 2023: yields 0.0 (2023), 0.0 (2024), 0.2 (2027). - Roll out JONEPS (e-procurement) in Health and Education Ministries (starting 2023) and to broader central and general government entities (starting 2024): yields 0.0 (2023), 0.1 (2024), 0.2 (2027). - Improve efficiencies/reduce exemptions in the provision of health insurance: yields 0.0 (2023), 0.0 (2024), 0.1 (2027). - Expected policy effects: - Allow authorities to better support the recovery, continue to strengthen social protection schemes, and advance growth-enhancing capital spending. - Contingency: - If envisioned reforms prove insufficient, authorities committed to implementing additional reforms as needed and will seek FAD support to explore enhancing the framework for capital income taxation, improving property tax assessment and collection, and optimizing tax incentives based on upcoming tax expenditure analysis. ### Monetary stability and financial sector resilience — overview and near-term policy - The CBJ has preserved financial stability through the pandemic, maintaining robust international reserve buffers. - Key statistics and developments: - Deposit dollarization reached its lowest level of 19 percent in recent years as of 2021; a slight uptick to 19.4 percent observed as of Q1 2022. - Official inflows included the $469 million SDR allocation. - The CBJ sold USD$262 million in the FX market in March–May 2022 in response to increased FX demand. - Private sector credit growth slowed to around 5 percent y-o-y in 2021 and 5.7 percent y-o-y in March 2022. - The CBJ was able to be a net foreign exchange buyer in 2021. - Policy guidance near term: - Monetary policy will be focused on protecting the hard peg to the U.S. dollar. - To credibly protect the peg, the CBJ should continue necessary monetary policy adjustments in response to Fed actions and maintain adequate reserve buffers—operationally defined by the CBJ as above 100 percent of the Fund’s ARA metric. - CBJ responses should remain data-driven and be ready to adjust policy rates (or other tools) to maintain confidence in the peg. ### Subsidized lending schemes and monetary implications - CBJ subsidized lending schemes supported businesses during the pandemic but should be unwound as the recovery consolidates: - JD 700 million SME scheme: borrowing limits lifted in March 2022 for firms importing basic commodities; scheme extended from June to September 2022; demand began to decrease in 2021Q2 and continued to fall with full reopening. - JD 1.3 billion subsidized scheme (introduced 2012): duration extended by a year to March 2023. - Authorities indicated intention to unwind the SME scheme no later than 2023 and to review interest rate on the JD 1.3 billion scheme over the medium term. - By April 2022, the SME scheme had been accessed by 5,914 companies. ### Banking system soundness and supervisory actions - Banking system indicators (selected, as reported): - Risk-weighted capital adequacy ratio: 18.3 (2019), 18.3 (2020), 18.0 (2021). - NPLs (In percent of total loans): 5.0 (2019), 5.5 (2020), 5.0 (2021). - Provisions (In percent of classified loans): 69.5 (2019), 71.5 (2020), 79.9 (2021). - Liquidity ratio: 134.1 (2019), 136.5 (2020), 141.5 (2021). - Return on assets: 1.2 (2019), 0.6 (2020), 1.0 (2021). - Loans to deposits ratio: 81.6 (2019), 84.4 (2020), 85.4 (2021). - Observations and recommendations: - Capital adequacy remained strong at 18 percent in 2021 (regulatory minimum: 12 percent). - CBJ maintained stringent provisioning standards consistent with IFRS9. - Bank profits recovered to pre-pandemic levels; NPLs slightly decreased to 5 percent due to write-offs in some banks. - Given expiry of debt deferment periods in 2021, asset quality effects from the pandemic may take time to fully manifest—continued close monitoring is necessary. - If downside risks materialize, the CBJ should ensure banks swiftly resolve NPLs and require weaker banks to prepare timely and feasible capital restoration plans. ### Supervisory enhancements, AML/CFT, and financial sector assessment - Supervisory developments: - In June 2021, supervisory responsibilities for the insurance sector were transferred to the CBJ. - CBJ will develop a risk-based solvency regime for the insurance sector (new SB for June 2023). - CBJ plans to implement an Inspection Management System (IMS) covering banking supervision, financial consumer protection, payments systems, and money exchange. - AML/CFT: - Jordan enacted a new AML/CFT law in September 2021 but was placed on the FATF watch list in October 2021. - Authorities completed assessment to identify vulnerable non-profit organizations and addressed technical compliance deficiencies such that Jordan would no longer qualify for referral to the FATF’s ICRG process on technical compliance grounds (SB for June 2022). - Authorities committed to an action plan to resolve strategic deficiencies to facilitate exit from the watch list by October 2023 (SB for October 2023). - FSAP and statistics: - Ongoing joint IMF/WB FSAP will identify vulnerabilities, assess resilience of the banking system, and align financial sector with real economy priorities. - CBJ will implement an FDI survey to improve BoP statistics (new SB for October 2022) to better understand composition of capital flows and reduce errors and omissions. - Fund TA is being leveraged in policy modeling, central bank digital currency, risk-based supervision, forecasting excess reserves, and strengthening monetary and BoP statistics. ### Electricity sector reforms and NEPCO financials - Tariff reform: - A new electricity tariff system has been implemented reducing cross-subsidization; designed to be revenue-neutral for NEPCO. - Reform reduces electricity tariffs for key business sectors and reforms household tariff system progressively. - Around 1.1 million households (or 90 percent of total eligible households) applied for subsidies through the online platform launched in January. - Transitional subsidies for six months will be provided to the 32,000 most vulnerable Syrian refugee households identified by the UNHCR; donor assistance will be needed beyond this period to continue subsidies for refugees. - Staff estimates costs to subsidize refugee households: - JD 5.8 million per year to subsidize the 32,000 most vulnerable refugee households identified by the UNHCR. - Between 17 to 19 million JD per year to subsidize all refugee households outside of camps classified as vulnerable or highly vulnerable. - NEPCO financial position: - NEPCO’s losses were contained at around ½ percent of GDP in 2021, aided by robust electricity consumption. - Projected consumption for 2022 is being marked up by 2.7 percent relative to the third review due to the new lower electricity tariffs for businesses. - NEPCO’s long-term natural gas contracts and relatively high renewable power capacity are expected to shield it from near-term global fuel price surges. - NEPCO’s deficit is projected to decline to 0.3 percent of GDP in 2022. - NEPCO’s stock of arrears stood at JD 100 million by end-March 2022 (December and March ITs not met). - NEPCO’s financial losses are expected to increase to 0.7 percent of GDP in 2023 before falling to 0.4 percent over the medium term. *Source: IMF mission documents and staff analysis as presented in the provided content unit.* ### 29. Restoring NEPCO’s financial viability requires continued reforms. The Financial ### 29. Restoring NEPCO’s financial viability requires continued reforms. ### Electricity sector — Financial Sustainability Roadmap and NEPCO - A Financial Sustainability Roadmap for the electricity sector is being developed in consultation with international partners to improve NEPCO’s operating balance. - Revenue-enhancing measures under consideration: - Introducing Time of Use tariffs. - Installing meters for all houses connected to the grid. - Increasing exports to neighboring countries. - If global energy prices and the cost of electricity generation rise materially above staff’s baseline, consideration would be given to adjusting electricity tariffs toward cost recovery levels to protect NEPCO finances. - Cost-reducing measures: - Reducing the costs of LNG storage and regasification. - Improving electricity storage. - Optimizing costs related to PPA commitments. - Governance reforms: - Reforms supported by EBRD to strengthen accountability aimed at improving NEPCO’s operational efficiency. ### Water sector — Financial position and reform roadmap - Current fiscal impact and arrears: - Combined losses in the water sector amount to 1.2 percent of GDP, in line with program expectations. - Total stock of arrears of WAJ and the water sector were JD 90 million and JD 152 million at March 2022 (December and March ITs not met). - The water sector’s deficit is expected to decline slightly to 1 percent of GDP in 2022 as bill collections improve. - Financial Sustainability Roadmap for the water sector (prepared with international partner assistance) to be adopted by August 2022 and will encompass: - Aqaba-Amman Conveyance (AAC) project: - Project scope: desalinate and transport water from the port of Aqaba to Amman’s main metropolitan area. - Project structure: ~US$2.5 billion PPP project de facto subject to the new PPP law requirements including FCCL analysis, transparent RFP, and open bidding. - RFPs: issued to five pre-qualified consortiums in February 2022. - Donor pledges: US$1.8 billion from a March donor conference. - Fiscal cost assumption in staff’s baseline: US$70 million annually over 2023-2027 during build stage. - Long-term fiscal risk: government guaranteeing service payments of at least 1 percent of GDP annually for 21 years from 2028, when project expected to come online. - Non-revenue water (NRW) reduction: - Current NRW level: 50 percent of total water supplied. - Targets: reduce to 40 percent by 2030 and 25 percent by 2040. - Investment plan: US$1.8 billion under a PPP structure, supported by donor grants and concessional loans, to be implemented over 2023–40. - Direct costs incurred by WAJ: estimated at US$70 million annually over this period; now included in staff’s baseline. - Other measures under exploration: - Agricultural water allocation and licensing. - Electricity use efficiency. - Wastewater treatment and reuse options. - Tariff structure. - Debt optimization. ### Structural reforms to strengthen employment, investment, and governance - Main objectives: - Address impediments to female participation and youth employment. - Reduce labor market segmentation. - Enable the private sector to enhance its contribution to the economy. - Female labor force participation and gender equality measures: - Revised instructions to businesses on childcare provision for female employees and completion of the Amman BRT project to provide safe and affordable transport to women (MEFP ¶12). - Government launched a National Employment Program to support 60,000 new private sector jobs for the youth. - Proposed Labor law amendments: - Enhance protection for women regarding harassment and violence in the workplace. - Remove restrictions on female employment in certain professions and industries. - Authorities will table these amendments for discussion in parliament (new proposed SB for November 2022). - Wage gap: Women on average receive 17 percent less wages than men for the same work; SSC is considering options to close survivor benefits gap between female- and male-led households. - Representation: Government working to improve representation of women on the boards of SOEs. - Labor market segmentation and public sector efficiency: - Comprehensive review of labor legislation, to include assessment of labor-market costs and segmentation (benchmarking to peers); review to be shared with Fund staff by end-November 2022. - Public Sector Modernization plan to tie remuneration more closely to performance. - Address findings of the Government-commissioned public wage bill study in 2021: align remuneration with market comparators, address wage premium for new low-skilled entrants, and provide incentives to attract and retain talent. - Phase out exceptional COVID-19 labor market measures: circular 56 narrowed protections under Defense Order 6; with economy fully reopened, authorities should aim to phase out Defense Orders disadvantaging new entrants. - Youth unemployment measures: - Streamline and enhance TVET; bring existing initiatives under a single umbrella and create a strategy to transition beneficiaries into the labor market. - Reduce cost of hiring youth: - Consider reducing the social security contributions rate (21.25 percent) for workers under the age of 30 for a specified number of years in exchange for lower retirement benefits, without adversely affecting SSC financial sustainability. - Comprehensive labor market review to assess options to reduce the cost of hiring youth. - Private sector enabling reforms: - Recent reforms to customs and electricity tariffs to reduce business costs. - Ongoing license streamlining with progress in tourism sector. - Submission of a new omnibus law Regulating the Business Environment to modernize and streamline the regulatory framework. - Legislation to strengthen competition framework (June 2022 SB proposed to be rescheduled for August 2022) and market analysis to identify unfair practices. - Improvements to insolvency legislation to facilitate implementation of the 2019 insolvency law. - Governance reforms: - Transparency in COVID-related spending by publishing contract details and beneficial ownership on the MOF website and undertaking ex-post audits. - Strengthening capacity of the Integrity and Anti-Corruption Commission (JIACC), including implementation of the amended Illicit Gains Law and 2022 amendments to the JIACC law. - Authorities are exploring extending JIACC responsibilities to cover illicit gains through public procurement and extending beneficial ownership reporting requirements to all public procurements. - Importance of adequately resourcing JIACC and granting flexibility to hire staff with needed competencies. ### Growth potential, competitiveness, and sector priorities - Staff analysis findings: - Capital accumulation, exports, and imports declined sharply after the GFC amid elevated regional instability. - Economic complexity declined, TFP growth dropped drastically, and labor productivity stagnated (see SIP). - Policy directions discussed: - Attract financing for digital infrastructure and climate adaptation. - Further reduce electricity costs and tax administration burdens for businesses. - Improve firm dynamism and innovation. - Promote tourism (key service export) with complementarities to other sectors; encourage faith-based, wellness, and medical tourism, expand access to new source markets (such as Asia and Sub-Saharan Africa), and prolong duration of stay. ### Program financing, safeguards, and risks - External financing and CAD: - The oil price surge and slower fiscal consolidation in 2023 drove a US$2 billion widening in the CAD (excluding grants) for 2022-23 (combined) relative to the third review, warranting recalibration of the financing strategy. - Authorities have drawn the SDR allocation and are using it for budget financing in lieu of higher domestic debt issuance, also boosting reserves. - The additional CAD is roughly evenly split between 2022 and 2023. - Financing sources and adjustments: - Development partner support: - Public grants will be about US$1.5 billion (about US$180 million higher in 2022–23 than in the third review). - Public sector loans and program financing are together about US$300 million higher than in the third review. - Authorities have approached GCC creditors to convert deposits at the CBJ (amount US$1,166 million) into long-term loans to reduce 2023 deposit amortizations. - Eurobonds: - Authorities considering issuing US$1 billion (rather than US$1.5 billion) in Eurobonds in 2022; residual issuance in 2023. - On June 8, the authorities issued a 5½ year Eurobond of US$650 million at a fixed coupon rate of 7.75 percent. - FX reserves: - Use of reserve buffers to the tune of about US$1 billion, mostly in 2022, while maintaining reserve levels around 100 percent of the ARA metric over 2022-23. - Reserve levels fall to around 90 percent of the ARA metric in the outer years of the projection period, equating to about seven months of imports. - Staff’s baseline excludes potential sources: - U.S. Congress top-ups to the MOU (averaging US$300 million in recent years). - Potential conversion of US1,166 million GCC deposits at the CBJ into concessional loans (discussions underway). - Potentially higher WB disbursements (to the tune of US$600 million in 2023–24, under discussion). - IMF program augmentation: - Staff proposes augmentation of access by SDR 75.482 million (about US$105 million or 22 percent of quota), and rephasing of some 2023 disbursements into 2022 to be made available at the time of the fifth review. - Augmentation will bring access under the EFF to SDR 1,145.954 million or 334 percent of quota. - Cumulative access will peak just below 435 percent of quota in 2023Q3; annual access will peak at 115 percent of quota in 2022Q4. - Purchases in 2022-23 will be on-lent to the government and used for budget support, as part of Balance of Payments needs for external debt service payments. - Capacity to repay and safeguards: - Capacity to repay the Fund remains adequate; indicators of Fund credit remain below peak values under past Fund-supported programs (see Table 6). - CBJ has implemented all the 2020 safeguards recommendations, except the one related to enhancement of financial statements disclosures expected to be addressed as part of FY2022 audit. - Risks to the program and mitigating factors: - Further increases in commodity prices and interest rates beyond staff’s baseline could suppress growth, raise inflation, and pressure fiscal and external deficits. - Mitigating factors highlighted by staff: - Share of natural gas imports in the energy mix (17 percent) are under longer-term price contracts, mitigating pass-through of higher energy prices to the current account. - Current large wheat reserve allows authorities to delay/optimize purchases. - Relatively low level of net food imports (2 percent of GDP). - Jordan’s potash and fertilizer exports generally co-move with food prices and would rise in such a scenario. - Conservative assumptions on borrowing costs and Jordan’s high reliance on grants and concessional financing help manage debt sustainability implications. - If global headwinds are stronger than staff’s baseline, authorities will need additional measures to support reserves and protect public finances. - Implementation risks remain mitigated by authorities’ continued program ownership. *IMF staff appraisal (excerpt).* ### 40. A recovery is underway, thanks to post-pandemic reopening and to the authorities’ ### A recovery is underway, thanks to post-pandemic reopening and to the authorities’ timely and proportionate policy responses ### Macroeconomic outlook and recovery - GDP growth in the context of a full reopening is expected to bring GDP growth to around 2.4 percent in 2022. - The rebound in tourism and robust exports will help narrow the current account deficit, albeit at a slower pace, due to the commodity price surge. - Unemployment persists at very high levels, particularly among the youth. ### Program performance and fiscal stance - Program performance has been strong: all key quantitative targets met and firm implementation of structural reforms. - All QPCs and most ITs have been met. - Domestic revenue collection exceeded 2021 targets by 0.5 percent of GDP, anchored in efforts to tackle tax evasion and improve tax compliance. - Legislation unifying the tax and customs administrations in ASEZA under the national systems was recently passed. - New electricity tariffs were rolled out in early-April, intended to lower costs for businesses. - Fiscal objective: capping fuel subsidies at JD 350 million in 2022, coupled with continued strong revenue collection and some reprioritization of spending, is essential to delivering the 3.4 percent of GDP primary deficit target and reduce debt from high levels. - A more gradual medium-term path of fiscal consolidation is appropriate to support the recovery and protect the vulnerable given global headwinds, monetary tightening, and very high unemployment. - With continued robust donor support, the new path of fiscal adjustment would still bring debt below 80 percent of GDP by 2027 (only two years later than expected at the third review). - Authorities have identified and are committed to adopt and implement new revenue and expenditure measures required to deliver this fiscal consolidation path. ### External and domestic risks - Headwinds: - High fuel and food prices due to the war in Ukraine. - Ongoing tightening of global financial conditions. - Buffers and transmission channels: - Long-term stable-price gas import contracts for electricity generation and adequate wheat reserves provide important near-term buffers. - As an oil and food importer, Jordan is expected to eventually experience the cost-push inflationary shock. - Fed interest rate hikes will weigh on demand via the CBJ’s response to defend the peg and via tighter global financial conditions affecting EM risk premia and capital flows. ### Policy recommendations — fiscal and social protection - Phase out blanket fuel subsidies in favor of targeted support for the vulnerable. - Fuel subsidies are fiscally costly and highly regressive and should be replaced with well-targeted transfers, leveraging Jordan’s well-established and quite efficient social safety net. - Return durably and fully to the market-based pricing formula for fuel derivatives while protecting the vulnerable through targeted support to preserve program credibility. - Maintain revenue mobilization momentum to support consolidation while protecting the recovery. - Adopt a more gradual medium-term fiscal consolidation to avoid scarring and social unrest, consistent with debt trajectory objectives. ### Monetary policy and financial stability - Monetary policy should remain data-driven while safeguarding the peg and financial stability. - To ensure the peg is credible, the CBJ must continuously maintain adequate reserve buffers and be seen as committed to preempt any major BoP outflows. - Continue close monitoring of banks’ asset quality and sustained application of prudent accounting, reporting, and provisioning standards. ### Structural-sector reforms: water and electricity - Reforms in the water and electricity sectors are critical to tackle structural issues and preserve public sector financial sustainability. - Financial position of water and electricity sectors remains challenging; reforms are needed to durably reduce deficits and arrears. - Completion of the financial sustainability roadmaps in both sectors is crucial. - Financial reforms will create room for new projects to address Jordan’s structural water shortage and for a further lowering of electricity tariffs for businesses to boost competitiveness. ### Structural reforms to raise potential growth and employment - Actions needed to enhance employment, investment, and governance: - Eliminate gender-biased legislation and ensure a safe workplace environment for women. - Reduce labor market segmentation and lower the cost of hiring youth. - Reduce red tape and strengthen competition regulations. - Consolidate governance reforms with adequate resourcing of JIACC, timely rollout of e-procurement, and continued strengthening of the AML/CFT framework consistent with requirements to exit the FATF watch list by next year. *Source: JORDAN — INTERNATIONAL MONETARY FUND (excerpt).* ### 48. Staff supports the authorities’ request for the completion of the Fourth Review under ### 1jorea2022003 - 48. Staff supports the authorities’ request for the completion of the Fourth Review under ### Program review, augmentation, and conditionality - Staff supports the authorities’ request for the completion of the Fourth Review under the extended arrangement and modification of targets and augmentation. - Given the additional financing needs in 2022, staff supports the request for augmentation. - Staff supports the authorities’ request for modification of the end-June and end-December QPCs to allow adequate phasing of support to protect the recovery. - Stepped-up and timely development partner support is needed to help Jordan cope with global headwinds, maintain reform momentum, address water scarcity, and shoulder the burden of hosting 1.3 million Syrian refugees. - It is expected that the next Article IV Consultation will be held on the 24-month cycle, in accordance with Decision No. 14747-(10/96). ### Real sector and labor market developments - Mining, agriculture, and finance have rebounded. - GDP growth has been revised down. - Inflation has been stable since the GFC; inflation has picked up in most sectors. - Youth unemployment is still trending up; unemployment rate in Jordan remains elevated. - Key labor market indicators (percent of Jordanians): unemployment rate, labor force participation, youth unemployment (quarterly series shown in figures; source: national authorities; Haver Analytics; IMF staff calculations). ### Fiscal developments and outlook - Domestic revenues rebounded strongly in 2021, surpassing 2019 levels; tax revenues consistently pushed above pre-pandemic levels. - Corporate income tax collections increased, in line with rebounding profitability. - Higher revenues facilitated a rebound in capital spending, while growth in other expenditure areas was contained. - A more gradual pace of fiscal consolidation in line with the EFF request can help protect growth while keeping debt firmly on a downward trajectory. - Key fiscal aggregates (Table 1 and Table 2 series): - Total revenue and grants (percent of GDP): 22.7 (2020), 24.7 (2021), 25.3 (2022, 3rd Rev), 25.9 (2022 proj), 26.1 (2023 proj), 24.9 (2024 proj), 25.4 (2025 proj), 25.0 (2026 proj), 24.6 (2027 proj), 24.4 (2028 proj), 24.2 (2029 proj). - Expenditure (percent of GDP): 30.0 (2020), 31.3 (2021), 31.7 (2022, 3rd Rev), 30.2 (2022 proj), 30.8 (2023 proj), 29.7 (2024 proj), 30.4 (2025 proj), 29.9 (2026 proj), 29.8 (2027 proj), 29.5 (2028 proj), 29.0 (2029 proj). - Overall central government balance (percent of GDP): -7.3 (2020), -6.6 (2021), -6.4 (2022, 3rd Rev), -4.4 (2022 proj), -4.7 (2023 proj), -3.4 (2024 proj), -4.8 (2025 proj), -4.4 (2026 proj), -4.1 (2027 proj), -3.6 (2028 proj), -3.1 (2029 proj). - Government and guaranteed gross debt (percent of GDP, net of SSC's holdings): 88.0 (2020), 91.7 (2021), 91.9 (2022, 3rd Rev), 90.9 (2022 proj), 91.0 (2023 proj), 88.6 (2024 proj), 89.8 (2025 proj), 87.4 (2026 proj), 84.8 (2027 proj), 82.5 (2028 proj), 79.8 (2029 proj). - Central government fiscal operations (Table 2a, 2022 projections in JD millions): - Total revenue and grants: 8,752 (3rd Rev 2022), 8,907 (2022 proj). - Domestic revenue: 7,849 (3rd Rev 2022), 8,034 (2022 proj). - Tax revenue (of which): 5,943 (3rd Rev 2022), 6,128 (2022 proj). - Capital expenditure: 1,400 (3rd Rev 2022), 1,208 (2022 proj). - Overall central government balance at current policies (JD millions): -1,493 (3rd Rev 2022), -1,599 (2022 proj). - Overall central government balance after fiscal measures: -1,486 (3rd Rev 2022), -1,599 (2022 proj). - Unidentified cumulative fiscal discretionary measures are shown for 2023-25 as needed to meet programmed fiscal adjustment. ### External sector developments - The JD REER has depreciated significantly since the beginning of the pandemic in-line with weak inflation relative to peers and dollar weakness. - Tourism receipts began to recover in 2021H2 but remain below pre-pandemic levels; tourist arrivals and receipts recovery shows stronger Arab and domestic tourism, lagging EU tourism. - Energy imports rose sharply on higher oil prices at the end of 2021. - Jordan benefited from exceptionally strong prices for fertilizer-related commodity exports amid disrupted supplies from Russia and Ukraine. - Exports recovered notably to the GCC (specifically Saudi Arabia) and India (Fertilizers). - Current account and balance of payments highlights (Table 3a): - Current account (USD millions): -2,509 (2020), -4,399 (2021), -3,981 (3rd Rev 2022), -2,222 (2022 proj), -3,232 (2023 proj), -1,660 (2024 proj), -2,416 (2025 proj), -1,463 (2026 proj). - Exports f.o.b. (USD billions): 7.9 (2020), 8.9 (2021), 9.4 (3rd Rev 2022), 9.4 (2022 proj), 11.3 (2023 proj), 10.1 (2024 proj). - Imports f.o.b. (USD billions): 15.4 (2020), 17.8 (2021), 19.3 (3rd Rev 2022), 18.3 (2022 proj), 22.1 (2023 proj), 18.5 (2024 proj). - Energy imports (USD billions): 2.1 (2020), 2.9 (2021), 3.0 (3rd Rev 2022), 2.9 (2022 proj), 4.6 (2023 proj), 2.9 (2024 proj). - Travel receipts (USD millions): 1,411 (2020), 2,562 (2021), 2,762 (3rd Rev 2022), 5,475 (2022 proj), 5,431 (2023 proj), 6,225 (2024 proj). - Remittances (USD millions): 3,033 (2020), 3,093 (2021), 3,062 (3rd Rev 2022), 3,175 (2022 proj), 3,159 (2023 proj), 3,273 (2024 proj). - Gross usable reserves (USD millions, Table 3a and Table 3c): 15,127 (2020), 15,269 (2021), 17,272 (3rd Rev 2022), 15,954 (2022 proj), 16,916 (2023 proj), 15,863 (2024 proj). - Current account (percent of GDP): -5.7 (2020), -9.7 (2021), -8.8 (3rd Rev 2022), -4.7 (2022 proj), -6.7 (2023 proj), -3.3 (2024 proj). ### Monetary and financial sector - CBJ hiked policy rates in March and May in line with the Fed. - Deposit and lending rates expected to show a slight uptick with lag. - Banks’ liquidity conditions are comfortable; private sector credit growth has held up well. - Demand for CBJ’s subsidized SME lending scheme has slowed as the economy fully reopened. - Ample reserves have brought dollarization down to its lowest level in recent years. - Monetary aggregates (Table 4a, stocks in JD millions): - Broad money (M2): 37,007 (2020), 38,357 (2021), 39,495 (3rd Rev 2022), 40,027 (2022 proj), 41,898 (2023 proj), 42,299 (2024 proj). - Net foreign assets (JD millions): 7,528 (2020), 6,610 (2021), 7,467 (3rd Rev 2022), 7,249 (2022 proj), 7,449 (2023 proj), 8,219 (2024 proj). - Year-on-year broad money growth (percent): 5.8 (2020), 3.6 (2021), 6.7 (3rd Rev 2022), 4.4 (2022 proj), 6.1 (2023 proj), 5.7 (2024 proj). - Year-on-year private sector credit growth (percent): 6.3 (2020), 4.0 (2021), 4.9 (3rd Rev 2022), 4.5 (2022 proj), 4.1 (2023 proj), 4.8 (2024 proj). - Central Bank of Jordan summary (Table 4b): - Net foreign assets (JD millions): 10,765 (2020), 10,201 (2021), 11,736 (3rd Rev 2022), 10,485 (2022 proj), 11,505 (2023 proj), 11,243 (2024 proj). - Jordanian dinar reserve money (JD millions): 9,148 (2020), 9,516 (2021), 9,816 (3rd Rev 2022), 9,475 (2022 proj), 10,120 (2023 proj), 9,679 (2024 proj). - Gross usable international reserves (USD millions): 15,127 (2020), 15,269 (2021), 17,272 (3rd Rev 2022), 15,954 (2022 proj), 16,916 (2023 proj), 15,863 (2024 proj). ### Banking sector indicators - Banks remain well-capitalized; NPLs remain stable. - Profitability recovered as most provisioning took place in 2020. - Liquidity has been stable in recent years; loans funded stably by deposits; loan growth held up well. - Sample (14 banks) aggregate indicators (as of December 2021): Tier 1 Capital to Risk Weighted Assets, Non-Performing Loans less Provisions, Return on Total Assets, Liquidity (Liquid assets to deposits and money market funding), Total Loans to Total Deposits, Annualized Loan Growth (figures presented in the source). ### NEPCO, WAJ, and water sector finances - NEPCO operating balance (JD millions): -0.3 (2020, percent of GDP), -0.5 (2021), -0.6 (2022), -1.0 (2022 proj), -0.3 (2023 proj), -0.9 (2024 proj). - NEPCO revenues and expenses (JD millions): Revenues 1,326 (2020), 1,331 (2021), 1,479 (2022, 3rd Rev), 1,519 (2022 proj); Expenses 1,415 (2020), 1,491 (2021), 1,464 (3rd Rev 2022), 1,571 (2022 proj). - WAJ overall balance (percent of GDP): -0.8 (2020), -0.9 (2021), -0.8 (3rd Rev 2022), -0.9 (2022 proj), -0.9 (2023 proj), -0.9 (2024 proj). - Consolidated water sector overall balance (percent of GDP): -1.1 (2020), -1.2 (2021), -1.2 (3rd Rev 2022), -1.0 (2022 proj), -1.0 (2023 proj), -1.0 (2024 proj). ### External financing, EFF access, and Fund support - EFF access and phasing (Table 5): - Board approval of EFF (March 25, 2020): SDR 102.9 (30.0 percent of quota). - First Review (September 30, 2020): SDR 102.9 (30.0 percent). - Second Review (March 30, 2021): SDR 144.1 (42.0 percent). - Third Review (September 30, 2021): SDR 240.17 (70.0 percent). - Fourth Review (March 30, 2022): SDR 137.24 (40.0 percent). - Fifth Review (September 30, 2022): SDR 137.24 (40.0 percent) [alternate presentation also shows a Five/other sequencing leading to totals]. - Total under one sequencing: 1,070.47 SDR million (312.0 percent of quota); alternative sequencing totals shown up to 1,145.95 SDR million (334.0 percent of quota). - Indicators of Fund credit (Table 6, SDR millions and ratios): - Disbursements: 120.1 (2019), 497.4 (2020), 384.3 (2021), 394.6 (2022), 72.1 (2023), 89.2 (2024). - Stock of existing and prospective Fund credit (SDR millions): 365.1 (2019), 720.4 (2020), 1,091.8 (2021), 1,469.3 (2022), 1,441.3 (2023), 1,338.9 (2024), 1,182.6 (2025), 1,035.6 (2026). - Stock of existing and prospective Fund credit (percent of quota): 106.4 (2019), 210.0 (2020), 318.2 (2021), 393.2 (2022), 404.1 (2023), 368.2 (2024). *Source: IMF staff report and accompanying tables and figures as contained in the provided content unit.* ### Annex I. Public and External Debt Sustainability Analysis ### Annex I. Public and External Debt Sustainability Analysis ### A. Public Sector DSA — Key findings and projections - Public debt peaked at 91.9 percent of GDP in 2021 and is expected to decline below 85 percent of GDP by 2025, and below 80 percent of GDP by 2027. - Public debt definition used: consolidated gross direct and guaranteed debt of the central government, NEPCO, WAJ, water distribution companies, and the state-owned Social Security Corporation (SSC). - SSC’s investment portfolio includes 16.6 percent of GDP in assets outside the general government sector, implying a net debt position of 75.3 percent of GDP. - Medium-term fiscal consolidation: - Revised path envisages 4.5 percent of GDP improvement in the central government primary deficit (excluding grants) over 2022–27. - Consolidation is frontloaded with a cumulative effort of 3.6 percent of GDP achieved by end-2025. - Under the baseline, debt/GDP ratio would fall below 85 (80) percent of GDP by 2025 (2027). - The proposed path would result in a general government primary balance of 3.8 percent by end-2027. - Public gross financing needs (GFNs): - GFNs peak at 18.8 percent in 2022 before declining to 15-18 percent over the medium term. - Factors supporting financeability: projected concessional financing, limited private external debt maturing after 2022, pre-COVID domestic debt maturity extension, adequately capitalized Jordanian banks, SSIF holdings (government bonds accounted for about 56 percent of SSIF’s investment portfolio at end-2021) and an exposure cap of 60 percent (up to 65 percent in extraordinary circumstances). - Public debt structure and financing: - Foreign-currency denominated debt constitutes half of total public debt, with a large share held by multilateral and official bilateral creditors. - Domestic maturities have lengthened in recent years; excluding treasury bills, average maturity has almost doubled since 2018. - Use of the SDR allocation is helping to scale back issuance of more expensive domestic bonds starting in April. - Pressures outside central government: - SSIF’s net assets grew by 11 percentage points relative to 2020; interest income increased by 13 percent relative to 2020. - Increase in formalization of employment extends the horizon over which social security contributions exceed outlays by five years (to 2038). - Losses of water and energy utility companies remain elevated; coming online of a large oil-shale PPA later this year is expected to significantly increase NEPCO’s losses in 2023. - Projections include JD100 million additional annual investments needed in the water sector for climate change adaptation. - Contingent liabilities and specific projects: - Aqaba Amman Conveyor increases contingent liabilities via government guarantees on private financing (0.9 percent of GDP) and contract termination guarantee (up to 3.6 percent of GDP for termination due to political force majeure). - Risks to sustainability: - Potential risks: further global and regional geopolitical instability; higher-than-expected climate change adaptation costs; materialization of contingent liabilities from broader public sector; higher risk premia and tighter global liquidity; persistently elevated commodity prices requiring additional household support; SOE and PPP losses exceeding baseline. - These risks are mitigated by favorable debt structure (long maturities, substantial current/committed/prospective grants and concessional financing) and by SSIF capacity to purchase government bonds. - Staff note on NEPCO and oil shale PPA: - The DSA is based on the assumption that NEPCO will fully honor its contractual obligations with respect to the most significant oil shale PPA, which start in 2022. Potential resolution of the oil shale PPA presents an upside for debt sustainability. - Quantitative decomposition (selected items from Figure AI.3 baseline table, in percent of GDP): - Nominal gross public debt: 2020: 74.2; 2021: 88.0; 2022: 91.9; 2023: 91.0; 2024: 89.8; 2025: 87.4; 2026: 84.8; 2027: 82.4; (as labeled in table: 79.7 appears but context shows projection to 2027). - Public gross financing needs (GFNs): 2022: 18.8; medium term: 15-18 percent. - Change in gross public sector debt (annual): cumulative 2022–27: -12.2 (percent of GDP). - Identified debt-creating flows (cumulative 2022–27): -11.5 (percent of GDP). - Primary deficit contributions (annual series included in table): see baseline series (e.g., primary deficit 2022: 0.2; 2023: -0.4; 2024: 0.0; 2025: -0.7; 2026: -1.1; 2027: -1.6). - Automatic debt dynamics contribution (cumulative 2022–27): -5.5 (percent of GDP). - Real GDP growth (projections): 2022: 2.2; 2023: 2.4; 2024: 2.7; 2025: 3.0; 2026: 3.3; 2027: 3.3 (in percent). - Inflation (GDP deflator, projections): 2022: 1.3; 2023: 3.6; 2024: 3.0; 2025: 2.5; 2026: 2.5; 2027: 2.5 (in percent). - Effective interest rate (defined as interest payments divided by debt stock at end of previous year): 2022: 4.4; 2023: 4.0; 2024: 4.2; 2025: 4.3; 2026: 4.4; 2027: 4.6 (in percent). - Policy implications highlighted: - Accelerate structural reforms to boost growth. - Develop a concise policy agenda to mitigate losses from the broader public sector. - Safeguard the peg (see external DSA) and maintain prudent policies to anchor private expectations. ### B. External Sector DSA — Coverage, projections, and risks - Coverage in this DSA includes: - (i) public and publicly guaranteed external debt; and (ii) external liabilities of the banking sector and private corporations. Note: due to data limitations, coverage of private external debt (especially non-banking sector) is likely underestimated. - External debt is defined according to the residency criterion. - Public external debt: - Public external debt rose from 40.6 percent of GDP in 2021 to an expected 42.3 percent in 2022, before falling back below 39 percent by 2026. - Composition remains favorable due to a sizable share of concessional borrowing and official pledges (Jordan Compact and 2019 London Initiative). - Private external debt: - Expected to remain moderate in the 34–40 percent of GDP range. - As of end-2021, 78 percent of total private external debt was owed by banks (mostly non-resident deposits); remainder by non-financial corporations. - Projections assume banks maintain exposure to non-residents and non-bank corporate sector meets part of financing needs with debt-creating flows. - Over medium term, firms’ external debt share expected to gradually increase from roughly a quarter to one third of total private external debt. - External financing requirements and notable items: - External financing requirements remain sizable through mid-program and gradually decline thereafter. - Drivers: post-COVID widening of current account deficit and gradual correction, exceptional rise in energy costs, and amortization of US$1 billion Eurobonds in 2022 (assumed rolled-over on market terms prevailing at that time). - Gross external financing need (in billions of U.S. dollars, Table AI.1): 2016: 5.7; 2017: 6.6; 2018: 5.3; 2019: 4.1; 2020: 5.9; 2021: 6.0; 2022: 6.5; 2023: 4.9; 2024: 4.8; 2025: 5.8; 2026: 6.8. In percent of GDP corresponding series: 14.4; 15.8; 12.2; 9.2; 13.5; 13.2; 13.5; 9.6; 9.0; 10.2; 11.3. - External debt dynamics and stress tests: - Standardized stress-test scenarios indicate sensitivity of external debt to current account and combined shocks is relatively low; interest rate and real growth shocks have marginal impact on external debt burden. - A large and permanent real depreciation shock would bring external debt-to-GDP well above baseline projections (example provided: one-time real depreciation of 30 percent in 2020 shows a large increase). - Stress-test figures (figure captions and tables) show baseline and scenario trajectories for external debt in percent of GDP with historical and shock scenarios; individual shocks are permanent one-half standard deviation shocks; combined shocks and a 30 percent depreciation show larger deviations. - Table AI.1 highlights key contributions to change in external debt (selected items, in percent of GDP): - Baseline external debt (total): 2021: 80.6; 2022: 80.8; 2023: 81.2; 2024: 78.8; 2025: 75.5; 2026: 69.9. - Of which public and publicly guaranteed external debt: 2021: 40.6; 2022: 42.3; 2023: 43.3; 2024: 42.2; 2025: 40.2; 2026: 35.8. - Current account deficit, excluding interest payments (percent of GDP): 2021: 6.7; 2022: 4.3; 2023: 1.9; 2024: 1.0; 2025: 0.8; 2026: 0.4. - Net non-debt creating capital inflows (negative means net outflow): 2021: -1.3; 2022: -1.7; 2023: -2.4; 2024: -3.1; 2025: -3.1; 2026: -3.1. - Automatic debt dynamics contributions (percent of GDP): 2021: 0.4; 2022: 0.6; 2023: 0.8; 2024: 0.7; 2025: 0.4; 2026: 0.2. - External debt-to-exports ratio (in percent): 2021: 331.7; 2022 (projection): 206.2; 2023: 205.8; 2024: 202.7; 2025: 197.5; 2026: 186.7. - External risks and policy message: - Moderate risks to external debt sustainability are predicated on assumptions that FDI inflows will gradually pick up, international market access is sustained, and accumulation of additional external buffers under the program will help cushion shocks and anchor private expectations. - A large and permanent real depreciation would materially worsen external debt metrics — underscoring the importance of safeguarding the peg through prudent policies. *Source: IMF staff, Annex I. Public and External Debt Sustainability Analysis (as of April 20, 2022).* ### Annex II. External Sector Assessment ### Annex II. External Sector Assessment ### Overall assessment - The external position of Jordan in 2021 was broadly in line with the level implied by fundamentals and desirable policies. - 2021 current account (CA) deficit: 8.8 percent of GDP, primarily driven by: - still-weak tourism receipts (owing to the pandemic) - a high oil import bill reflecting elevated global oil prices. - A large portion of the CA deficit is assessed as temporary. - Financing remains adequate: - Gross reserves improved in 2021 by 5 percentage points to 115 percent of the IMF reserves adequacy (ARA) metric. - Recommended policy: maintain gross usable reserves at or above 100 percent of the IMF ARA. ### Potential policy responses - Continue sound macroeconomic policies and structural reforms to preserve momentum despite pandemic challenges. - Policy actions highlighted: - Continued vaccination roll out to support recovery in tourism. - Policies to maintain macroeconomic stability. - Strengthen debt sustainability. - Improve the business climate to maintain attractiveness for foreign investment. - Reserve accumulation in 2021 provides a buffer for shocks and supports the exchange rate peg. ### Foreign assets and liabilities: position and trajectory Background and trajectory - NIIP in 2021: -109 percent of GDP. - NIIP deterioration since 2010: 41 percent of GDP, with roughly half of that deterioration between 2010 and 2013 due to regional shocks (disruption of gas supply from Egypt, ISIS attacks in Iraq and Syria). - Financing of NIIP decline: - Inward FDI: 60 percent share of flows. - Portfolio investment: 29 percent share of flows. - NIIP projection: stabilize in 2022 and improve to -104 percent of GDP by 2025 as exports (especially tourism) recover and import bill pressures moderate. Assessment - Large gross external liabilities risk mitigated by composition: 82 percent share of FDI, which is less volatile. - Valuation effects pose minimal risk given the exchange rate peg. - Vulnerabilities mitigated by healthy reserve buffers: reserves exceeded the Fund’s adequacy metric by 15 percent in 2021. - Sound economic policies and solid reform progress under the EFF arrangement support resilience. Key 2021 (% GDP) balance-sheet figures (as presented) - NIIP: -109 - Gross Assets: 68 - Debt Assets: 11 - Gross Liab.: 177 - Debt Liab.: 81 ### Current account: background, assessment, and model estimates Background - Jordan’s CA averaged -8.4 percent of GDP for 2009–2019, reflecting geopolitical tensions earlier in the decade and COVID-19 driven decline in tourism more recently. - The COVID-19 shock led to a sharp deterioration in tourism and remittances, resulting in a 2020 deficit of -5.7 percent. - 2021 CA deficit: 8.8 percent of GDP, driven by: - recovery in import volumes (energy and non-energy) - elevated energy prices - nascent recovery in tourism receipts (around 50 percent of their 2019 level) - strong revenues from fertilizer commodity exports - stronger than expected transfers. Assessment and adjustments - 2021 adjusted CA: -4.3 percent of GDP. - CA norm: -3.9 percent of GDP. - CA gap: -0.4 percent of GDP. - Non-cyclical adjustments to the CA total 5.1 percent of GDP, comprising: - COVID-19 adjustor: 3.2 percent of GDP (gaps between current and pre-covid projections for tourism and remittances) - Conflict in the region: 0.7 percent of GDP - Statistical issues: 1.2 percent of GDP (related to large errors and omissions in the balance of payments for 2021) - Errors and omissions in the balance of payments for 2021: 3.6 percent of GDP - Staff assessment suggests around 1.2 percent of GDP in uncounted remittances and secondary income flows. - The CA gap reflects a relative policy gap of 4.7 percent due to: - fiscal policy being tighter than staff’s judgement of equilibrium (reflecting debt sustainability goals of the program) - health spending lower than equilibrium (some COVID-related upgrades expected to be made permanent) - credit growth being lower than longer-term forecasts. - Implication: policy adjustments alone are unlikely to eliminate the CA gap; structural reforms to enhance competitiveness and productivity are key given the peg prevents exchange rate adjustment. Model estimates for 2021 (percent of GDP) - CA-Actual: -8.8 - Cyclical contributions (from model): (-)-0.8 - COVID-19 adjustor (+): 3.2 - Additional temporary/statistical factors (+): 1.2 - Natural disasters and conflicts (-): 0.7 - Adjusted CA: -4.3 - CA Norm (from model): -3.9 - Adjusted CA Norm: -3.9 - CA Gap: -0.4 - of which Relative policy gap: 4.7 - Elasticity: -0.30 - REER Gap (in percent): 1.5 (CA model), -27.5 (REER model), 0.0 (ES model) Notes on models - CA model: EBA-lite preferred; indicates small CA gap and near-fair-value REER. - REER model: indicates 27 percent undervaluation primarily due to Jordan’s low dependency ratio; discounted by staff because dependency ratio enters with sign opposite to theoretical priors. - External Sustainability (ES) model: projects no REER gap because the current CA path implies NIIP stabilization. ### Real exchange rate (REER) Background - REER appreciated 15 percent from 2012–19 in line with the global strength of the dollar (to which it is pegged). - 2020–21: sharp divergence between NEER and REER; REER depreciated significantly undoing the appreciation since 2012 due to lower inflation in Jordan relative to trading partners. - Year-average REER for 2021: 102, an 8.5 percent depreciation relative to 2020. Assessment - EBA-lite CA model indicates REER approximately fairly valued (1.5 percent overvaluation) based on CA gap of -0.4 and REER elasticity of 0.3. - Staff judgement: CA gap of -0.5 percent and REER at fair value, consistent with preferred EBA-lite model. ### Capital and financial accounts: flows and policy measures Background - Net FDI flows in 2021 were 17 percent weaker than in 2020 and significantly below the pre-pandemic five-year average. - Official budget support from donors was lower by 8 percent in 2021 relative to 2020, primarily due to delays in disbursements relating to water sector improvements. - Large errors and omissions in the balance of payments: 4.6 percent of GDP, complicating evaluation of capital and financial account. - Once errors and omissions are accounted for, gross usable reserves rose by 14 percent in 2021 (around $2.1 billion). Assessment - Financing vulnerabilities include: - weaker outlook for FDI - any decline in donor engagement. - Donor engagement has remained robust since the London Initiative in 2019, with planned funding on track to meet commitments. ### FX intervention and reserves level Background - Jordan maintains a fixed currency with respect to the U.S. dollar; FX intervention is used to maintain the peg. - Gross usable reserves in 2021: - 38 percent of GDP - 115 percent of the IMF’s reserve adequacy metric - improvement of 5 percentage points from 2020. - Reserves were supported by significant positive errors and omissions in the BOP. Assessment and projection - Reserve accumulation exceeded program targets and supports the exchange rate peg. - Recommended: gross usable reserves at or above 100 percent of the IMF reserve adequacy metric should be maintained. - Staff project reserves to decline as a percent of the IMF reserve adequacy, falling below 100 percent in 2024 primarily due to the large and persistent oil price shock in 2022. ### Risk Assessment Matrix: selected threats, likelihood, impact, and policy responses - Global risks identified with likelihood and expected impact (summary of key items): 1. Outbreaks of lethal and highly contagious COVID-19 variants - Likelihood: High - Expected impact: High - Economic effects: slower growth, lower government revenues, higher fiscal deficits and public debt, rising corporate and household vulnerabilities, increased risk premia and capital outflows. - Policy responses: increase fiscal spending to protect incomes, speed up vaccination, provide targeted support, consider monetary and credit policy support depending on inflation and global financial conditions. 2. De-anchoring of inflation expectations in the U.S./advanced Europe - Likelihood: Medium - Expected impact: Medium - Economic effects: sharp tightening of global financial conditions, higher funding costs, asset quality deterioration. - Policy responses: CBJ to follow Fed and raise policy rates conditional on domestic conditions, provide targeted support, monitor bank buffers and implement FSAP recommendations. 3. Rising and volatile food and energy prices - Likelihood: High - Expected impact: High - Economic effects: increase in fuel import bill, higher CA deficit and external financing needs. - Policy responses: targeted fiscal measures for vulnerable households, strengthen social safety nets. 4. Widespread domestic social discontent and political instability - Likelihood: High - Expected impact: High - Economic effects: higher risk premia and borrowing costs, capital outflows, deterioration in bank asset quality. - Policy responses: targeted fiscal measures, accelerate structural reforms to create jobs and promote inclusive growth. 5. Geopolitical tensions and de-globalization - Likelihood: High - Expected impact: Medium - Economic effects: higher risk premia and borrowing costs, capital outflows, higher fuel prices, increased external financing needs. - Policy responses: consider measures to stem capital flow reversals if disorderly, maintain prudent macro policies and structural reforms, promote inclusive growth and social safety nets. - Selected domestic risks: - Protracted weakness in tourism and remittances - Likelihood: Medium - Expected impact: High - Policy response: provide targeted and time-limited support to sustainable, job-promoting tourism operations and regions. - Increase in water scarcity due to climate change - Likelihood: Medium - Expected impact: High - Policy response: prioritize securing sustainable water supplies; targeted fiscal measures for vulnerable households. - Regional destabilization undoing border openings and export agreements - Likelihood: Medium - Expected impact: Medium - Policy response: targeted fiscal measures for vulnerable households; maintain prudent macro policies and structural reforms. - Persistently high unemployment amplifying poverty and inequality - Likelihood: Medium - Expected impact: High - Policy response: accelerate structural measures to allow private sector investment and job creation. ### Status of the 2020 Article IV main recommendations (summary) - Authorities have made good progress on implementing previous Article IV recommendations, evidenced by strong performance under the overlapping EFF-supported reform program. - Notable reforms achieved include: - broadening the tax base - reducing cross-subsidization in the electricity sector - strengthening governance and transparency. - Strengthening public finances (2020 recommendation): - Fiscal consolidation targeted to reduce public debt while protecting growth. - Authorities agreed to target a primary surplus excluding grants of around ½ percent of GDP over the medium term to bring debt down from 79 percent of GDP to 75 percent of GDP by end-2025. - Structural fiscal reforms to broaden the tax base and increase public spending efficiency were recommended to achieve this objective. *Annex II. External Sector Assessment* ### 2. The authorities necessarily recalibrated fiscal targets in response to the COVID-19 ### 2. The authorities necessarily recalibrated fiscal targets in response to the COVID-19 shock ### Fiscal impact and immediate policy response - The COVID-19 shock raised debt in 2020 by nearly 10 percent of GDP relative to what was expected in the 2020 Article IV. - Losses in revenue and increased spending on healthcare and social protection were the main drivers of the fiscal deterioration. - The authorities contained deterioration in public finances by increasing targeted spending while accelerating legislative and administrative tax reforms: - The primary deficit (excluding grants) increased by 2 ppts of GDP in 2020 and was reduced by 1.2 ppts of GDP in 2021. - Spending on targeted cash transfers increased by 0.3 percent of GDP. - The Istidamah program (launched December 2020) provided salary contribution support to 130,000 workers in affected sectors. - The authorities hired 3000 new medical staff to address the health impact of the pandemic. ### Fiscal consolidation and structural reform progress - Fiscal consolidation resumed in 2021 alongside implementation of structural recommendations: - Tax broadening measures implemented include introducing transfer pricing regulations, enacting economic substance regulations for economic zones, and unifying the tax and customs administration throughout Jordan. - Key legislations submitted include place-of-taxation rules into the GST law and measures to strengthen governance of fiscal incentives for investment. - Tax administration strengthened through recruitment and training of tax officials, moves to make inspections more risk based, and improvements to IT infrastructure and data gathering. - Tax revenue outcomes and composition: - Tax revenues increased by 13 percent y-o-y, compared with nominal growth of 3.5 percent. - Sales tax revenue increased by 2 percent of GDP between 2019 and 2021 across imported goods, domestic goods, services, and commercial categories. - Domestic revenues declined by 9.4 percent in 2020 due to COVID-related declines in activity and temporary fiscal measures; subsequent administrative reforms helped offset revenue losses to 2 percent of GDP. ### Electricity sector: tariffs and NEPCO sustainability - Past recommendations: reduce electricity tariffs for businesses by tackling cross-subsidization; strengthen NEPCO’s financial sustainability. - Tariff reform (rolled out in April) reduced tariffs for productive business sectors and reduced household subsidies: - The reform streamlines household tariff structure and reduces subsidies progressively while protecting the most vulnerable households. - NEPCO financials and mitigation measures: - Cost-saving measures contained NEPCO’s deficit in 2020-21. - Eliminating the fuel clause in 2020 together with higher oil prices worsened NEPCO’s medium-term outlook relative to the 2020 Article IV. - Authorities are addressing pressures via revenue-enhancing and cost-saving measures including introducing Time of Use tariffs, reducing costs of LNG storage, and improving electricity storage. ### Water sector: financial sustainability and operational challenges - COVID-19 and climate change have increased pressures: diminishing supplies, rising demand, and faltering bill collection. - Authorities preparing a roadmap for financial sustainability with policies and projects addressing water scarcity. - Measures taken: - Lowered electricity tariffs for the water sector by 10 fils per kWh. - Engaging with donors to finance projects to secure sustainable water supplies and reduce non-revenue water. - Ongoing issue: water sector arrears to PPP projects and to electricity distribution companies require improved cash management and budgeting. ### Monetary and financial stability - Central Bank of Jordan (CBJ) actions: - Appropriately eased policies at the onset of COVID-19, using space made available by Fed loosening; later tightened monetary policies to support the peg in response to Fed tightening. - International reserves remained around or above 100 percent of the ARA metric; dollarization has declined. - A new AML/CFT law in line with staff’s recommendation was approved in 2021. - CBJ is implementing an action plan agreed with FATF with the aim to exit the list of jurisdictions under increased monitoring in 2023. ### Structural reforms: labor markets, business environment, governance, and transparency - Labor market and social protection: - Social security contributions were lowered during COVID to protect jobs; authorities are working to amend the Social Security Law to reduce contributions for workers under 30. - Introduced instructions for childcare provision by employers and are rolling out the Bus Rapid Transit project to improve transport affordability and safety. - Labor law amendments addressing gender-biased articles and workplace harassment were submitted but stalled in parliament since 2020. - Cost of doing business and insolvency: - Streamlining of licenses is ongoing with progress in tourism, but more is needed to simplify business start-up processes. - Significant progress on piloting PPPs under the new PPP law. - Insolvency law enacted; courts accepted insolvency filings for the first time in 2021. - Governance and transparency: - Illicit gains law amendments passed to increase transparency over financial disclosures by public officials. - Publication and audit of COVID-19 spending reports in 2020 and 2021, including beneficial ownership information on entities awarded contracts. - e-Procurement rollout delayed by COVID-19; relevant Bylaws advanced and authorities aim to rollout the system to the two largest ministries (health and education) by end-2022. ### Annex V — Public debt trajectory, sustainability, and medium-term fiscal strategy - Historical debt and growth context: - Public debt increased from 59 percent of GDP in 2010 to 78 percent of GDP by 2019. - Growth averaged only 2.4 percent of GDP over 2010–19. - Combined public sector deficit surpassed 14 percent of GDP in 2011; the deficit averaged 5.4 percent of GDP over 2014–19. - Pandemic-era debt and targets: - Public debt ratio reached 92 percent of GDP at end-2021, a 13 ppts jump over end-2019 levels. - The SSIF’s portfolio includes 16.6 percent of GDP in assets outside general government, implying a net debt position of 75.3 percent of GDP. - Authorities set a medium-term debt target of 80 percent of GDP. - Achieving the target requires a total reduction in the primary balance (excluding grants) of 4.5 percent of GDP between end-2021 and end-2027. - Additional discretionary measures of 1.7 percent of GDP will be needed beyond adopted/implemented measures. - The projected discretionary effort implied by the structural balance is 3.2 percent of potential GDP from end-2021 to end-2027. - Policy orientation for consolidation: - Given fragile growth and very high unemployment, consolidation should minimize demand impact by focusing on tax base broadening rather than raising marginal tax rates, and by finding efficiencies in public spending to preserve social and capital spending. - Jordan’s share of capital expenditure in total spending is similar to the MENAP oil-importer median but lower than the median for other peer emerging markets; non-priority capital projects are frequently delayed to make room for priority current spending. - Revenue mobilization priorities: - Swift passage and firm implementation of reforms introducing place-of-taxation rules into the GST Law and reforming governance of investment incentives are essential to sustain revenue momentum. - Implementing legislative reforms incorporating ASEZA into the single tax and customs systems must be followed by administrative actions: registration and filing requirements, taxpayer awareness, monitoring tools, and risk assessment processes. - Strengthening ISTD capacity via IT upgrades, audit function enhancement, and staff training is crucial. - Further compliance efforts should focus on large taxpayers and free professionals given low individual income tax revenues (below 1 percent of GDP). *Source: IMF staff report text excerpt (chapter/section provided).* ### 4.6 percent of GDP. Recent efforts in ### 1jorea2022003 - 4.6 percent of GDP. Recent efforts in ### Revenue mobilization and tax administration - Recent efforts include a campaign to improve compliance for medical professionals, implementing mandatory invoicing and collection of key data by ISTD from hospitals and insurance companies. - Large Taxpayer Directorate: work started on establishment of specialized audit teams for high-risk sectors and adoption of risk-based audit approaches (with FAD support). - Scope for improvement: - Improve risk analyses; ensure audit number and type is proportional to the risk category; develop risk mitigation strategies in high-risk sectors. - The establishment of a fiscal incentives ministerial committee including MOF is an important step; further reform potential remains because incentives are typically the sole prerogative of the Ministry of Finance and governed through tax code. ### Tax policy: capital taxation and incentives - Revisiting taxation on capital: - Jordan currently does not tax capital gains (with some exceptions). - Capital gains are taxed in most MENAP emerging economies listed: Egypt, Morocco, Lebanon, Pakistan, and Tunisia, and in most EMs in other regions. - ISTD is planning to assess the potential implications of introducing a wealth tax; wealth taxes are relatively uncommon in EMs but could help target weak compliance for large taxpayers. ### Development zones, free zones, and revenue leakage - Recommendations to reduce revenue leakage and improve compliance in development zones and free zones: - Base verification activities on risk analyses. - Ensure coordination between Customs and ISTD in planning spot checks and audits. - Shift compliance improvement strategies from exclusive audits/inspections to a mix of sample audits, communication through industry bodies and tax practitioners, follow-up audits, and court prosecution for serious non-compliance. - Reduce costly abuse of ‘end-use’ exemptions via further analysis to inform targeted verification visits to industrial projects in development and free zones. - Re-evaluate whether FAD’s tax expenditure analysis (TEA) could be conducted in the coming year (previously not possible due to lack of data). ### Sales taxes and c-efficiency - Sales taxes are a larger share of total tax revenues in Jordan than in peer EMs, but the base is narrow due to extensive exemptions and reduced rates. - The c-efficiency score (actual sales tax revenue as a proportion of potential sales tax revenue) has been increasing in recent years thanks to efforts to close loopholes, but scope for improvement remains. - While unifying rates could improve efficiency, authorities are unlikely to implement simplification that would increase average rates given the regressive nature of sales taxes. ### Municipal own-source revenues and property taxation - Nationally determined tax rate: 15 percent. - Jordan’s 100 municipalities and the Greater Amman Municipality register property purchases, assess property values, and collect property taxes. - Due to low compliance and weak enforcement, property tax revenue in Jordan is lower than in most peer EMs; municipalities rely on central government transfers and debt issuance. - Reform scope and recommendations: - Improve the valuation system: - Current method differs by tenure: owner-inhabited housing valuations computed every five years on a reconstruction-based approach with coefficients per square meter varying by municipal category, zoning type, and building and construction type; rental units based on rental value specified in the rental contract. - Infrequent valuations and complexity lead to undervaluation; property tax on owner-occupied units is usually much lower than on rental units with same market value. - The 2019 Property Values Estimation Bylaw will generate pre-estimated values for land — an important step to reduce valuation time. - Recommendation: link property valuation directly to market value and unify valuation for owner-occupied and rental units. - Improve compliance: - Expand a street naming and building numbering initiative (currently in nine municipalities with USAID support) nationwide to create comprehensive accurate property databases and clear physical signage to facilitate tax collection. ### Improving efficiency of public expenditure - Public sector reform (expected launch May 2022) will set near-, medium-, and long-term goals in three areas: - Strengthen separation between regulatory bodies and operators to increase accountability, independence, and transparency. - Revise civil service staffing practices, including developing merit-based hiring and promotions. - Increase digitalization of government services aiming for full digitalization after four years. - Recent service delivery incidents: death of 10 COVID patients due to an oxygen shortage in a state hospital in al-Salt in March 2021; large-scale power outage in May 2021 — illustrative of service provision inefficiencies. ### Health sector efficiencies and reforms - Observations: - Jordan’s health outcomes broadly comparable to peer EMs, despite higher public health expenditures, suggesting inefficiencies. - COVID response increased staff and hospital capacity but also costs; inefficiencies around health insurance (high subsidies and exemptions) and administration of public healthcare facilities have led to significant arrears. - Key inefficiencies and suggested reforms: - Abuse of exemptions for uninsured patients: untargeted ‘affordable care’ exemptions provide uninsured patients access with only a token copayment, creating incentives against private insurance enrollment; restrict exemptions to the most vulnerable. - Low out-of-pocket costs for the insured: very low copayments in public sector insurance encourage excessive use and waste; examples: copayment is zero for medicines below JD 10 and 10 percent for those above; copayment for treatment in public facilities is less than JD 3 on average. - Improve incentives for public healthcare facilities: address weak financial management and arrears. - Consider a broader public insurance scheme carefully designed to: - Avoid adverse selection (e.g., mandate coverage for all households). - Finance via progressive contributions (e.g., premiums linked to salary without a cap). - Balance equitable access with minimizing waste through calibrated copays. - Note: a subsidized broad scheme would imply additional direct fiscal costs, partly offset by lower use of exemptions and a shift from emergency to preventive care. ### Public sector wage bill and staffing - 2021 civil service wage bill study findings: - Public-private wage premium not outsized on average, but especially large for entry-level and unskilled workers and declines with skill and experience. - Scope to align compensation packages (including allowances) with market comparators to attract experienced/high-skilled professionals and contain costs. - Public sector reform plans (merging agencies, strengthen budgetary oversight and human resource planning) are positive steps to improve efficiency. ### Social safety net and cash transfers - NAF’s means-testing methodology is efficient in targeting the bottom quintile; Jordan is among the most efficient emerging markets in targeting social protection. - Policy shift toward cash transfers has improved targeting. - Budget allocation for social assistance historically low compared to regional and global peers; adequacy questioned despite post-COVID increases. - Demand and program numbers: - Over 400,000 households applied in the past six months. - Newly launched unified cash transfer program currently sized at 120,000 families — the program could be expanded well above current size given high unemployment. ### Procurement, SOEs, PPPs, and fiscal risks - Commitments: - Production of a fiscal risk analysis of four major SOEs by the Macro-Fiscal Unit at MOF. - Publication of explicit fiscal costs and fiscal risks associated with three major PPPs by the FFCL. - Essential next steps to limit fiscal risk accumulation: - Apply the new PPP law to all new projects (noting significant adaptation investments needed). - Develop medium-term financial plans for large SOEs, supported by indicators from tools such as the SOE health check. - Train staff at the FCCL unit and continue exchange of information between FCCL, PPP, and PIM Units to enable FCCL to perform its mandate under the PPP law. ### Long-term debt path and risks - Public debt projections: - Debt is projected to continue on a downward trajectory over the next decade but the pace of decline will decelerate after 2027. - Debt is expected to reach 78.6 percent of GDP by 2030, 75.7 by 2035, and 71.8 by 2040. - Notable risks to the debt path: - Risks to growth from geopolitical shocks or delayed structural reform implementation. - Risks to fiscal balances from higher-than-expected costs related to large PPPs and climate change adaptation projects (notably in the water sector). - Probabilistic assessment: - IMF’s Sovereign Risk and Debt Sustainability Framework debt fan-chart toolkit indicates debt is likely to stabilize in the medium-long run but with a wide band of possible outcomes. ### Education spending and efficiency (Box AV.3) - Historical profile: - Jordan’s education spending has historically been lower than other MENA and EM peers; spending fell before COVID as reductions in staff compensation overwhelmed other increases. - Despite this, educational outcomes have been favorable; Jordan was only slightly below the efficiency frontier in 2015 and improved by the recent consolidation with increased average PISA scores. - Wage pressures and opportunities: - Spending increased since 2019 after 3,000 new teachers were hired in 2020 and union-negotiated salary increases by service time. - Containing wage spending (e.g., linking salary increases to performance rather than seniority) can create fiscal space for other priorities. - Pre-primary education gap: - In 2017, Jordan spent under 0.01 percent of GDP on pre-primary education and had gross enrollment under 26 percent, compared to 0.46 percent and 79 percent respectively in a sample of emerging markets. - With UNICEF-funded program, gross enrollment increased to 32 percent by 2020 while public spending as percent of GDP remained unchanged. - Recommendation: modest increases in pre-primary spending to bring Jordan in line with peers could yield long-term human capital gains. *Source: 1jorea2022003 PDF content.* ### Annex VI. Climate Change Adaptation: Addressing Water Scarcity ### Annex VI. Climate Change Adaptation: Addressing Water Scarcity ### Overview and context - Jordan is one of the world's most water-scarce countries; climate change and rapid population growth (including influx of refugees) have severely aggravated Jordan’s water deficit. - Since the 1980s: - Annual temperatures increased by 1.4ºC. - Annual precipitation declined about 13 percent. - Per capita renewable water resources: 96 cubic meters per year (compared with the internationally recognized water scarcity level of 500 cubic meters per capita per year). - Jordan currently retrieves 96 percent of its renewable water sources; around 15 percent of water needs are met by unsustainable over-abstraction of ground water. ### Climate impacts on water supply and demand - Climate change reduces replenishment of aquifers (scarcer precipitation) and raises demand (rising temperatures accelerate evaporation and increase agricultural water needs). - Water deficit has been increasing in recent years and is expected to persist long run even with current adaptation efforts. - Household impacts: - Infrequent water delivery in most areas. - Households purchase water privately (storage tanks and bottled water), implying heightened regressivity and reduced worker productivity. - Agricultural impacts: - Water scarcity imposes serious limits on agricultural use. ### Economic and social damage from climate change - Empirical evidence and literature findings: - High-temperature countries experience negative economic impacts from climate change. - October 2020 WEO: for a typical EM with annual average temperature of 22°C, a 1°C increase lowers per capita GDP growth by about 1 percentage point annually over a 7-year period. - Kahn and others (2021): an increase in temperature of 0.01°C above its historical norm reduced GDP growth by 0.015 percentage points per year for Jordan over 1960–2014. - Social inclusion and cohesion risks: vulnerable groups are most affected by water shortages; continued global warming will have more significant social and economic implications over the long run. ### Fiscal and financial sustainability of the water sector - Recent fiscal picture: - Total sales revenues for WAJ and water distribution companies and grants account for around 50 percent of capital and current expenditure; the remainder financed by government subsidies (roughly half cover production inefficiencies and water losses; the rest fund tariffs below cost recovery). - Water sector deficit has been about 1 percent of GDP in recent years. - Substantial arrears to PPPs and NEPCO accumulated in 2021 (up to 0.8 percent of GDP). - Operational cost drivers: - Electricity costs make up half of operational costs for the water sector. - Non-revenue water (NRW) is over 50 percent of water supplied, well above comparator countries, eroding revenues. - Projected sector deficits: - Sector budget deficits of 1–1.5 percent of GDP are projected to persist in coming years and are already factored into the IMF’s public debt sustainability analysis (DSA). ### Major adaptation initiatives and estimated costs - Amman-Aqaba Conveyor (AAC): - Purpose: desalinate Red Sea water and transport up to 300 million cubic meters of water per year (around 10 percent of total water consumption) to Amman. - Estimated capital expenditure reported as $2.5 billion (project description) and later described as about $2.4 billion of capex. - Donors have pledged $1.8 billion of grants and concessional loans for the project. - Government plans to budget $70 million per year for 5 years for construction and donor-supported concessional financing of $446 million for the builder. - Construction expected to kick off in 2023 and finish at end-2027 or early 2028. - Non-revenue water (NRW) reduction: - Current NRW: over 50 percent of water supplied. - Target example: reducing NRW from 50 percent to 25 percent by 2040. - Estimated CAPEX required to achieve this reduction: about $1.8 billion. - Potential measures: performance-based contracts, smart meters, fines for theft, improved bill collection. - Improving energy efficiency in the water sector: - Measures include energy management systems, small-scale solar installations at water facilities, and energy audits. - Private sector participation envisaged via BOT-style PPPs. - Increasing use of treated wastewater in agriculture: - Current treated wastewater use: 31 MCM per year. - Potential to increase to 184 MCM per year (World Bank estimate). - Additional adaptation CAPEX: - Improving energy efficiency, expanding treated wastewater capacity, and other NDC-listed adaptation projects could add an additional $600 million of CAPEX. ### Long-term scenarios and macro-fiscal implications (up to 2040) - Two scenarios assessed: - Baseline scenario: incorporates the costs noted above and assumes growth stabilizes at 3 percent. - Aggressive adaptation scenario: frontloaded investments with additional expenditures of $600 million per year on adaptation efforts relative to the baseline starting in 2029 (also described as water sector deficits wider in medium term on the back of an additional investment of JD 200 million per year). - Key assumptions and projected effects: - Growth: - Baseline: growth stabilizes at 3 percent. - Aggressive adaptation: growth assumed to increase gradually from 3 percent in 2028 to 4 percent by 2040 (consistent with adaptation benefits on productivity and labor supply). - Water sector deficits: - Wider in medium term under aggressive adaptation due to frontloaded investments; gap narrows over time as adaptation benefits accumulate. - Borrowing costs: - Initially higher under aggressive adaptation due to elevated financing needs and debt; part of higher costs assumed offset by higher official financing at favorable rates; as growth accelerates, private borrowing costs decline and gap narrows and eventually reverses. - General government primary deficits: - Mirror water sector deficit trends; central government primary deficits assumed to persist at 2027 levels. - Public debt trajectory: - Baseline: debt remains on a downward path; debt falls below 80 percent of GDP by 2027, but decline decelerates as AAC comes online in 2028. - Aggressive adaptation: debt stagnates around 79 percent of GDP between 2028 and 2033 and is almost 2 percent of GDP higher than baseline by 2034; as growth accelerates above baseline, debt in aggressive adaptation starts to decline more rapidly and is projected to be 1.3 percent of GDP lower by 2040. ### Policy recommendations and fiscal risk management - Ensure best value for money and avoid large risk build-up on the government balance sheet from guarantees; decide whether water sector deficits will be financed by consumers (households, agricultural/business users) or taxpayers. - Key steps: - Adopt and implement a Financial Sustainability Roadmap (roadmap being prepared with World Bank; delayed but crucial). - Ensure transparency and due processes: - Apply the new PPP law to all future PPP projects in the sector. - Continue strengthening the FCCL unit. - Operationalize the National Registry of Investment Projects. - Ensure financial due diligence and transparent/competitive tendering to contain fiscal risks and attract private and donor financing. - Arrest incurrence of arrears: - Timely fiscal transfers and use of buffer accounts to prevent accumulation of new arrears; arrears to PPPs risk derailing critical projects and harming investor reputation. ### Financing options and international support - IMF Resilience and Sustainability Trust (RST): - If eligible, Jordan’s share of the RST could be equivalent to around US$700 million to provide affordable long-term financing for climate-related challenges. - Other instruments: - Green bonds could be a potential financing instrument for Jordan, earmarked for climate and environmental projects. - Donor support: - Robust donor support is crucial given limited fiscal space and significant investment needs. ### Conclusions - Jordan has made significant progress on climate mitigation despite being a relatively small GHG emitter (25.5 million tonnes of CO2 from burning fossil fuels in 2020; approximately 0.07 percent of global shares). - Considerable adaptation needs lie ahead to tackle water scarcity aggravated by climate change and population growth (including Syrian refugees). - Successfully reducing water scarcity will require large and costly investments over the next 10–20 years, with significant debt sustainability implications, warranting careful procurement, best-value financing, and robust donor support. *Source: Annex VI. Climate Change Adaptation: Addressing Water Scarcity (IMF country report).* ### References ### 1jorea2022003 - References ### References cited - Burke, Marshall, Solomon M. Hsiang, and Edward Miguel, 2015, “Global Non-Linear Effect of Temperature on Economic Production,” Nature 527: 235–39. - Dell, Melissa, Benjamin F. Jones, and Benjamin A. Olken, 2012, “Temperature Shocks and Economic Growth: Evidence from the Last Half Century,” American Economic Journal: Macroeconomics 4 (3): 66–95. - International Monetary Fund, 2020, World Economic Outlook (October) (Washington). - Kahn, M.E., Mohaddes, K., Ng, R.N., Pesaran, M.H., Raissi, M. and Yang, J.C., 2021. Long-term macroeconomic effects of climate change: A cross-country analysis. Energy Economics, 104, p.105624. ### Letter of Intent — Key economic context and commitments (Amman, Jordan; June 14, 2022) - Context and challenges - COVID-19 pandemic has left a heavy toll; recovery gradual amid global headwinds including sharply elevated international food and fuel prices, tightening global financial conditions, lingering COVID-19 risks, and risks from global economic fragmentation. - Unemployment receded slightly from its peak of 25 percent in Q1 2021. - Strategic buffers: strategic grain reserves, long-term natural gas import contracts, and robust foreign exchange reserves have helped contain inflationary pressures, preserve market access, and maintain confidence. - Program objectives and progress - Commitment to EFF-supported reform program: preserving debt sustainability and external buffers, maintaining monetary and financial sector stability, and advancing structural reforms for higher and more inclusive growth. - Strengthening social safety nets; reducing unemployment; promoting labor force participation for youth and women; boosting competition via regulatory reforms; improving governance and transparency. - Met all end-December 2021 quantitative performance criteria (QPC) and key indicative targets (IT); met most end-March 2022 ITs. - Revenue overperformance as of April 2022 due to efforts against tax evasion, closing tax loopholes, and strengthened tax administration. - Requests to the Fund - Requesting modification of end-June 2022 QPCs on central government primary deficit (excluding grants) and combined public sector deficit. - Requesting modification of end-June 2022 QPC on net international reserves in light of recent BOP developments. - Requesting rephasing of a share of disbursements scheduled for 2023 into 2022 to be made available at the time of the fifth review. - Requesting an augmentation of access under the EFF by SDR 75.482 million (about US$105 million or 22 percent of quota). - Expectation that the fifth review will be completed on or after September 30, 2022, and the sixth review on or after March 30, 2023. - Monetary and financial policy stance - The Central Bank of Jordan (CBJ) has anchored policy by the peg to the U.S. dollar. - CBJ implemented two rate hikes since March for a cumulative 75 basis point. - Operational target: maintain international reserves above 100 percent of the Fund’s Reserve Adequacy Metric. - CBJ supported SMEs and productive sectors via subsidized lending schemes; deferments on debt repayments by affected borrowers expired in December 2021. - Fiscal stance and reforms - Committed to adhering to 2022 budgetary targets despite temporary subsidies to smooth passthrough of global commodity prices. - Medium-term debt sustainability goal: reduce public debt to 80 percent of GDP (MEFP ¶14–15). - Reformed electricity tariffs in April 2022 to lower tariffs for key business sectors and better target household subsidies. - Passed legislation to unify tax and customs administration in the Aqaba Special Economic Zone (ASEZ) with national authorities. - Enacted a procurement bylaw to strengthen transparency and efficiency in public spending and facilitate e-procurement rollout. - Completed and published ex-post audits of all COVID-related spending for the second consecutive year, including beneficial ownership information. - Substantial progress in strengthening AML/CFT regime. ### Memorandum of Economic and Financial Policies (selected background, outlook, and targets) - Pandemic impact and policy response - GDP growth: 2.2 percent in 2021 after contracting 1.6 percent in 2020. - Unemployment: declined slightly to 23 percent in 2021Q4 from its peak of 25 percent in 2021Q1. - Vulnerable groups: youth unemployment over 50 percent; women unemployment over 65 percent; poverty rate rising to 25 percent from 15.7 percent in 2019. - Policy measures: increased social protection spending, deferred tax/customs/utility payments, temporarily reduced consumption tax rates on tourism, expanded healthcare capacity, CBJ subsidized lending scheme for SMEs (government bearing interest cost for payroll loans). - External position and reserves - 2021 current account deficit: 8.8 percent of GDP. - 2022 current account deficit expected to narrow to 6.6 percent of GDP. - International reserves: remained adequate to support the peg at over 100 percent of the ARA metric. - A US$1 billion Eurobond matures in June 2022; intent to roll over via a Eurobond issuance of at least this amount in 2022. - Unfolding global shocks raised balance of payments financing needs by around US$1.3 billion over 2022–23. - Fiscal performance and outlook - Tax revenues up 13 percent year-on-year in 2021. - Legislative action: imposed single tax and single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control (March 2022 SB). - Central government primary deficit (excluding grants) narrowed to 4.5 percent of GDP in 2021. - Overall domestic revenues surpassed IMF targets by 0.5 percent of GDP. - After adjustor for COVID spending of 0.5 percent of GDP, end-December 2021 QPCs for central government and combined public deficit were met. - General government debt: 91.9 percent of GDP at end-2021; expected to decline to 91 percent of GDP by end-2022. - Growth expectations: growth to reach 2.4 percent in 2022 (a slight markdown from the Third Review level of 2.7 percent) and then to rise gradually to above 3 percent over the medium term. - Social and refugee-related pressures - Shortfall in donor financing for refugees: approximately US$0.5 billion shortfall between planned and received donor financing as of 2021. - Funding for the Jordan Response Plan stood at 31 percent of 2021 needs. - Temporary retention of electricity subsidies for the most vulnerable 25 percent of Syrian refugee households for 6 months pending donor-funded durable response. - Structural benchmarks and implementation - Met end-December 2021 QPCs and end-March 2022 ITs for primary fiscal deficit, combined public deficit, net international reserves (NIR), and non-incurrence of external debt service arrears. - Successfully implemented six of the twelve structural benchmarks due on December 30, 2021, or later. - Produced ahead of schedule: (i) first report on macro-fiscal outlook and risks by the Macro-Fiscal Unit (end-June SB); (ii) assessment of explicit fiscal costs and fiscal risks related to the three largest PPPs (June 2022 SB). *Source: 1jorea2022003 - References (PDF).* ### 10. We remain committed to delivering the 2022 primary deficit target of 3.4 percent of ### 10. We remain committed to delivering the 2022 primary deficit target of 3.4 percent of GDP ### Fiscal target and context - Primary deficit target for 2022: 3.4 percent of GDP (including the 0.3 percent of GDP covid adjustor). - COVID adjustor details: Given the large Omicron wave, the COVID adjustor has been triggered, resulting in 0.15 percent of GDP space for additional health spending for the first half of the year. The adjustor is likely to be triggered in the second half of the year as well, releasing another 0.15 percent of GDP space for health spending and bringing the end-year primary deficit target (excluding grants) to 3.4 percent of GDP. ### Domestic revenues and customs reform - Customs reform approved in January lowers the number of customs duty slabs and lowers the effective customs duty rate; expected to reduce customs revenues somewhat in 2021 (first year of implementation). - Off-setting effects expected through reduction in smuggling and evasion. - Other revenue measures and performance: adjustment to the real estate registration tax and fees; higher revenue base from 2021; strong Q1 performance. - Net projection: domestic revenues in 2022 will be 0.4 percent of GDP higher than projected in the Third Review. ### Fuel subsidies and pricing actions - Pump prices frozen for oil derivatives from February until end-April 2022 to protect households from global oil price surge. - Gradual return to market-based pricing began in May 2022. - Specific measures announced: - A 60 fils increase in the price of octane 95 gasoline for the month of June. - Full removal, by end-August 2022, of the subsidy on octane 95 gasoline. - Commitment to remove fuel subsidies on all other oil derivatives by end-2022, while protecting the most vulnerable through targeted support (Prior Action). - Fiscal containment commitments: - Cabinet decision to contain the 2022 fuel subsidy cost to JD350 million. - Cabinet decision to contain the 2022 primary deficit (excluding grants) to 3.4 percent of GDP (new proposed SB for August 2022). - Note on JD350 million: corresponds to the cost of the fuel subsidy prior to netting out balances due by fuel distributors to the government related to transport costs; the latter are estimated at JD 55 million (0.2 percent of GDP). ### Food subsidies and strategic reserves - Reliance on strategic wheat reserves to mitigate global wheat price shock. - Food subsidies may be higher than projected at the Third Review by 0.1 percent of GDP due to continued geopolitical uncertainty. - Ongoing monitoring of strategic wheat reserves to ensure food security. ### Protection of the vulnerable and social spending - Increase in social protection spending envelope: NAF allocation increased by JD 30 million above the amount allocated in the budget to protect vulnerable households. - Cash assistance program: - Increased number of families covered by 15,000. - Unified cash assistance program covers 120,000 families in 2022. - Over 400,000 applications received since end-2021. - Cash assistance amounts: JD 50–100 per household. - Targeting improvements: weights adjusted for dependent adult children and female-headed households; payments shifted to virtual means (e-wallets, bank transfers, mobile payments). - Integration plans: aim to integrate all existing NAF programs for Jordanians into one single program by end-2024; considering institutionalizing food assistance into a single unified platform. ### Non-priority spending and capital expenditure - Reduction of non-priority spending to meet 3.4 percent of GDP primary central government deficit target for 2021. - Postponement of non-priority capital spending by an expected 0.6 percent of GDP for 2022 relative to the Third Review projection of 4.1 percent of GDP. ### Structural fiscal reforms (overview and commitments) (i) Tax policy and revenue administration - New regime for incentivizing investment: MOF to have central role in granting and management of all fiscal incentives; table draft law “Regulating the Investment Environment and Doing Business Law” in 2022 summer extraordinary session of Parliament (chapter on investment; fiscal incentives ministerial committee including MOF) (SB proposed to be reformulated and reset for August 2022). - Customs tariff reform adopted to simplify/unify the tariff rate system: reduces brackets from 16 MFN rates and 31 bound rates to just four (three after 2028); results: - No change for goods currently subject to a zero-percent tariff. - High rates (15–25 percent, to unify at 15 percent by 2028) for three industrial sectors identified as key for growth and employment (processed food products, furniture, and engineering and construction materials). - Unified rate of 5 percent for all other goods. - Draft GST place-of-taxation amendments cleared parliamentary sub-committee; to be tabled in upcoming 2022 extraordinary session of Parliament (new proposed SB for July 2022). - Implementation of ASEZA law to impose single tax administration and single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control (March 2022 SB implemented with delay). - Revenue mobilization plan with IMF FAD support under implementation, covering tax policy and administration and legislative reforms. - ISTD capacity and IT upgrades: new Integrated Tax Administration System (ITAS) planned; strengthen audit with risk-based practices and specialized audit teams for high-risk sectors in the large taxpayer directorate (LTD). - Digitization and compliance measures: - Income and sales tax registration fully automated for new companies; all tax returns now submitted online. - Digital track-and-trace system implemented for six largest cigarette companies; full sector completion expected by Q3 2022. - Digital track-and-trace for alcohol companies expected to start implementation next year (new SB for June 2023). - E-invoicing system in process: company selection underway with aim to rollout by end-2023; incentives include lottery scheme rewarding customers with ISTD-recognized invoices. (ii) Social safety net - Program floor on social spending includes non-wage components of education and health current expenditure envelope; NAF and other social protection programs; and school feeding program. - Continued expansion of NAF and cash transfer programs given elevated poverty and unemployment. (iii) Public sector wage bill and efficiency - Public Sector Modernization Reform to be launched later this summer to improve efficiency, separate regulatory bodies and operators, revise civil service staffing practices, and increase digitalization. - Objectives include merit-based hiring and promotions, merging agencies, and strengthening budgetary oversight and human resource planning. (iv) Public financial management (PFM) - Reduction of central government health sector arrears by JD 196 million between end-December 2020 and end-December 2021. - Additional JD 36 million in claims identified during Q1 2022. - IMF TA on cash management identified reforms in cash forecasting and cash-debt management integration. - Reforms to eliminate off-budget expenditures, strengthen top-down budgeting, and improve fiscal projections. (v) Public procurement - Cabinet approved amended Unified Public Procurement Bylaw (end-December 2021 SB). - Rollout of eGovernment Procurement system, JONEPS, with expansion to Education and Health Ministries (SB for December 2022). - 2022 start of JONEPS implementation for municipalities, starting with GAM; full coverage of GAM expected by June 2023. (vi) Fiscal transparency and fiscal risks management - 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: 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) has gathered key information on three major PPPs—powerplants IPP3 and IPP4, and AIG—and is completing an assessment of explicit fiscal costs and fiscal risks (SB for June 2022). - Plan to expand coverage of existing PPPs to an additional 3 of the largest PPPs by end-December 2022. - Continued publication of COVID-related spending information and beneficial ownership of entities awarded contracts; ex-post audit of COVID-related spending for 2021 published in April 2022 (SB for June 2022 met). (vii) Investment quality and predictability - National Conveyor PPP subject to new PPP law requirements, robust FCCL analysis, and transparent bidding; FCCL analysis completed in April 2022. - FCCL hiring campaign to conclude by August 2022. - Legislative basis prepared for National Registry of Investment Projects (NRIP) comprising PIP Databank and PPP Project Databank; migration to electronic platform planned by Q3 2022. - NRIP to include all PIPs in the 2023 General Budget greater than JD 1 million. (viii) Fiscal policy and debt management capacity - Project Management Unit (PMU) in MOF driving structural reform agenda. - Strengthening MOF capacity for medium-term forecasts, distributional impacts, public balance sheet risk monitoring, debt management, and debt sustainability analysis. - Recruitment: two division heads and four staff recruited for new macro-fiscal unit at MOF, with 2 pending senior hires (January 2022 SB). - Macro-fiscal unit produced its first report on macro-fiscal outlook and risks (June 2022 SB met). ### Monitoring public enterprises and local government units - Royal Jordanian (RJ): - Five-month suspension of incoming and outgoing commercial passenger flights in 2020 and slow airport re-opening pressured RJ finances. - RJ resumed operations and started new routes to Europe; losses in 2021 were less than half the level of 2020. - In 2022 passenger numbers increased significantly but higher operational costs due to oil prices are not fully passed on to ticket prices. - Expected further capital injection of JD 70 million in 2022. - Greater Amman Municipality (GAM): - Measures to strengthen revenues, decrease operating costs (including reducing wage bill), incentivize bill payment (discounts for early payment), and improve service delivery. - Pilot of first phase of Bus Rapid Transportation (BRT) project launched; after eight months ridership exceeds targets and around 90 percent of costs are covered through ticket prices. - Remaining routes in first phase to be rolled out gradually through 2023. - Tender for second phase of BRT (additional 40 km of routes) expected in coming months. ### Medium-term fiscal path and targets - Fiscal consolidation over medium term must balance protection of vulnerable, inclusive growth, and debt sustainability given global headwinds and monetary tightening expected through 2023. - Revised medium-term fiscal path agreed with IMF staff is more moderate to protect growth, priority spending on human capital and public infrastructure, and social welfare. - Targets by end-2027: - Medium-term debt target: 80 percent of GDP. - Primary balance position: zero primary balance (excluding grants). - Expected sources of primary balance improvement included in staff’s baseline: - Unwind of remaining COVID-related measures. - Ramp-up of savings from transfer pricing and economic substance reforms introduced in 2020–21. - Containment of wage bill growth below nominal GDP growth. - Additional requirement: discretionary measures of 1.7 percent of GDP needed over 2023–27 to achieve medium-term debt and fiscal targets. *International Monetary Fund — Jordan: 2022 fourth review content unit (excerpt).* ### 14. We are committed to closing the fiscal gap during 2023–27 by continuing our fiscal ### 1jorea2022003 - 14. We are committed to closing the fiscal gap during 2023–27 by continuing our fiscal ### Fiscal consolidation: revenue strategy - Commitment to close the fiscal gap during 2023–27 by continuing a fiscal strategy focused on revenue base broadening. - Identified additional measures yielding a cumulative 0.4 percent by 2024, and 1.2 percent by 2027 in this area. - First EFF Review staff report (published January 2021) estimated tax loopholes and exemptions cost Jordan around 10 percent of GDP in foregone revenues. - With FAD TA and ISTD compliance efforts, implementation of legislative and administrative reforms is expected to generate, cumulatively: - 0.4 percent of GDP in revenues by the end of the program (2024). - 1.2 percent of GDP by the end of staff’s projection horizon (2027). - Expected revenue-composition of the additional yields: - Broadening income tax base by rationalizing new CIT incentives (new investment law expected to be passed by August 2022); and improving compliance for large taxpayers and free professionals (starting 2023): 0.1 (2023), 0.1 (2024), 0.4 (2027) [percent of GDP]. - Broadening GST base by introducing place of taxation rules (expected to be passed by August 2022); rationalizing new GST incentives (new investment law); and customs reform reducing smuggling incentives: 0.1 (2023), 0.1 (2024), 0.4 (2027) [percent of GDP]. - Close tax loopholes by bringing ASEZA tax and customs functions within national systems (law passed May 2022): 0.0 (2023), 0.1 (2024), 0.3 (2027) [percent of GDP]. - Introduce digital track-and-trace system (for all cigarette companies by end-2022; and for alcohol by end-2023): 0.0 (2023), 0.1 (2024), 0.1 (2027) [percent of GDP]. - The authorities will explore potential additional reforms to counter unforeseen drops in revenue collection and will seek further IMF TA. ### Fiscal consolidation: expenditure measures - Identified measures to improve expenditure efficiency delivering: - cumulatively 0.2 percent of GDP in savings by the end of the program (2024). - cumulatively 0.5 percent of GDP by end-2027. - Specific expenditure measures and estimated yields: - Further contain public wage bill growth to below nominal GDP growth from 2023: 0.0 (2023), 0.1 (2024), 0.2 (2027) [percent of GDP]. - Roll out JONEPS (e-procurement) in health and education ministries (starting 2023); to broader central and general government entities (starting 2024): 0.0 (2023), 0.1 (2024), 0.2 (2027) [percent of GDP]. - Improved efficiencies/reduced exemptions in the provision of health insurance: 0.0 (2023), 0.0 (2024), 0.1 (2027) [percent of GDP]. - Potential additional reforms (cumulative, subject to FAD technical assistance): 0.5 [percent of GDP]. ### Aggregate estimated yields (Estimated yield, in percent of GDP — Cumulative Yield) - Required discretionary effort to close the fiscal gap (cumulative): 0.2 (2023), 0.6 (2024), 1.7 (2027). - Total expected yield from envisioned reforms (cumulative): 0.2 (2023), 0.6 (2024), 1.7 (2027). - Revenue reforms (cumulative): 0.2 (2023), 0.4 (2024), 1.2 (2027). - Expenditure reforms (cumulative): 0.0 (2023), 0.2 (2024), 0.5 (2027). ### Monetary policy and central bank actions - Monetary policy anchored by firm commitment to the exchange rate peg to the US dollar. - CBJ implemented a COVID-19 support package totaling about 8 percent of GDP. - Growth of claims to the private sector (y-o-y): about 5 percent for 2021, and 5.5 percent as of March 2022. - CBJ introduced a debt deferment scheme (expired end-2021) allowing banks to postpone installments without commission or penalty interest. - In response to Fed-induced tightening, CBJ enacted successive policy rate hikes cumulatively amounting to 75 basis points since March 2022. - Key operational target: maintain international reserves above 100 percent of the Fund’s Reserve Adequacy Metric. - CBJ will remain alert and stands ready to undertake policy adjustments as necessary. ### Access to finance and targeted lending programs - JD 500 million SME lending scheme created in 2020 (85 percent guaranteed by Jordan Loan Guarantee Corporation and partly government-supported); envelope increased to JD 700 million in March 2021; extended until June 2022. - Adjusted JD 1.3 billion scheme (launched 2012) to make up to JD 1.3 billion available at low interest rates to support ten productive sectors; remains active and may be reviewed over the medium term. - In Q4 2021, CBJ launched a financing program allocating USD 30 million from the new Arab Fund loan to be lent to microfinance institutions at zero interest rate, partly subsidized by the government. ### Banking system resilience and supervision - System-wide capital adequacy ratio: 18 percent at end-2021 (CBJ regulatory minimum: 12 percent). - CBJ restricted profit distributions (2019 profits not allowed; 2020 profit distribution capped at 12 percent of paid-in capital). - Non-performing loans: 5 percent as of end-2021. - Provisions-to-NPLs coverage ratio: 71.5 percent at end-2020; about 80 percent at end-2021. - CBJ conducts stress tests and requires strict provisioning standards in line with IFRS9. - If capital adequacy falls below 12 percent for any bank, CBJ will require a credible capital restoration plan. ### Insurance sector reform - Commitment to develop a risk-based capital and solvency regime for the insurance sector (June 2023 SB) to align with international best practices and provide forward-looking incentives. ### Regulatory supervision and monitoring toolkit - Launched an inspection management system (IMS) to improve onsite inspection operations and procedures. - Phase one completion target: March 2023, covering banking supervision, consumer protection, payment systems, and currency exchange. - Inclusion of insurance and microfinance sectors scheduled for phase two. ### AML/CFT and FATF action plan - Jordan working to implement items in FATF action plan by end-October 2023. - Completed assessment identifying non-profit organizations vulnerable to terrorist financing (first part of end-June 2022 SB completed); NPO risk assessment completed in March 2022 (Jordan is considering publishing the report or executive summary). - Enactment of the AML/CFT law effective September 2021 addressed many technical compliance deficiencies. - Middle East and North Africa Financial Action Task Force plenary on May 25, 2022 granted Jordan rating upgrades on 14 recommendations; Jordan is now rated non- or partially compliant on only 8 recommendations (well below threshold of 20 for ICRG referral). - Jordan will continue to implement remaining items on the designated timeframe. ### Financial inclusion and new strategy - National Financial Inclusion Strategy (2018–20) achieved strong results. - CBJ developing a new National Financial Inclusion Strategy (2023–25), expected to be launched end-2022, focusing on Credit, Payment, Saving, and Insurance pillars and cross-cutting enablers; targeted to low-income population, women, youth, refugees, and MSMEs; aligned with UN SDGs. - USD 30 million financing program through Arab Fund loan to be lent directly to microfinance institutions at zero interest rate (Q4 2021). ### Statistics and IMF technical assistance - Ongoing TA to update monetary statistics to incorporate nonbank financial corporations coming under CBJ supervision (mid-2021). - Implementation of an FDI survey (new SB for end-Oct 2022) to improve balance of payments statistics and reduce errors and omissions. - TA on monetary and economic policy modeling framework; TA on CBDC conceptual and operational issues (wholesale vs. retail options under consideration); TA on liquidity components analysis and risk-based banking supervision. ### Electricity sector financial sustainability and reform measures - Long-term natural gas contracts have helped shield NEPCO from international oil and gas price increases to date. - Medium-term pressures: high energy prices, slow electricity demand growth, and coming on-stream of oil shale project. - Financial Sustainability Roadmap for the electricity sector (to be approved by end-September 2022) outlines measures developed with international partners. - Revenue-enhancing measures: - Incentivize distribution companies to secure higher domestic and regional demand to lower average cost of electricity supply. - Introduce Time of Use tariffs and install electricity meters for every house connected to the grid. - Expected electricity export revenues: around JD 25 million in 2022 from exports to the West Bank; JD 20 million annually expected from exports to Iraq starting in 2024. - Infrastructure upgrades completed to start electricity exports to Lebanon. - Cost-reducing measures: - Reduce administrative and technical losses. - Lower costs of LNG storage and regasification. - Improve electricity storage via hydropower and battery storage. - Establish a specialized company for purchasing natural gas and operating gas pipelines. - Strengthen grid interconnections with Egypt, Syria, Iraq, and Saudi Arabia. - Explore options to optimize costs related to PPA commitments. - Governance measures: - Unbundle NEPCO accounts into separate Strategic Business Units (SBUs) under the Corporate Governance Action Plan supported by EBRD. - Provide details of proposed enhanced KPIs of distribution companies and empower EMRC to review requested financial plans by end-September 2022. - Arrears management: - NEPCO incurred an additional JD 100 million in arrears with SAMRA as of end-March 2022. - Agreement reached with SAMRA on a repayment schedule. - Cabinet decision (January 2022) to replace meters for all governmental entities with prepaid ones. - Electricity tariff reform: - New electricity tariffs rolled out on April 1st (March 2022 SB); reform is revenue neutral for NEPCO. - Reform reduces tariffs for key business sectors and reforms household tariff system to reduce distortions and generate savings progressively. - Targeting refinements to household subsidies: - Grant access to subsidies for multiple meters where a member works in a different governorate or attends university away from primary residence. - Allow access to subsidized rates for households with solar generation capacity under 3.6 KW (connection fees still charged). - Platform for household subsidy registration went online in January; around 1.1 million households have applied thus far. - Inter-ministerial coordination strengthened for eligibility-checking; appeals mechanism in place. - Dispute mechanism option until end of May for eligible households who missed registering meters to request reissued subsidized bills. - Transitional subsidies for six months to the 32,000 most vulnerable Syrian refugee households identified by UNHCR. - Continued donor assistance sought to support vulnerable groups potentially affected by the reform. *JORDAN — INTERNATIONAL MONETARY FUND (excerpt).* ### 32. We are committed to scale up reforms in the water sector in order to contain rising ### We are committed to scale up reforms in the water sector in order to contain rising losses and to ensure a sustainable path for the supply of water, critical for both growth and macroeconomic stability. ### Water sector reforms and project governance - Jordan is one of the most water scarce countries in the world; low water resources are depleting at a fast pace, leading to rising pumping and treatment costs, and increasing risks of water shortage. - Due process for projects to address water scarcity, including the Aqaba-Amman National Conveyor Project (AANCP): - Ensure all new PPPs adhere to best practices consistent with the new PPP law in procurement decisions and granting of government guarantees. - For AANCP (tendering started before the new PPP law came into effect), ensure due process throughout the remainder of the tendering process, including: - (a) using a robust FCCL framework to analyze fiscal commitments and contingent liabilities arising from the project prior to finalizing the contract; - (b) involving PPP Unit staff in both the Technical and Special Tendering committees for the entire tendering process; and - (c) preparing tender documents and draft contracts in coordination with the PPP unit. - Complete a competitive tender process consistent with international best practices. Request for proposals (RFPs) were issued to five pre-qualified consortiums in February 2022. ### Reducing non-revenue water and investment plan - Current non-revenue water (NRW) level: 50 percent of total water supplied. - Targets: - Reduce NRW to 40 percent by 2030. - Reduce NRW to 25 percent by 2040. - An investment plan of US$1.8 billion under a PPP structure, supported by donor grants and concessional loans, will be implemented over 2023–40 to achieve these targets. - A National Non-Revenue Water Strategy will be introduced by September 2022. ### Arrears, cash transfers, and the water-electricity nexus - Commitment to arrest accumulation of arrears towards water sector PPPs and electricity distribution companies through timely cash transfers from MOF to WAJ. - MOF established a new mechanism for automatic monthly transfers of JD 7 million to WAJ, with the possibility of an additional JD 5–7 million if needed. - Despite efforts, arrears accumulated in 2021: - WAJ accumulated JD 24 million in arrears on electricity payments. - WAJ accumulated JD 29 million in arrears for other charges. - Policy to design a joint electricity-water multi-year strategy to: - Arrest accumulation of arrears by the water sector to electricity distribution companies. - Enable efficient purchase of electricity by the water sector. - Continue engagement with MEMR on efficient energy use and implications on energy sector balance sheets when designing new infrastructure projects. ### Financial Sustainability Roadmap - Leveraging the “Action Plan to Reduce Water Sector Losses,” authorities are conducting a comprehensive analysis of sector challenges and preparing a Financial Sustainability Roadmap in consultation with key stakeholders and development partners. - Roadmap expected to be completed by June 2022. - Roadmap will provide a comprehensive analysis of post-pandemic challenges and outline concrete actions to durably increase revenues and contain costs. --- ### Labor market reforms and employment policies - Overall commitments: implement broad-based labor market reforms to increase labor force participation and generate jobs. - Unemployment statistics: - Peak unemployment: 25 percent in 2021Q1. - Unemployment rate by end-2021: 23.3 percent. - Youth (total) unemployment by 2021Q4: 56.4 percent. - Young female unemployment by 2021Q4: 67 percent. - Youth (total) in 2021Q2: 53 percent. - Young females in 2021Q2: 64 percent. - Female labor force participation: 13.6 percent. - Actions to increase female labor force participation and gender equality: - Ministry of Social Development conducting comprehensive legal and institutional review of nursery licensing process and designing a revised regulatory and institutional model. - Set targets under wage-support public programs to include floors on financial support for childcare services. - Advance amendments to the Labor law to enhance protections for women related to harassment and violence in the workplace, and remove restrictions on female employment in certain professions and industries; amendments to be tabled for discussion in Parliament (new proposed SB for November 2022). - Revise social security survivor benefits legislation to ensure no gender discrimination with respect to survivor benefits. - Considering options to strengthen female representation on boards of public corporations. - Addressing labor market segmentation: - Conduct comprehensive review of labor legislation, including assessment of policies affecting labor-market costs and segmentation (including benchmarking to peers). Review to be shared with Fund staff by end-November 2022. - Formulate action plan with the Civil Service Bureau to enhance civil service efficiency and productivity by (i) leveraging the Public Sector Modernization plan (which will tie remuneration more closely to performance); and (ii) addressing findings of the government-commissioned public wage bill study in 2021 by aligning remuneration with market comparators to address the wage premium for new low-skilled entrants while providing incentives for skilled and experienced staff. - Reintroduced flexibility by issuing circular 56, narrowing those affected by Defense Order 6 to only those hired before the Order went into effect in 2020. Phasing out Defense Order 6 and the Istidama program as the economy fully reopens. - Reduce youth unemployment: - Streamline and enhance technical and vocational education and training (TVET) efforts; working on legislation to bring initiatives under a single umbrella and strategy to transition beneficiaries into the labor market. - Examine options to incentivize hiring of workers under age 30 by reducing applicable social security contribution rate in a manner that does not adversely affect financial sustainability of the Social Security Corporation (SSC). - Launched the National Employment Scheme in 2022Q1, providing support for private sector employment and training of new hires, potentially creating 60 thousand new job opportunities. - Received around 10,000 applicants in the first month of the scheme. - Comprehensive review of labor legislations will assess options to reduce the costs of hiring youth, leveraging international experience. - Encourage formality: - Ministry of Labor issued approximately 36,723 flexible working permits for Syrian refugees in 2021, allowing work in all sectors open to non-Jordanians without being tied to a specific employer and with freedom to move between employers and geographical areas. - A total of 42,421 work permits were issued between January 1, 2021, and March 31, 2022. ### Improving the business environment and competition - Public investment policies will focus on better alignment with the Government Economic Priorities Plan for 2021–23 and mobilizing private sector know-how and financing through PPPs. - In 2022Q1 issued tenders from the PPP pipeline, including King Hussein Bridge Land Border Crossing Terminal and construction of 15 new public schools across Jordan. - Streamlining transactions: - Implementing Property Values Estimation Bylaw (No. 4 of 2019), establishing pre-estimated values for land to enhance transparency and reduce property valuation time. Property value estimations completed for the Amman Directorates at end-2021. - Insolvency framework: - Operationalized new insolvency framework, licensed 13 insolvency practitioners, and continuing to train judges in best practices. - Establishing the Insolvency Committee and launching an electronic insolvency registry by end of 2022. - Competition policy: - Working to strengthen competition regulatory and legal framework and build capacity of the Competition Directorate at the Ministry of Industry and Trade. - Will submit to Parliament draft legislation to strengthen the competition framework, empower regulatory body, and strengthen antitrust legislation in line with the UNCTAD Model Law on Competition (SB for end-June 2022 proposed to be rescheduled for end-August 2022). - Conducting market analysis to identify sectors/sub-sectors with signs of unfair practices and assess government policies that may hinder competition or present barriers to entry for SMEs. Analyses to be completed by end-2022 and shared with Fund staff. - Trade and transport facilitation: - Launched new electronic portal for a testing phase at the end of 2021 for Advanced Ruling applications. - Jordan Customs to continue upgrading infrastructure to fully leverage the National Single Window (including all points of border entry) and launch a trade related permit issuance system connected to the four licensing GoJ agencies. ### Strengthening governance, transparency, and data - Governance and procurement transparency: - Continue to update the COVID-related procurements government website, including information on beneficial ownership of entities awarded contracts. - Published an ex-post audit (end-June 2022 SB) of all COVID-related spending in 2021, including an assessment of procurement transparency and beneficial ownership information provided by firms. - Ensuring the Integrity and Anti-Corruption Commission (IACC) is adequately resourced to implement amendments to the Illicit Gains Law passed in August 2021 and the IACC law enacted in 2022. - Exploring further legislative changes to criminalize illicit gains from public procurement. - Economic statistics and data quality: - Continue efforts to increase quality of primary statistics from annual industry surveys and ensure consistency with data from quarterly surveys. - Department of Statistics (DOS), with METAC technical support, continued efforts to compile annual GDP estimates using primary annual statistics. - 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-July 2022, and the 2019 figures by end-2022. - Going forward, DOS will adhere to a regular publication and revision schedule that includes revisions to quarterly GDP based on annual GDP estimates. *Source: IMF staff report content excerpt* ### 37. Progress in the implementation of our policies, which are supported by the IMF, will ### Progress in the implementation of our policies, which are supported by the IMF, will be monitored ### Monitoring framework - Progress will be monitored through semi-annual reviews, quantitative performance criteria (PCs), indicative targets (ITs), and structural benchmarks. - Definitions and data requirements are provided in the attached Technical Memorandum of Understanding (TMU). - Quantitative targets for June 2022 and December 2023 are PCs. - IMF disbursements will be on-lent to the government during the program period. - A Memorandum of Understanding between the CBJ and the Ministry of Finance on responsibilities for servicing financial obligations to the IMF was signed. ### Quantitative performance criteria and indicative targets (high-level) - Performance criteria and indicative targets are set out in Table 1 (quarters and stock/flow specifications are retained in the TMU). - Selected numeric targets and outcomes reported in Table 1 (in JD millions, unless specified otherwise): - Primary fiscal deficit of central government, excluding grants and net transfers to NEPCO and WAJ: examples reported include 1,400; 1,605; 1,444; 182; 170; 160; 425; 551; 572; 773; 1,066; 1,159; 469; 634. - Combined public deficit (flow, cumulative ceiling): examples reported include 2,132; 2,337; 1,996; 347; 335; 274; 764; 814; 1,079; 1,117; 1,745; 1,628; 630; 995. - Net International Reserves of the Central Bank of Jordan in USD million (stock, floor): examples reported include 12,938; 12,853; 14,999; 12,100; 12,198; 14,687; 11,678; 12,847; 11,294; 12,290; 13,252; 13,376; 13,071; 13,243. - Indicative target (flow, cumulative floor) on social spending by the central government: examples reported include 943; 1,028; 121; 142; 361; 393; 584; 628; 793; 890; 150; 266. - Public debt (stock, ceiling) 3/: examples reported include 29,631; 29,521; 30,383; 29,100; 31,082; 30,235; 31,223; 31,523; 31,844; 31,877; 31,808; 32,787. - Domestic payment arrears of NEPCO (stock, ceiling) 4/: entries show 0; 100 (Not Met) in several periods. - Domestic payment arrears of WAJ (stock, ceiling) 5/: entries show 0; 90 (Not Met) in several periods. - Domestic payment arrears of Aqaba, Miyahuna and Yarmouk Distribution Companies (stock, ceiling) 6/: entries show 0; 152 (Not Met) in several periods. - Net Domestic Assets of the Central Bank of Jordan (stock, ceiling): examples reported include 343; 428; -818; 600; 502; -494; 670; 505; 1,011; 905; 80; 636; 668; 344. - SSC net financing to the central government (flow, ceiling): examples reported include 772; 569; 337; 203; 879; 759; 821; 638; 917; 800; 215; 806. - Memorandum items (selected): - Foreign budgetary grants received by the central government (flow): examples include 763; 803; 53; 29; 125; 65; 240; 141; 1,027; 873; 8; 25. - Foreign budgetary grants and loans received by the Central Bank of Jordan (USD millions, flow, cumulative from beginning of year): examples include 2,708; 2,595; 109; 207; 322; 355; 427; 629; 2,587; 2,720; 50; 111. - Programmed stock of the combined health and energy arrears: examples include 326; 224; 218; 217; 206; 217; 176; 190; 68; 140; 110; 80. - Unbudgeted COVID-related spending (flow): 165 (single entry reported). - Stock of checks issued by the central government but not yet cashed by the beneficiary: ...171 (partial note). ### Structural conditionality and benchmarks (Table 2 highlights) - Prior action (Met): - 1. Announce (i) a 60 fils increase in the price of octane 95 gasoline for the month of June; and the full removal, by end-August 2022, of the subsidy on octane 95 gasoline; and (ii) the commitment to remove fuel subsidies on all other oil derivatives by end-2022, while protecting the most vulnerable through targeted support. Status: Met. Rationale: Protecting public finances. Timing: announcement should be made by end-May 2022. - Proposed new and reset/reformulated structural benchmarks (selected, with time frames): - Table the amendments introducing “place-of-taxation” rules into the GST law for discussion in the upcoming extraordinary session in parliament — July 2022. Rationale: Increasing efficiency of GST and improve tax compliance. - Table for discussion a new draft law titled “Regulating the Investment Environment and Doing Business Law” — August 2022 (reset/reformulated from May 2022). Rationale: Protect against tax base erosion. - Table amendments to the Labor law removing gender-biased articles and increasing protection of women workers from harassment — Nov 2022. Rationale: Promoting women labor force participation. - Develop a risk-based capital and solvency regime for the insurance sector bringing it in line with international best practices — Jun 2023. Rationale: Enhancing CBJ’s supervision. - Implementation of a foreign investment survey based on BPM6 — Oct 2022. Rationale: Supporting Surveillance. - Start implementation of a digital track-and-trace system for alcohol companies — Jun 2023. Rationale: Revenue mobilization. - Issue a cabinet decision to contain (i) the 2022 fuel subsidy cost to JD350m; and (ii) the 2022 primary deficit (excluding grants) to 3.4 percent of GDP — Aug 2022. - Existing structural benchmarks (selected status notes): - Cabinet approval of the amended Procurement Bylaw and related Instructions — Dec 2021. Status: Met. - Recruitment of four new division heads and four staff for new macro-fiscal unit at MOF — Jan 2022. Status: Not met. - Roll out of new electricity tariffs for subsidized and unsubsidized households and for business sectors — Mar 2022. Status: Met. - Pass legislation to impose a single tax administration and a single customs service for Jordan, bringing ASEZA participants under ISTD and Customs national control — Mar 2022. Status: Not met. Implemented with delay. - Submit to parliament a new draft “Regulating the Investment Environment and Doing Business Law” — May 2022. Status: Not met. Reformulated and reset for August-22. - Submit to parliament draft legislation to strengthen the competition framework — Jun 2022. Proposed to be rescheduled to Aug 22. - FCCL Unit to collect key information on major PPPs and publish explicit fiscal costs and fiscal risks on MOF website — Jun 2022. Rationale: Managing fiscal risks and fiscal transparency. - Undertake ex-post audits of all COVID-related spending in 2021, and publish the results — Jun 2022. Status: Met. - New macro-fiscal unit in MOF to produce and share first macro-fiscal outlook and risks report with Fund staff — Jun 2022. Status: Met. - Complete an assessment to identify non-profit organizations vulnerable to terrorist financing abuse and address 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 — Jun 2022. Status: Met. - Expand coverage of the e-Government Procurement system (JONEPS) to Education and Health Ministries — Dec 2022. - Implementation of items in Jordan’s FATF action plan by end-October 2023 (to be assessed by IMF staff) to strengthen AML/CFT — Oct 2023. ### Technical Memorandum of Understanding (TMU): definitions and reporting - TMU sets understandings between Jordanian authorities and IMF staff on definitions of quantitative PCs and ITs and reporting requirements for the arrangement under the Extended Fund Facility. - Exchange rate and gold price for program measurement: - Jordanian dinar to the U.S. dollar: JD 0.709 = $ 1 - Gold price: JD 1046.52 per fine troy ounce (for measurement of NIR PC). - Program exchange rates (Jordanian Dinar Per Unit of Foreign Currency): - British Pound 0.911106 - Japanese Yen 0.006505 - Euro0.786889 - Canadian dollar 0.538721 - SDR0.975744 - Key monitoring and definitional points: - Any developments that could lead to a significant deviation from quantitative program targets will prompt discussions between the authorities and staff on an appropriate policy response. - For program monitoring purposes, debt is defined as set forth in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), adopted December 5, 2014). - The TMU lists and defines the PCs and ITs monitored (semi-annually for cumulative flow measures and stock levels; continuous for accumulation of external debt service arrears). - Specific definitions include: - Primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (cash basis), and its components (net external financing; receipts from sale of government assets; net domestic bank financing; net domestic nonbank financing; grants received; less domestic and foreign interest payments; less net transfers to NEPCO and state-owned water sector). - Net external financing: cash external debt disbursements received by the central government, less external debt repayments paid by the central government (covering debts of the central government and foreign debts channeled through the central government). - Receipts from sale of government assets: transfers of monies from sale of shares, sale of non-financial assets, leases and sale of licenses or exploration rights with duration of 10 years and longer. - Net domestic bank financing: change in the banking system’s claims in Jordanian dinars and in foreign currency on the central government, net of the balance of the General Treasury Account with the CBJ. *Source: 1jorea2022003 - 37.* ### 19. Net domestic nonbank financing of the central government is defined as ### 1jorea2022003 - 19. Net domestic nonbank financing of the central government is defined as ### Definitions and accounting conventions - Net domestic nonbank financing of the central government: - Defined as 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: - Calculated as (i) direct transfers from the central government to NEPCO and the state-owned water sector (or NEPCO and the state-owned water sector’s 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 of the central government (excluding grants and net transfers to NEPCO and the state-owned water sector) - Downward adjustments: - By the extent foreign budgetary grants received by the central government during the relevant period fall short of levels specified in Table 1 of the MEFP, up to a maximum of 50 percent of the shortfall. - By the extent the combined stock of health and energy arrears by the central government falls above the projected combined stock specified in Table 1 of the MEFP, excluding any one-off settlement operation. - By the extent the stock of checks issued by the central government but not yet cashed exceeds JD 200 million (the programmed stock in Table 1 of the MEFP) in case of the end-year indicative target or performance criterion. - Upward adjustments: - By the extent foreign budgetary grants received 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 will not apply to the first US$200 million in overperformance in grants (the applicable limit for which will be 100 percent) deployed for protecting the livelihoods of workers severely affected by the pandemic (spending not covered under paragraph 26 of the TMU). - For 2020 and 2021, upward by the equivalent amount of unbudgeted spending directly related to COVID-19 prevention, detection, control, treatment and/or containment (authorized by cabinet resolution and funded through exceptional treasury advances; 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 — definition and components - Combined public deficit (for program monitoring) is the sum of: - (i) the primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector; - (ii) the operational loss of NEPCO; and - (iii) the overall deficit of the state-owned water sector. - NEPCO operational loss: - Defined as the difference between total operating revenues and total costs for normal operations in the year as reported in the unaudited income statement. - Total operating revenues = (i) sales of operating power; and (ii) all other revenue, excluding proceeds from central government transfers or payments of NEPCO’s obligations on NEPCO’s behalf. - Total costs = (i) purchase of electric power (including fuel costs, capacity and energy charges, and all costs related to electricity generation to be borne by NEPCO); (ii) fuel transportation costs; (iii) depreciation costs; (iv) all other maintenance and operating expenses, including on wages and remuneration of the board of directors, and provisions; and (v) interest expense and any other financial costs. - State-owned water sector overall balance: - Defined as total revenues minus current and capital expenditures. - Total revenues = (i) sales of goods and services; (ii) property income; and (iii) all other revenue, excluding grants and proceeds from central government transfers or payments of WAJ, Aqaba, Miyahuna or Yarmouk water companies’ obligations on their behalf. - Current and capital expenditures = (i) salaries, wages and allowances; (ii) social security contributions; (iii) use of goods and services, including energy costs; (iv) interest payments on domestic and foreign loans; (v) any other expenses, including pensions; and (vi) capital expenditures. ### Adjustors to the ceiling on the combined public deficit - Downward adjustments: - By the extent foreign budgetary grants received fall short of Table 1 MEFP levels, up to a maximum of 50 percent of the shortfall. - By the extent the combined stock of health and energy arrears exceeds the projected combined stock in Table 1 of the MEFP, excluding one-off settlement operations. - By the extent the stock of uncashed checks exceeds JD 200 million (programmed stock in Table 1 of the MEFP) for end-year targets. - Upward adjustments: - By the extent foreign budgetary grants received exceed Table 1 MEFP levels, up to a maximum of 50 percent of the overperformance. - Exception for the end-December 2021 QPC: the 50 percent limit will not apply to the first US$200 million in overperformance in grants (the applicable limit for which will be 100 percent) deployed for protecting livelihoods of workers severely affected by the containment measures (spending not covered under paragraph 35 of the TMU). - For 2020–2022, COVID-19 related unbudgeted spending treatment mirrors that for the primary deficit adjustors (authorization, funding, reporting, and the JD 110 / 0.3 percent of GDP provision for 2022). ### Net international reserves (NIR) of the Central Bank of Jordan (CBJ) — definition, inclusions, exclusions, and status - NIR definition: - NIR in U.S. dollars = foreign assets of the CBJ minus its foreign liabilities. - Foreign assets (included): - Readily available claims on nonresidents denominated in foreign convertible currencies: foreign exchange (foreign currency cash, deposits with foreign correspondents, holdings of foreign securities), monetary gold, IMF reserve position, and SDR holdings. - Foreign assets (excluded): - Any assets that are pledged, collateralized, or otherwise encumbered (e.g., pledged as collateral for foreign loans or through forward contract), CBJ’s claims on resident banks and nonbanks, claims on subsidiaries or branches of Jordanian commercial banks located abroad, claims in foreign exchange arising from derivatives vis-à-vis domestic currency (futures, forward, swaps, and options), precious metals other than gold, assets in nonconvertible currencies, and illiquid swaps. - Excluded from foreign assets is the outstanding balance of bilateral accounts with the Central Bank of Iraq of USD 1,081.67 million. - Foreign liabilities (included): - 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. - Foreign liabilities (excluded from reserve liabilities): - Government foreign exchange deposits with the CBJ; deposits from public institutions and government departments with independent budgets; commercial companies with state participation; deposits from donors (including grants received from the GCC and donor term deposits with the CBJ with remaining maturity not less than 360 days); the two technical swaps with Citibank Jordan for USD 88.5 million; and amounts received under any SDR allocations received after March 31, 2016. - Valuation and reported level: - The stock of foreign assets and liabilities of the CBJ shall be valued at program exchange rates. - As of March 30, 2022, the stock of NIR amounted to USD 14,687 million (at program exchange rates). ### Adjustors to the floors on NIR - Upward (downward) by the extent the sum of foreign budgetary grants and foreign budgetary loans—excluding programmed guaranteed and non-guaranteed Eurobonds—received by the CBJ during the relevant period exceeds (falls short of) the levels in Table 1 of the MEFP within any calendar year. - For the end-year floor on NIR, the downward adjustment is capped at 75 percent of the shortfall in the aforementioned grants/loans. - Eurobond timing adjustments: - Assumed program Eurobond issuance in Q2 2022 for a minimum of US$1 billion: if delayed to Q3 2022, the floor of the NIR for end-June 2022 will be adjusted downward by the shortfall relative to the programmed amount (which is $1billion). - The floor of the NIR for end-June 2023 will be adjusted downward by the programmed amount of the Eurobond issuance (which is $500 million). - Floors also adjusted upward by the amount that the outstanding balance of bilateral accounts with the Central Bank of Iraq is repaid, including principal and interest. ### Other fiscal and balance-sheet ceilings and floors (definitions) - Ceiling on the accumulation of external debt service arrears: - External debt service arrears = debt service payments (principal and interest) on obligations to non-residents incurred directly or guaranteed by the central government or the CBJ, not made at the time due, taking into account contractual grace periods. - Floor on social spending by the central government: - Social spending = central government spending on (i) non-wage components of education and health sectors’ current expenditure envelope (including COVID-19 related spending); (ii) NAF’s and other entities’ social protection programs; and (iii) the school feeding program. - Ceiling on public debt: - Public debt = (i) central government direct debt including off budget project loans; (ii) central government guarantees 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 SSC holdings of government debt. - For program purposes, a guarantee arises from any explicit legal obligation of the central government (or any agency acting on its behalf) to service such a debt or from any implicit legal or contractual obligation to finance shortfalls. - Adjustor to public debt ceiling: - Downward by the extent cumulative disbursements under the EFF during the relevant period fall short of levels specified in Table 1. - Ceilings on domestic payment arrears: - NEPCO domestic payment arrears and WAJ/Aqaba/Miyahuna/Yarmouk domestic payment arrears: defined as liabilities overdue more than 60 days or creditor refusal to accept a duly offered settlement; include wages, pensions, social security contributions, tax payments, and obligations to banks and suppliers. Arrears exclude 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 = (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 = reserve money minus NIR. - NDA adjustors: - Upward (downward) by the extent floors on NIR are adjusted downward (upward). - Downward (upward) by the extent the CBJ decreases (increases) reserve requirements on Jordanian dinar deposits of the banking system; adjustment equals the change in 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 (selected, with frequency) - Standard fiscal data tables prepared by the ministry of finance, covering detailed information on revenue (including expanded information on revenues from oil derivatives, vehicles, and cigarettes, as agreed with IMF staff), expenditure, balances of government accounts with the banking system, foreign grants, domestic and external amortization and interest, net lending, debt swaps with official creditors, and monthly change in the stocks and the monthly value of stocks of uncashed checks and trust accounts. - Government financing information from the Treasury account, as agreed by the Ministry of Finance and the Central Bank of Jordan, and any potential discrepancy between government financial data and the monetary survey data (monthly). - Gross transfers to and from NEPCO and WAJ detailing amounts paid or received in connection with debt transactions, transfers to cover losses, and amounts directed to repay outstanding arrears of NEPCO or WAJ (monthly). - Central government arrears: - Stock of all pending bills not paid for more than 60 days at the end of each quarter (quarterly), including those of the health insurance fund, distribution electricity companies, and the Jordan Petroleum Refinery Company. - The value and quantity of fuel products consumed by public sector entities from the Jordan Petroleum Refinery Company (monthly). - Combined public sector deficit: all information specified for NEPCO and the state-owned water sector (see paragraphs 28–36). - NEPCO and WAJ and water distribution companies (Aqaba, Miyahuna, Yarmouk): - Full unaudited income statement and stock of accounts payable and payments overdue less and more than 60 days (quarterly). - Latest audited income statement signed by the auditor (usually available twice yearly with a six-month delay) with full explanation of any changes made to the unaudited version transmitted to the IMF, as soon as available. - Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the central government (quarterly). - Energy and fuel flows: - 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 and monetary data: - CBJ’s foreign exchange reserves and preliminary data on dollarization (weekly). - CBJ’s monthly FX interventions in the interbank market. - Data on CD auctions (following each auction). - Monetary statistics (monthly). - The outstanding balance of bilateral accounts with the Central Bank of Iraq (monthly). - Banking FSI (quarterly; starting 2021 Q1). *Source: 1jorea2022003 - 19. Net domestic nonbank financing of the central government is defined as (PDF chapter).* ### 77. Related to the continuous performance criteria: ### 77. Related to the continuous performance criteria: ### Continuous performance criteria — arrears reporting - Details of official arrears accumulated on interest and principal payments to non-resident creditors. - External arrears data will be provided using actual exchange rates and on a daily basis. - Data related to the continuous performance criterion should be sent within one week after the date when the arrear was incurred. - Any revisions to previously reported data should be communicated to the staff in the context of the regular updates. ### Related to the floors on public debt — required fiscal tables (monthly/quarterly) - The fiscal tables on the central government’s domestic and external debt (monthly). - Tables on the stock of debt guarantees extended to NEPCO, WAJ, and other public entities (monthly). - Data on short-term public debt (monthly). - 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). ### Related to the floor on social spending by the central government - A table on the amount of central government spending on each of the components of the social spending definition under the program (monthly). ### Other economic data (monthly/quarterly/weekly) - 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). - National accounts statistics (quarterly). - Weekly data and data on CD auctions should be sent to the Fund with a lag of no more than one week. - Monthly and quarterly data should be sent within a period of no more than six weeks (for the monetary and fiscal variables), and within a period of no more than eight weeks for other data (three months for national accounts statistics and balance of payments and external debt statistics). ### Definitions of principal concepts and variables - Any variable that is mentioned herein for the purpose of monitoring a performance criterion, and that is not explicitly defined, shall be defined in accordance with the Fund’s standard statistical methodology, such as the Government Financial Statistics. - For variables that are omitted from the TMU but that are relevant for program targets, the authorities of Jordan shall consult with the staff on the appropriate treatment based on the Fund’s standard statistical methodology and program purposes. ### Fund relations — membership and IMF resources (as of May 31, 2022) - Quota: 343.10 SDR Million; Percent Quota: 100.00. - IMF’s Holdings of Currency (Holdings Rate): 1429.93 SDR Million; Percent Quota: 416.77. - Reserve Tranche Position: 0.83 SDR Million; Percent Quota: 0.24. - SDR Department net cumulative allocation: 490.92 SDR Million; Percent Allocation: 100.00. - SDR Department holdings: 10.30 SDR Million; Percent Allocation: 2.10. ### Outstanding purchases and loans (SDR Million; Percent Quota) - Stand-By Arrangements: 291.55; 84.98. - Extended Fund Facility: 795.99; 232.00. ### Latest financial arrangements (dates and amounts) - EFF: Date of Arrangement 3/25/20; Expiration Date 3/24/24; Amount Approved (SDR Million) 1070.47; Amount Drawn (SDR Million) 590.13. - EFF: Date of Arrangement 8/24/16; Expiration Date 3/23/20; Amount Approved (SDR Million) 514.65; Amount Drawn (SDR Million) 223.02. - SBA: Date of Arrangement 8/03/12; Expiration Date 8/02/15; Amount Approved (SDR Million) 1364.00; Amount Drawn (SDR Million) 1364.00. ### Overdue Obligations and Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs) - Forthcoming 2022 Principal: 12.87. - Forthcoming 2022 Charges/interest: 14.74. - Forthcoming 2022 Total: 27.61. - Forthcoming 2023 Principal: 100.05. - Forthcoming 2023 Charges/interest: 28.73. - Forthcoming 2023 Total: 128.78. - Forthcoming 2024 Principal: 191.52. - Forthcoming 2024 Charges/interest: 23.99. - Forthcoming 2024 Total: 215.52. - Forthcoming 2025 Principal: 156.38. - Forthcoming 2025 Charges/interest: 16.88. - Forthcoming 2025 Total: 173.25. - Forthcoming 2026 Principal: 135.52. - Forthcoming 2026 Charges/interest: 12.83. - Forthcoming 2026 Total: 148.35. ### Safeguards assessment and exchange system - Safeguards assessment completed in July 2020 found that the central bank continues to strengthen its safeguards framework; the assessment made a number of recommendations, which have been mostly implemented. - The Jordanian dinar is fully convertible and is officially pegged to the SDR. In practice, the dinar has been pegged to the U.S. dollar since October 1995 at JD 1 = $1.41044. - Jordan accepted the obligations of Article VIII, Sections 2, 3, and 4 in 1995 and maintains an exchange system free of restrictions on payments and transfers for current international transactions. ### Recent and planned surveillance and assessments - Last Article IV Consultation: The 2020 Article IV consultation was concluded by the Executive Board on April 10, 2020. - Financial Sector Assessment Program (FSAP): An FSAP assessment is currently underway for Jordan and the corresponding report is tentatively scheduled to be presented to the Executive Board in February 2023. ### Technical Assistance (2013–22) — selected topics and dates - Fiscal TA examples: January 2013 Public Financial Management; May 2013 Tax Administration Reform Agenda; December 2014 Budget Preparation and Execution; March 2018 Expenditure Review and Rationalization; December 2021 Improving Cash Management; February 2022 IT Modernization. - Monetary and Financial TA examples: January 2013 Implementation of Basel III and Enhancing Supervisory Practices; March 2016 Stress Testing; March 2021 Forecasting Framework for Currency in Circulation; March 2022 Central Bank Digital Currency Exploration. - Statistical TA examples: January 2013 Price Statistics; May 2013 National Accounts; April 2014 External Debt Statistics; March 2022 National Accounts Statistics; February 2022 Producer Price Index. - Legal TA examples: February 2015 AML/CFT Scoping Mission; September 2020 AML/CFT; June 2021 AML/CFT TTF III ICRG issues. ### Relations with other international institutions - World Bank: https://www.worldbank.org/en/country/jordan - European Bank for Reconstruction and Development: https://www.ebrd.com/jordan.html ### Statistical issues (As of June 7, 2022) — data adequacy and priority improvements - General: Data provision is adequate for surveillance. - National Accounts: Annual GDP estimates have not been compiled since 2016 as a result of poor-quality annual source data surveys. The Department of Statistics (DOS) is working to improve the source data and develop annual GDP estimates with the support of METAC and The Economic and Social Commission for Western Asia (UNESCWA). - Price statistics: An urban-only CPI, based on 12 geographic areas covering all Jordan, is compiled and released every month. Compilation is not aligned with the COICOP classification. The weight reference period is 2018. A monthly PPI is disseminated; the 2010 weight reference period for the PPI is outdated, and work is underway to update it to 2020. - Government finance: Authorities have initiated work to present consolidated general government data, including a financial balance sheet in accordance with GFSM 2014. - Monetary and financial statistics: Jordan reports monetary and financial statistics of the central bank and other deposit takers based on standardized report forms; next step is to expand coverage of MFS data. - External sector statistics: CBJ disseminates quarterly balance of payments and International Investment Position statistics in line with BPM6. CBJ is working on a revamped method to collect personal transfers series and plans to implement a Foreign Investment Survey in 2022. ### Data dissemination, standards, and quality - Jordan subscribes to the Fund’s Special Data Dissemination Standard (SDDS) since January 2010. - The country uses an SDDS flexibility option on the periodicity and timeliness of the labor market wages/earnings data. - Data ROSC update was published in February 2004. ### Table of Common Indicators Required for Surveillance (As of June 7, 2022) — selected entries - Exchange rates: Date of Latest Observation D; Date Received D; Frequency of Data 1D. - International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation April 2022; Date Received May 2022; Frequency of Data M; Frequency of Reporting M; Timeliness of Reporting 1W. - Reserve/base money: April 2022; May 2022; M; M; 1M. - Broad money: April 2022; May 2022; M; M; 1M. - Central bank balance sheet: April 2022; May 2022; M; M; 2W. - Consolidated balance sheet of the banking system: April 2022; May 2022; M; M; 1M. - Consumer price index: April 2022; May 2022; M; M; 1M. - Revenue, expenditure, balance and composition of financing—general government: 2020; June 2021; A; A; 6M. - Revenue, expenditure, balance and composition of financing—central government: April 2022; May 2022; M; M; 1M. - External current account balance: Q4/2021; March 2022; Q; Q; 1Q. - GDP/GNP: Q4/2021; March 2022; Q; Q; 1Q. - Gross external debt: Q4/2021; March 2022; M; M; 1M. - International Investment Position: Q4/2021; March 2022; Q; Q; Q. ### Statement by the Staff Representative on Jordan (June 29, 2022) — recent developments - Q1 2022 unemployment data: unemployment for Jordanians fell to 22.8 percent (Q1 2022) from 23.3 percent (Q4 2021) and a peak of 24.8 percent in Q2 2021. - Labor participation rates: increased from 33.4 percent in Q4 2021 to 33.5 percent in Q1 2022; female labor participation rate declined from 13.7 to 13.6 percent. - Inflation: headline inflation increased to 4.4 percent y-o-y in May from 3.6 percent in April; core inflation rose to 2.3 percent (from 1.8 percent). - CBJ actions: On the heels of the 75 bps increase in the Fed policy rate on June 18, and 50–75 bps increases by GCC peers, the CBJ raised its over-night deposit window facility rate by 75 bps, and all other monetary policy rates by 50 bps. - CBJ SME scheme: On June 16, the CBJ extended the JD 700 million SME scheme by three months till end-September 2022. - Social spending: On June 15, the authorities announced JD 30 million in additional social spending (10 percent increase on the budgeted amount) to protect the vulnerable against higher commodity prices; the allocation will be used for increased monthly cash assistance over July-December to the 220,000 households identified through NAF’s targeting mechanism; enhanced financial aid for 74,000 students from vulnerable backgrounds; and higher financial assistance for public transportation. - UAE deposit conversion: On June 15, the UAE agreed to convert a US$333 million deposit held at the CBJ (with maturity in 2023) into a long-term loan to the government; the conversion provides financing to help with public debt redemptions due later this year, and reduces the 2023 external financing need. The conversion is not expected to materially affect the fiscal or NIR targets. *Prepared by The Middle East and Central Asia Department (In consultation with other departments)* ### 1. On behalf of the Jordanian authorities, we thank the Fund’s Executive Board, ### 1jorea2022003 - 1. On behalf of the Jordanian authorities, we thank the Fund’s Executive Board, ### Recent Developments - Jordan faced successive exogenous shocks over the past two years, notably the pandemic, tighter financial conditions, and spillovers from the conflict in Ukraine, compounding a decade of exogenous shocks. - The economy started to recover in 2021, supported by timely and adequate fiscal and monetary measures; unemployment remained stubbornly high, particularly among the youth. - Government revenues overperformed in 2021 due to efforts to reduce tax evasion and close tax loopholes. - Inflation was contained in 2021 owing to Jordan’s strategic twelve months’ wheat reserves and long-term stable-price import contracts for gas used in electricity generation. - Soaring fuel prices since the onset of the conflict in Ukraine required temporary and targeted fuel subsidies to mitigate passthrough to households. - International reserves remained comfortable above 100 percent of the ARA metric. - The financial sector remained resilient, well-capitalized, profitable, and liquid; the EMBIG spread remained among the lowest in the region. - Jordan issued U.S.$650 million of Eurobonds (oversubscribed by more than three times), reflecting investor confidence. ### Performance under the EFF - Jordan’s performance under the Extended Fund Facility-supported program remained remarkably strong despite a challenging external environment. - All December 2021 quantitative performance criteria (QPCs), as well as key end-March 2022 indicative targets (IT), were met. - Two critically important structural benchmarks (SBs) implemented: - Roll-out of new electricity tariffs to lower tariffs for key business sectors while making household subsidies more targeted. - Legislation unifying the tax and customs administration in the Aqaba Special Economic Zone (ASEZA) with national authorities to address smuggling and tax evasion. - Program recalibrated to allow a more gradual pace of medium-term fiscal consolidation while safeguarding debt sustainability. - Authorities specified additional measures to close the fiscal gap in the medium term. - Authorities requested an augmentation of access by SDR 75.482 million, accompanied by some rephasing, which will increase 2022 disbursements by SDR 120.085 million relative to the third review. - International community support under the Jordan Compact and the 2019 London Initiative is critical to help Jordan continue hosting 1.3 million Syrian refugees. ### Fiscal Policy and Reforms - MOF’s fiscal strategy anchored in equitable tax reforms—closing tax loopholes and combating tax evasion—allowed overperformance of 2021 domestic revenues relative to budget projections and exceeding pre-pandemic levels. - Measures to broaden the tax base and an Income and Sales Tax Department compliance campaign resulted in an overperformance of the 2021 domestic revenues projections by 0.5 percent of GDP. - Contained non-priority current spending contributed to space for increased social spending and capital spending. - Authorities committed to adhering to their 2022 deficit target of 3.4 percent of GDP; temporary subsidies to smooth commodity price passthrough would be offset by reductions in non-priority spending. - Key fiscal structural reforms and actions: - Legislation imposing a single tax and single customs system for Jordan, bringing ASEZA participants under ISTD and Customs national control. - Parliamentary discussion of place-of-taxation rules into the GST law and strengthening governance of fiscal incentives. - Cabinet approval (January 2022) of a major customs reform simplifying and unifying the tariff system. - Ahead-of-schedule production of (i) the first report on the macro-fiscal outlook and risks by the Macro-Fiscal Unit; and (ii) an assessment of explicit fiscal costs and fiscal risks related to the three largest PPPs. - Enactment of a procurement bylaw to strengthen transparency and efficiency and facilitate e-procurement rollout. - Completion and publication of ex-post audits of all COVID-related spending for the second consecutive year, including beneficial ownership information. - Medium-term debt sustainability objective: reduce public debt to below 80 percent of GDP; more gradual path warranted given external headwinds and high unemployment. ### Monetary and Exchange Rate Policies and Reforms - CBJ maintained prudent monetary management in 2021, anchored by the peg to the U.S. dollar. - Deposit dollarization at 19 percent (lowest in recent years). - QPCs on net international reserves and ITs on net domestic assets were met with comfortable margins. - CBJ enacted two rate hikes since March (cumulative 75 basis point) in response to U.S. Federal Reserve tightening. - CBJ stands ready to undertake policy adjustments to credibly protect monetary stability. - Support for businesses through two subsidized lending programs to protect employment and production: - In March 2021, CBJ increased the envelope of the JD 500 million SME scheme to JD 700 million, raised borrowing limits for sectors hard-hit by the pandemic (including tourism and trade), and extended the scheme until June 2022. - In March 2022, CBJ raised borrowing limits for firms importing basic commodities (wheat, sugar, oil). - As recovery firms up through 2023 and demand declines, CBJ will unwind the scheme; JD 1.3 billion scheme remains helpful for capitalizing on growth momentum. - Prudential and supervisory framework outcomes and metrics: - System-wide capital adequacy ratio remained at 18 percent at end-2021 for the third consecutive year (CBJ regulatory minimum 12 percent). - Non-performing loans remained low at 5 percent as of end-2021. - Provisions-to-NPLs coverage ratio increased to about 80 percent at end-2021. - CBJ requires banks to follow strict provisioning in line with IFRS9 and conducts stress tests; banks falling below 12 percent capital adequacy must submit credible capital restoration plans. - Progress toward a risk-based capital and solvency regime for the insurance sector; authorities requested a joint IMF/World Bank FSAP. - AML/CFT: - Authorities completed assessment to identify non-profit organizations vulnerable to terrorist financing abuse. - Addressed 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. - Committed to an action plan to resolve identified strategic deficiencies to facilitate exit from the watch list by October 2023. ### Other Structural Reforms - Electricity sector: - Authorities rolled out new electricity tariffs on April 1 to enhance private sector competitiveness and support job creation. - Long-term natural gas contracts helped shield NEPCO from international oil and gas price increases. - Authorities pursue a comprehensive strategy to restore NEPCO’s financial viability including revenue-enhancing, cost-reducing, and governance measures. - Water sector: - Authorities committed to scaling up reforms to contain rising losses and ensure sustainable water supply. - Plan to adopt a Financial Sustainability Roadmap for the water sector, commit to due process for projects (including the Aqaba-Amman National Conveyor Project), reduce non-revenue water, stop accumulation of arrears, and address the water-electricity nexus. - Jobs and growth: - Focus on increasing labor force participation and encouraging formal, female, and youth employment. - Issued revised instructions to businesses on childcare provision for female employees; completed the Amman BRT project to provide safe and affordable transport to women. - Launched a National Employment Program to support 60,000 new private sector jobs for the youth. - Business climate and competitiveness: - Progress on Government Priorities Plan 2021–23. - Customs and electricity tariff reforms expected to reduce business costs. - Submission of new omnibus law for Regulating the Business Environment to modernize and streamline the regulatory framework, strengthen competition framework and market analysis, and improve insolvency legislation. ### Conclusion - Jordanian authorities value the partnership with the Fund and found the Article IV consultation discussions fruitful and engaging. - Authorities fully own their EFF-supported program, reflected in continuously strong program implementation despite challenging circumstances. *Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1jorea2022003.pdf* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1jorea2022003.pdf_