## 1jorea2023001

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---

### Executive summary and macro outlook
- Growth: 2.7 percent in 2022–23; GDP growth in 2022Q2 accelerated to 2.9 percent y-o-y.
- Inflation: projected 4.4 percent for 2022; headline inflation picked up to 5.4 percent y-o-y in 2022Q3 and edged down to 5.2 percent y-o-y in October.
- Current account: 2022 current account deficit (CAD) projected at 7.8 percent of GDP.
- Reserves and external position:
  - International reserves buoyed by rebound in travel receipts and remittances.
  - Market access retained: Eurobond US$650 million (June); syndicated loan US$500 million (September).
- Fiscal pressures: financial challenges in the electricity sector and higher food subsidies due to international prices.
- Program status: program remains on track; all end-June and end-September quantitative performance criteria (QPCs) and four end-June and end-September indicative targets (ITs) met; three June and September ITs on water and electricity sector arrears were missed.
- Social conditions: unemployment for Jordanians 22.6 percent in 2022Q2 (22.8 percent in Q1); youth unemployment nearly 50 percent; labor force participation for Jordanians 33.5 percent (pre-pandemic 35.8 percent).

### Recent developments, outlook, and risks
- Near-term drivers:
  - Recovery: post-COVID broad-based recovery; industrial and services support; bumper phosphate and potash exports.
  - Tourism rebounded strongly, extending travel season.
- Inflation dynamics:
  - Initial increase driven by high food and energy prices following Russia’s war in Ukraine and the phasing out of fuel subsidies starting May.
  - Core inflation picked up with second-round effects on services including housing, restaurants, and hotels.
- External financing and donor support:
  - U.S. MOU: US$1.45 billion in grants per year (7-year MOU).
  - UAE converted US$333 million deposit at the CBJ into a long-term concessional loan.
- Projections and revisions:
  - GDP growth: 2.7 percent in 2022 (up from 2.4 percent in the fourth review) and around 2.7 percent in 2023.
  - Medium-term growth: expected to reach 3 percent.
  - Headline inflation: revised up by about ¾ percentage point to 4.4 percent in 2022 and 3.8 percent in 2023; around 2½ percent in 2024–25.
  - CAD: narrow to around 5.7 percent of GDP in 2023 and around 3½ percent of GDP by 2025.
- Risks:
  - Downside: more aggressive interest rate increases by major central banks; tightening global financial conditions; renewed surge in commodity prices; climate change worsening water scarcity; geopolitical tensions.
  - Upside: additional spillovers from GCC countries; major pick-up in regional exports (notably electricity); increased mining revenues.

### Policy discussions and program implementation
- Policy focus: preserve macro stability and reform momentum; fiscal outturn and 2023 budget; monetary and credit policy response to Fed tightening; reforms for NEPCO and utility arrears; structural reforms for inclusive growth and competitiveness.
- Program conditionality and structural progress:
  - Fiscal QPCs: Two end-June fiscal QPCs on central government primary balance (excluding grants) and the combined public balance met.
  - Structural benchmarks delivered: amended GST law with place of taxation rules; new investment law strengthening governance of fiscal incentives; FCCL unit prepared fiscal risk reports on three major PPP projects; e-procurement rolled out to health and education ministries.
  - Cash management: Ministry of Finance established a committee to follow and forecast cash flows on a daily basis.
- Missed targets: three indicative targets on water and electricity sector arrears were missed.

### Fiscal performance, adjustments, and outlook
- 2022 fiscal consolidation:
  - Jordan on track to deliver a 0.7 percent of GDP fiscal consolidation in 2022 but will fall slightly short, reaching a central government primary deficit (ex-grants) of 3.7 percent of GDP.
- Revenue and spending:
  - Domestic revenue: 9 percent y-o-y increase by end-September driven by tax administration.
  - Subsidy spending projected to exceed fourth review expectations by 1 percent of GDP due to higher international prices:
    - 0.3 percent of GDP due to additional fuel subsidies.
    - 0.7 percent of GDP due to additional bread and barley subsidies.
  - Authorities spent 0.2 percent of GDP in the summer to build up one more month of strategic wheat reserves.
- Policy measures and offsets:
  - Subsidies eliminated on 90 and 95 octane gasoline; subsidies on diesel also eliminated (end-November announcement).
  - Offsetting savings of 0.9 percent of GDP expected via 0.6 percent of GDP higher tax and non-tax revenues and 0.3 percent of GDP in capital spending rationalization.
- Fiscal aggregates and public debt:
  - Primary deficit (excluding grants): projected at 3.7 percent of GDP in 2022, exceeding the fourth review target by 0.3 percent of GDP.
  - Public debt: 89.7 percent of GDP at end-2022.
- Selected fiscal projections (central government primary balance ex grants, percent of GDP):
  - 2022: -3.7; 2023: -2.7; 2024: -2.9; 2025: -1.7; 2026: -0.9; 2027: -0.3; 2028: 0.0.
- Memoranda (public debt-to-GDP levels):
  - 2021 prel.: 90.7; 2022 4th Rev.: 91.0; 2022 proj.: 89.7; 2023 4th Rev.: 89.8; 2024 proj.: 88.2; 2025 proj.: 86.2; 2026 proj.: 84.2; 2027 proj.: 81.7; 2028 proj.: 79.3.
- Nominal GDP (JD million): 32,478 (2021 prel.), 34,077 (2022 4th Rev.), 34,624 (2022 proj.), 36,042 (2023 4th Rev.), 36,911 (2023 proj.), 39,004 (2024 proj.), 41,174 (2025 proj.), 43,464 (2026 proj.), 45,882 (2027 proj.).

### Key statistics and financial operations
- Growth and inflation:
  - 2.9 percent y-o-y GDP growth in 2022Q2.
  - Inflation: 5.4 percent y-o-y in 2022Q3; 5.2 percent y-o-y in October 2022.
- Labor market:
  - Unemployment for Jordanians: 22.6 percent in 2022Q2 (22.8 percent in Q1).
  - Youth unemployment: nearly 50 percent.
  - Labor force participation for Jordanians: 33.5 percent (pre-pandemic 35.8 percent).
- External financing and donor measures:
  - Eurobond: US$650 million (June).
  - Syndicated loan: US$500 million (September).
  - U.S. MOU: US$1.45 billion in grants per year (7-year MOU).
  - UAE conversion: US$333 million deposit converted to long-term concessional loan.
- Selected fiscal table excerpts:
  - Central government primary balance (ex grants, JD millions and percent of GDP series): Levels: -1,767; -1,444; -1,159; -1,298; -955; -1,088; -680; -371; -1300. Percent of GDP: -5.7; -4.4; -3.4; -3.7; -2.6; -2.9; -1.7; -0.9; -0.3; 0.0.
  - Combined public balance (levels and percent of GDP): Levels: -2,175; -1,985; -1,557; -1,761; -1,580; -1,682; -1,219; -863; -574; -398. Percent of GDP: -7.0; -6.1; -4.6; -5.1; -4.4; -4.6; -3.1; -2.1; -1.3; -0.9.

### Fiscal stance and 2023 budget
- Draft 2023 budget targets:
  - Central government primary deficit (excluding grants and transfers to NEPCO and WAJ) of 2.9 percent of GDP (JD 1088 million).
  - Domestic revenues underpinned by 0.2 percent of GDP in revenue-raising measures.
  - Cost of untargeted fuel subsidies (in excess of 1 percent of GDP) to be fully eliminated in 2023.
- Staff expects primary expenditure to exceed fourth review expectations due to:
  - 0.7 percent of GDP in food subsidies (fixing bread prices until end-2023).
  - 0.2 percent of GDP additional priority capital expenditure.
- Overall adjustment of 0.8 percentage points of GDP consistent with decline of debt/GDP to about 88 percent by end-2023.
- 2023 Draft Budget and IMF Staff Projections (Millions of Jordanian dinars):
  - Domestic revenue: 8,473; 8,767; 8,744
  - Primary expenditure: 9,428; 9,855; 9,832
  - Current: 8,048; 8,263; 8,340
  - Capital: 1,380; 1,592; 1,492
  - Primary balance (ex-grants): -955; -1,088; -1,088
  - in percent of GDP: -2.7; -2.9; -2.9

### Medium-term fiscal objectives and measures
- Authorities committed to bringing debt-to-GDP to 80 percent by end-2027.
- Strategy: revenue-raising and expenditure-containing measures; limit NEPCO’s losses; improved social security income outlook; water sector financial balance improvements.
- Risks to public debt sustainability assessed as moderate.
- Tax policy and administration measures:
  - Holistic roadmap linking 2021 plan objectives to timebound targets (roadmap to be shared with staff by March 2023).
  - Adopt AI-based auditing on all submitted tax returns (proposed SB for June 2023).
  - Launch e-invoicing system (proposed SB for June 2023).
  - Review property and capital taxation regimes and undertake a tax expenditure analysis.
- Expenditure efficiency measures:
  - Request FAD TA to improve targeting of universal food price subsidies and strengthen supply chain audits.
  - Unify all National Aid Fund (NAF) programs for Jordanian citizens into a single program and improve targeting.
  - Move PIP/PIM appraisal to a single electronic platform (NRIP).

### Monetary policy and financial sector resilience
- CBJ monetary policy:
  - Increased policy rates by 350–375 basis points since March, broadly in line with the U.S. Federal Reserve.
  - Issued certificates of deposit (CDs) since August, reaching JD 600 million (1.7 percent of GDP) as of mid-November.
  - Claims on private sector grew 8.2 percent y-o-y in September; pace expected to decelerate.
  - CBJ ready to adjust policy rates (or other tools) as needed to maintain confidence in the peg.
- Banking system indicators:
  - Capital adequacy ratio: 17 percent in June (regulatory minimum 12 percent).
  - NPLs declined; provisioning increased (provisions in percent of classified loans 83.4 percent at end-June 2022).
  - CBJ instructions to banks to offer variable-rate borrowers new repayment schedules; extended subsidized SME lending schemes (JD 700 million extended to December 2022; JD 1.3 billion scheme extended to March 2023).
- Financial sector reforms and integrity:
  - Risk-based solvency regime for insurance sector (SB for June 2023).
  - AML/CFT: Jordan on FATF watch list since October 2021; 11 of 24 action items addressed or largely addressed; SB for October 2023 for timely implementation.
  - Ongoing joint IMF/WB FSAP; CBJ implemented an FDI survey (SB for October 2022 met).

### Electricity and water sector reforms
- NEPCO:
  - Operating deficit increased to 0.6 percent of GDP in 2022, 0.3 percent of GDP larger than projected in the fourth review.
  - Stock of arrears largely unchanged at JD 100 million by end-September 2022.
  - Cabinet to adopt action plan to reduce NEPCO’s losses by JD 90 million in 2023 and JD 135 million in 2024 (prior action).
  - Measures aim to contain NEPCO’s losses to 0.9 percent of GDP in 2023 and 0.8 percent of GDP in 2024.
  - Authorities to implement time of use tariffs and other adjustments to raise JD 50 million for NEPCO in 2023 (proposed SB for May 2023).
  - First unit of two-oil shale PPA plants started operating at full capacity on October 25; second unit expected early next year.
- Water sector:
  - Combined losses expected at 0.7 percent of GDP (lower than 1 percent envisaged in the fourth review).
  - Stock of arrears in water sector brought down to JD 106 million as of September, from nearly JD 200 million at end-2021.
  - Aqaba-Amman Conveyor (AAC) project will impose substantial financial burden once on stream (likely 2029); final bid submission extended to March 30, 2023; financial closure expected by September 2024.
  - Cabinet approved Financial Sustainability Roadmap (FSR) on November 2 to reduce non-revenue water, increase energy efficiency, manage existing debt, and optimize CAPEX and OPEX.
  - Cabinet to adopt decision for joint committee between Ministry of Finance and Ministry of Water and Irrigation to meet quarterly to clear all arrears of the water sector by end-March 2024 (proposed SB for March 2023).

### Structural reforms for employment, investment, and governance
- Labor market priorities:
  - Increase female labor force participation (current rate 13.7 percent).
  - Address labor market segmentation and reduce youth unemployment (current youth unemployment 48 percent).
  - Labor Law amendments tabled to enhance protections for women and remove restrictions (completed SB for November 2022).
  - National employment program launched to create 60,000 jobs for youth in the private sector.
  - Government considering lowering social security contribution rates for workers under 30.
- Business environment and competition:
  - Amendments to the Competition Law submitted to parliament (completed SB for August 2022).
  - Competition Directorate to complete study of oil derivatives and transport sectors by February 2024.
  - Legislation to abolish five tourism sector licenses (proposed SB for December 2023).
- Governance and transparency:
  - IACC law enacted in 2022; beneficial ownership registry to be launched in 2023.
  - E-procurement rollout ongoing; education and health ministries covered (completed SB for December 2022).
- National statistics:
  - Department of Statistics (DoS), with METAC support, compiled annual GDP estimates.
  - DoS to publish 2019 annual GDP statistics by March 2023 (proposed SB for March 2023) and ensure regular revision schedule.

### Program financing, safeguards, and staff appraisal
- Program financing and reserves:
  - Program fully financed despite external risks; reserves expected close to 100 percent of ARA in 2022–23.
  - Staff baseline for 2023 excludes potential official financing such as U.S. Congressional top-ups averaging US$200 million per year and potential rollover of GCC deposits of US$833 million maturing in 2023.
  - Without additional financing, reserves would fall to around 90 percent over the medium-term.
  - Staff projection for 2023 includes additional US$500 million Eurobond issuance to bring total targeted issuance to US$1 billion.
- Capacity to repay Fund:
  - Stock of Fund credit projected to peak at 435 percent of quota in September 2023.
  - Obligations to the Fund projected to peak at 80.4 percent of quota and 1.9 percent of reserves in 2024.
- Staff appraisal highlights:
  - Recovery continues but inflation picked up; formal job creation remains weak.
  - All key quantitative targets met; structural reforms delivery robust.
  - Fiscal adjustment in 2023 appropriate but slightly more gradual consolidation warranted given global headwinds and very high unemployment.
  - Monetary policy should remain anchored to the peg; CBJ must maintain adequate reserve buffers.
  - Electricity and water sector reforms are critical: urgently implement action plan to reduce NEPCO deficits and adopt Financial Sustainability Roadmap for water sector.

### Program review, requested modifications, and monitoring
- Staff supports completion of the fifth review under the extended arrangement and modification of targets.
- Supported modifications include:
  - two end-December 2022 and end-June 2023 fiscal QPCs to protect recovery and the vulnerable;
  - end-December 2022 and end-June 2023 NIR QPCs;
  - end-December 2022 and all 2023 ITs on water sector arrears.
- Monitoring and TMU highlights:
  - QPCs include combined primary deficit ceiling, NIR floor, zero ceiling on external debt arrears, floor on social spending, ceilings on public debt and domestic arrears of utilities, ceiling on NDA of CBJ, and others.
  - NIR definition and coverage; stock of NIR as of September 30, 2022: USD 13,833.7 million (at program exchange rates).
  - Exchange rate for program: JD 0.709 = $1; gold price JD 1046.52 per fine troy ounce (for NIR PC).
  - Detailed data provision requirements and timeliness: weekly data within one week; monthly/quarterly within six to eight weeks; national accounts and BoP within three months.
  - Adjustors specified for primary deficit ceiling, combined public deficit, and NIR floors (including grant over/underperformance caps and Eurobond timing adjustments).

### Public Debt Sustainability Assessment (Annex I) — key findings
- Final assessment: Sustainable.
- Overall risk of sovereign stress: Moderate (near-term: n.a.).
- Debt/GDP trajectory:
  - 2021: 90.7; 2022: 89.7; 2023: 88.2; 2024: 86.2; 2025: 84.2; 2026: 81.7; 2027: 79.3; 2028: 77.5; 2029: 75.8; 2030: 73.9; 2031: 73.2.
- Key supports: effective debt maturity of 6 years; robust development partner support; large share of concessional debt.
- Downside risks: tighter global financial conditions; higher-for-longer commodity prices; failure to arrest water and electricity sector deficits.
- Gross financing needs (GFN, percent of GDP) and debt service (percent of GDP) series reported (e.g., GFN 2022: 20.4; 2023: 16.1; debt service 2022: 21.1; 2023: 17.2).
- Memo macro assumptions:
  - Real GDP growth (2022 onward): 2.7, 2.7, 2.7, 3.0, 3.0, 3.0, 3.0, 3.0, 3.0.
  - Inflation (GDP deflator): 2022: 3.8; 2023: 3.8; 2024: 2.9; 2025–2031: 2.5 each year.
  - Effective interest rate (percent): 2021: 4.3; 2022: 4.0; 2023: 4.5; 2024: 5.0; 2025: 4.9; 2026: 5.1; 2027: 4.9; 2028: 4.4; 2029: 4.2; 2030: 3.9; 2031: 4.8.

### Restoring NEPCO’s financial sustainability — findings and recommended measures (Annex II)
- Problem drivers:
  - NEPCO revenue hit by reductions in bulk tariffs due to distribution companies’ lower profit margins.
  - Natural gas import prices increased by 20 percent in 2022Q2 relative to 2021Q2.
  - NEPCO’s average bulk tariff lowered to 63 fils/kWh (an 11 percent drop from 71 fils/kWh in 2022Q1).
- Distribution companies:
  - EDCO, IREL and JEPCO on average more profitable than most economic sectors despite bearing little risk; declining profitability and high expenses indicate declining operational efficiency.
- NEPCO action plan measures (selected):
  - Extend the connection fee for self-generation to businesses.
  - Implement time-of-use tariffs and other adjustments to generate JD 50 million in revenue in 2023.
  - Enforce stringent KPIs for distribution companies (technical losses and O&M targets).
  - Reduce non-technical losses due to tampering with electricity meters.
  - Replace FSRU with cheaper substitutes and establish a specialized company for LNG purchases.
  - Apply mining royalties from oil shale PPA and secure a telecom license to monetize fiber optics infrastructure.
  - Strengthen grid interconnections with Egypt, Syria, Iraq, and Saudi Arabia and hire advisors to optimize PPA costs.
- Targets:
  - Reduce NEPCO losses by JD 90 million in 2023 and JD 135 million in 2024.

### Decisions on bulk tariffs and regulatory recommendations
- Key rationale:
  - Bulk-tariff decisions should incorporate NEPCO’s full revenue and cost structure, explicitly accounting for cost elements NEPCO cannot control, to avoid untargeted electricity subsidies borne by NEPCO.
- Recommendations:
  - Incorporate NEPCO’s full revenue and cost structure into bulk-tariff decisions.
  - Design bulk-tariff adjustments so exogenous shocks are not absorbed solely by NEPCO.
  - Re-empower the EMRC to factor NEPCO’s financial imbalance when adjusting tariffs, including the fuel adjustment clause.
  - Enhance EMRC public communications on tariff decisions.
  - Consider transitioning to a more incentives-based regulatory framework for distribution companies over the medium term, with tariff review periods typically between 4 to 6 years.

### Monitoring, conditionality, and reporting (performance criteria and TMU highlights)
- Monitored items include:
  - Ceiling on combined primary deficit of the central government; floor on NIR of CBJ; zero ceiling on accumulation of external debt service arrears; floor on social spending; ceilings on public debt and domestic payment arrears of utilities; ceiling on NDA of CBJ; and others.
- Definitions and adjustors provided for primary deficit, combined public deficit, NIR, public debt, arrears, and NDA.
- Data provision obligations: detailed fiscal, monetary, energy, and sectoral data on weekly, monthly, and quarterly cadence; example: weekly CBJ foreign exchange reserves and CD auction data within one week; monthly fiscal and monetary data within six weeks; national accounts and BoP within three months.
- TMU exchange rates and program rates:
  - JD 0.709 = $1; gold price JD 1046.52 per fine troy ounce.
  - Program currency conversions listed for major currencies (e.g., Euro 0.786889).

*Source: INTERNATIONAL MONETARY FUND. JORDAN: FIFTH REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA. December 12, 2022 (IMF country report excerpt 1jorea2023001).*

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### Executive summary and macro outlook
- Growth: 2.7 percent in 2022–23, somewhat stronger than expected due to a broad-based post-COVID recovery and positive spillovers from the region.
- Inflation: projected at 4.4 percent for 2022; headline inflation picked up to 5.4 percent y-o-y in 2022Q3 and edged down to 5.2 percent y-o-y in October.
- Current account: 2022 current account deficit (CAD) projected at 7.8 percent of GDP, around 1 percent of GDP wider than expected at the last review.
- Reserves and external position: International reserves buoyed by rebound in travel receipts and remittances; Jordan retains market access (oversubscribed Eurobond issue of US$650 million in June; US$500 million syndicated loan in September).
- Fiscal pressures: Financial challenges in the electricity sector and considerably higher food subsidies due to high international prices; 2022 and 2023 fiscal targets relaxed slightly to accommodate higher food-related spending.
- Program status: Program remains on track; all end-June and end-September quantitative performance criteria (QPCs) and four end-June and end-September indicative targets (ITs) met; three June and September ITs on water and electricity sector arrears were missed.
- Social conditions: Elevated unemployment and commodity prices; unemployment for Jordanians 22.6 percent in 2022Q2 (22.8 percent in Q1); youth unemployment nearly 50 percent; labor force participation for Jordanians 33.5 percent (pre-pandemic 35.8 percent).

### Recent developments, outlook, and risks
- Near-term growth and drivers:
  - GDP growth in 2022Q2 accelerated to 2.9 percent y-o-y, supported by recovery in industrial and services sectors and bumper phosphate and potash exports.
  - Tourism rebounded strongly, extending the travel season.
- Inflation dynamics:
  - Increase driven initially by high food and energy prices after Russia’s war in Ukraine and the phasing out of fuel subsidies starting May.
  - Core inflation picked up with second-round effects on services including housing, restaurants, and hotels.
- External financing and donor support:
  - Donors remain engaged: a 7-year MOU with the U.S. signed providing US$1.45 billion in grants per year (a mark-up of around US$200 million); the UAE converted a US$333 million deposit at the CBJ into a long-term concessional loan.
- Projections and revisions:
  - GDP growth projected to reach 2.7 percent in 2022 (up from 2.4 percent in the fourth review) and remain around 2.7 percent in 2023.
  - Medium-term growth expected to reach 3 percent, slightly lower than projected in the fourth review.
  - Average headline inflation revised up by about ¾ percentage point to 4.4 percent in 2022 and 3.8 percent in 2023, before settling at around 2½ percent in 2024–25.
  - CAD projected to narrow to around 5.7 percent of GDP in 2023 and to around 3½ percent of GDP by 2025.
- Risks:
  - Downside: more aggressive interest rate increases by major central banks; tightening global financial conditions; renewed surge in commodity prices; climate change worsening water scarcity; geopolitical tensions.
  - Upside: additional spillovers from GCC countries; major pick-up in regional exports (notably electricity); increased mining revenues.

### Policy discussions and program implementation
- Policy focus: preserving macroeconomic stability and reform momentum in a more challenging global environment, covering fiscal outturn and the 2023 budget; monetary and credit policy response to Fed tightening; reforms for NEPCO and utility arrears; structural reforms for inclusive growth and competitiveness.
- Program conditionality and structural progress:
  - Fiscal QPCs: Two end-June fiscal QPCs on central government primary balance (excluding grants) and the combined public balance met; key ITs for end-June and end-September met.
  - Structural benchmarks (SBs) delivered: amended GST law introducing place of taxation rules signed into law; new investment law strengthening governance of fiscal incentives passed by both houses; FCCL unit prepared fiscal risk reports on three major PPP projects; e-procurement rolled out to health and education ministries.
  - Cash management: Ministry of Finance established a committee of technical experts to follow and forecast cash flows on a daily basis.
- Utility arrears and NEPCO:
  - Financial challenges in the electricity sector exacerbating fiscal pressures.
  - Three indicative targets on water and electricity sector arrears were missed.

### Fiscal performance, adjustments, and outlook
- 2022 fiscal consolidation:
  - Jordan on track to deliver a sizeable 0.7 percent of GDP fiscal consolidation in 2022, but will fall slightly short of target, reaching a central government primary deficit (ex-grants) of 3.7 percent of GDP.
- Revenue and spending:
  - Strong domestic revenue mobilization: 9 percent y-o-y increase by end-September driven by tax administration efforts.
  - Subsidy spending projected to exceed fourth review expectations by 1 percent of GDP due to higher international prices (including shipping and insurance costs).
    - 0.3 percent of GDP is due to additional fuel subsidies.
    - 0.7 percent of GDP is due to additional bread and barley subsidies.
  - Authorities spent 0.2 percent of GDP in the summer to build up one more month of strategic wheat reserves.
- Policy measures and offsets:
  - Subsidies eliminated on 90 and 95 octane gasoline; subsidies on diesel also eliminated (end-November announcement).
  - Authorities on track to secure offsetting savings of 0.9 percent of GDP via 0.6 percent of GDP higher tax and non-tax revenues and 0.3 percent of GDP in capital spending rationalization.
- Fiscal aggregates and public debt:
  - Primary deficit (excluding grants) projected at 3.7 percent of GDP in 2022, exceeding the fourth review target by 0.3 percent of GDP.
  - Public debt at 89.7 percent of GDP at end-2022, still lower than fourth review expectations due mainly to a 1.6 percentage point markup in nominal GDP and a markdown in the level of 2021 debt reflecting a 0.3 percent of GDP lower revised water sector deficit for 2021.
- Selected fiscal projections and memoranda (as reported):
  - Central government primary balance (ex grants): -3.7 percent of GDP (2022), projected -2.7 (2023), -2.9 (2024), -1.7 (2025), -0.9 (2026), -0.3 (2027), 0.0 (2028).
  - Utilities overall balance and components (NEPCO, water sector) shown with year-by-year projections in fiscal tables.
  - Memorandum items include Public debt-to-GDP: 90.7 (2021 prel.), 91.0 (2022 4th Rev.), 89.7 (2022 proj.), 89.8 (2023 4th Rev.), 88.2 (2024 proj.), 86.2 (2025 proj.), 84.2 (2026 proj.), 81.7 (2027 proj.), 79.3 (2028 proj.); Nominal GDP in JD million: 32,478 (2021 prel.), 34,077 (2022 4th Rev.), 34,624 (2022 proj.), 36,042 (2023 4th Rev.), 36,911 (2023 proj.), 39,004 (2024 proj.), 41,174 (2025 proj.), 43,464 (2026 proj.), 45,882 (2027 proj.).

### Key statistics and financial operations (selected)
- Growth and inflation:
  - 2.9 percent y-o-y GDP growth in 2022Q2.
  - Inflation: 5.4 percent y-o-y in 2022Q3; 5.2 percent y-o-y in October 2022.
  - Staff projection nominal GDP in 2022 is 1.6 percentage points higher than in the fourth review (due to historical data revision and other factors).
- Labor market:
  - Unemployment for Jordanians: 22.6 percent in 2022Q2 (22.8 percent in Q1).
  - Youth unemployment: nearly 50 percent.
  - Labor force participation for Jordanians: 33.5 percent (pre-pandemic 35.8 percent).
- External financing and donor measures:
  - Eurobond: US$650 million (June).
  - Syndicated loan: US$500 million (September).
  - U.S. MOU: US$1.45 billion in grants per year (7-year MOU).
  - UAE conversion: US$333 million deposit converted to long-term concessional loan.
- Fiscal composition and changes (2022 vs fourth review):
  - Domestic revenue comparisons and central government revenue/expenditure line items detailed in fiscal tables; summary changes include domestic revenue +200 JD million in comparison table excerpt.

*Source: INTERNATIONAL MONETARY FUND. JORDAN: FIFTH REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA. December 12, 2022.*

### 10. Fiscal policy in 2023 will aim to continue the gradual consolidation achieved in 2021–22,

### 10. Fiscal policy in 2023 will aim to continue the gradual consolidation achieved in 2021–22,

### Fiscal stance and 2023 budget
- Draft 2023 budget targets a central government primary deficit (excluding grants and transfers to NEPCO and WAJ) of 2.9 percent of GDP (JD 1088 million) (prior action met).
- Domestic revenues will be underpinned by 0.2 percent of GDP in revenue-raising measures.
- Cost (in excess of 1 percent of GDP) of untargeted fuel subsidies will be fully eliminated in 2023.
- Staff expects primary expenditure to exceed fourth review expectations due to:
  - 0.7 percent of GDP in food subsidies (reflecting fixing bread prices until end-2023).
  - 0.2 percent of GDP additional priority capital expenditure.
- Overall adjustment of 0.8 percentage points of GDP is consistent with a decline of the debt/GDP ratio to about 88 percent by end-2023.

- 2023 Draft Budget and IMF Staff Projections (Millions of Jordanian dinars):
  - Domestic revenue: 8,473; 8,767; 8,744
  - Primary expenditure: 9,428; 9,855; 9,832
  - Current: 8,048; 8,263; 8,340
  - Capital: 1,380; 1,592; 1,492
  - Primary balance (ex-grants): -955; -1,088; -1,088
  - in percent of GDP: -2.7; -2.9; -2.9

### Medium-term fiscal objectives and measures
- Authorities committed to bringing debt-to-GDP to 80 percent by end-2027.
- Strategy based on revenue-raising and expenditure-containing measures, steps to limit NEPCO’s losses and drain on the budget, and improved outlook for social security income and the water sector financial balance.
- Risks to public debt sustainability assessed as moderate.

- Tax policy and administration measures:
  - Develop a holistic roadmap linking 2021 plan objectives to timebound targets (roadmap to be shared with staff by March 2023).
  - Adopt AI-based auditing on all submitted tax returns (proposed SB for June 2023).
  - Launch e-invoicing system (proposed SB for June 2023).
  - Review property and capital taxation regimes and undertake a tax expenditure analysis.

- Expenditure efficiency measures:
  - Request FAD TA to improve targeting of universal food price subsidies, strengthen supply chain audits, and stiffen penalties for misuse.
  - Unify all National Aid Fund (NAF) programs for Jordanian citizens into a single program and improve targeting.
  - Advance public sector modernization program to improve efficiency, merit-based hiring and promotions, accountability, transparency, and independence.
  - Move PIP/PIM appraisal process to a single electronic platform (National Registry of Investment Projects (NRIP)) and initiate training for government departments.

- Fiscal transparency and risk management:
  - Ministry of Finance will prepare a fiscal risks statement to be published alongside the 2024 budget (proposed SB for December 2023).

### Monetary policy and financial sector resilience
- CBJ increased monetary policy rates by 350–375 basis points since March, broadly in line with the U.S. Federal Reserve.
- CBJ started issuing certificates of deposit (CDs) since August, which reached JD 600 million (1.7 percent of GDP) as of mid-November.
- June and September NIR and NDA targets were met by comfortable margins; revised NIR targets for end-December 2022 and 2023 reflect higher-than-expected stock of NIR as of end-September 2022 and larger projected current account deficits for 2022–23.
- Claims on private sector grew 8.2 percent y-o-y in September (MEFP ¶15); pace expected to decelerate with tighter financial conditions.
- CBJ ready to adjust policy rates (or other tools) as needed to maintain confidence in the peg.

- Banking system indicators and supervision:
  - Capital adequacy ratio slightly dropped to 17 percent in June (regulatory minimum 12 percent).
  - Non-performing loans (NPLs) declined; provisioning increased.
  - CBJ issued instructions to encourage banks to offer household borrowers with variable interest rate loans a new repayment schedule with fixed monthly installments together with extended maturity or a variable bullet payment at maturity.
  - CBJ extended JD 700 million subsidized SME lending scheme to December 2022; outstanding balance has been declining.
  - JD 1.3 billion subsidized lending scheme extended to March 2023; financing via this scheme limited to capital expenditures only (instruction in November).
  - These subsidized schemes should become more targeted and be phased out as recovery consolidates; authorities intend to unwind SME scheme no later than 2023 and review interest rate on JD 1.3 billion scheme over the medium-term.

- Financial sector reforms and integrity:
  - Strengthen prudential supervision; develop a risk-based solvency regime for the insurance sector (SB for June 2023).
  - AML/CFT: Jordan on FATF watch list since October 2021; 11 of 24 action items have been addressed or largely addressed; timely implementation needed to exit watch list next fall (SB for October 2023).
  - Ongoing joint IMF/WB FSAP to identify vulnerabilities and recommend measures; authorities leveraging Fund TA on economic policy modeling, central bank digital currency, risk-based banking supervision, and strengthening BoP statistics.
  - CBJ implemented an FDI survey to improve BoP statistics (SB for October 2022 met).

### Electricity and water sector reforms
- NEPCO:
  - NEPCO’s operating deficit increased to 0.6 percent of GDP in 2022, 0.3 percent of GDP larger than projected in the fourth review.
  - Stock of arrears stayed largely unchanged at JD 100 million by end-September 2022.
  - Cabinet will adopt an action plan to reduce NEPCO’s losses by JD 90 million in 2023 and JD 135 million in 2024 (prior action).
  - These measures aim to contain NEPCO’s losses to 0.9 percent of GDP in 2023 and 0.8 percent of GDP in 2024 and put them on a declining trajectory thereafter.
  - Authorities will implement, in consultation with IMF staff, time of use tariffs and other adjustments needed to raise JD 50 million for NEPCO in 2023 (proposed SB for May 2023).
  - Strengthening governance reforms and interconnections with neighboring countries are planned to improve NEPCO’s financial outlook.
  - The first unit of two-oil shale PPA plants started operating at full capacity on October 25; the second unit expected to come on stream early next year.

- Water sector:
  - Combined losses in the water sector expected at 0.7 percent of GDP (somewhat lower than the 1 percent of GDP envisaged in the fourth review).
  - Stock of arrears in the water sector brought down to JD 106 million as of September, from nearly JD 200 million at end-2021.
  - Climate change and drought raise costs: low storage in dams and inadequate aquifer replenishment risk increasing water supply costs.
  - Aqaba-Amman Conveyor (AAC) project will impose a substantial financial burden once on stream, likely in 2029; final bid submission date extended to March 30, 2023; financial closure expected by September 2024.
  - Cabinet approved the Financial Sustainability Roadmap (FSR) on November 2 to reduce non-revenue water, increase energy efficiency, manage existing debt, and optimize CAPEX and OPEX including for the AAC (MEFP ¶30).
  - Cabinet to adopt decision for joint committee between Ministry of Finance and Ministry of Water and Irrigation to meet quarterly to clear all arrears of the water sector by end-March 2024 (proposed SB for March 2023).

### Structural reforms for employment, investment, and governance
- Labor market and inclusion priorities:
  - Increase female labor force participation (current rate 13.7 percent).
  - Address labor market segmentation and reduce youth unemployment (current youth unemployment 48 percent).
  - Labor Law amendments tabled for parliamentary discussion to enhance protections for women from harassment and violence in the workplace and remove restrictions to women entering certain professions and industries (completed SB for November 2022). Government committed to prioritizing passage and issuing secondary legislation for a workplace code of conduct.
  - National employment program launched to create 60,000 jobs for youth in the private sector.
  - Government considering lowering social security contribution rates for workers under 30.
  - Comprehensive review of labor legislation underway to inform policy recommendations to reduce obstacles to job creation, including for youth.

*IMF Staff Report (MEFP excerpts) as contained in the provided content unit.*

### 24. Reforms to improve the business environment should encourage competition, foster

### 24. Reforms to improve the business environment should encourage competition, foster investment, and boost export competitiveness

### Business environment and competition
- Amendments to the Competition Law were submitted to parliament (completed SB for August 2022).
- The Competition Directorate at the Ministry of Industry and Trade will complete a study of the state of competition for the oil derivatives and transport sectors and share the results with Fund staff by February 2024.
- To reduce entry barriers, authorities will submit legislation to enable the abolishment of five licenses in the tourism sector identified in the 2019 cabinet decision for elimination (proposed SB for December 2023).

### Governance and transparency
- Authorities are implementing amendments to the Illicit Gains Law and enacted the Integrity and Anti-Corruption Commission (IACC) law in 2022.
- Cabinet issued a decision to establish a beneficial ownership registry for companies, which will be launched in 2023.
- Rollout of the digital system to strengthen transparency and governance over procurement is ongoing; the two largest ministries (education and health) are now covered by the e-procurement system ahead of schedule (completed SB for December 2022).
- Progress has been made on reporting the beneficial ownership of companies awarded government contracts to support the COVID-19 pandemic response.

### National statistics and data
- The Department of Statistics (DoS), with technical support from METAC, has compiled annual GDP estimates using primary annual statistics.
- DoS will publish the 2019 annual GDP statistics by March 2023 (proposed SB for March 2023).
- DoS will ensure a regular publication and revision schedule that includes revisions to quarterly GDP based on annual GDP estimates.

### Program financing and safeguards
- Despite heightened external risks, the program remains fully financed; reserves are expected to remain close to 100 percent of ARA in 2022–23.
- Staff’s baseline for 2023 and beyond does not include all potential official financing, including:
  - additional U.S. Congressional top-ups to the MOU, averaging US$200 million per year (pending promulgation);
  - potential rollover of GCC deposits of US$833 million maturing in 2023.
- Without these or equivalent additional financing, reserves would fall to around 90 percent over the medium-term (slightly weaker than expected at the fourth review).
- Staff’s projection for 2023 includes an additional US$500 million Eurobond issuance to bring the total targeted issuance to US$1 billion.
- Should some of the noted official financing materialize, commercial borrowing will be reduced.
- Authorities have expressed interest in the Resilience and Sustainability Facility (RSF) to support climate-related measures and policies in the future.
- Capacity to repay the Fund remains adequate:
  - Stock of Fund credit is projected to peak at 435 percent of quota in September 2023.
  - Obligations to the Fund are projected to peak at 80.4 percent of quota and 1.9 percent of reserves in 2024.
- The 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).

### Staff appraisal — macro outlook, risks, and policy priorities
- Recovery and inflation:
  - A broad-based recovery continues amid a challenging global environment and is expected to continue in 2023.
  - Inflation has picked up, mainly driven by high commodity prices, but remains manageable.
  - Formal job creation is still weak; unemployment remains elevated, with an incipient reduction in youth unemployment from very high levels.
- Program performance:
  - All key quantitative targets have been met; all QPCs and most ITs have been met.
  - Structural reforms delivery has been robust.
  - Authorities phased out costly untargeted fuel subsidies as agreed in the fourth review.
  - Authorities committed to advancing revenue administration reforms (including transfer pricing, economic substance requirements, GST place of taxation rules, and ASEZA tax and customs unification), improving fiscal risk monitoring and disclosure, and enhancing public expenditure efficiency.
- Risks:
  - High fuel and food prices, tightening global financial conditions, and slower global growth pose risks to the outlook.
  - Jordan’s relatively stable gas import prices under long-term contracts and substantial wheat reserves provide near-term buffers, but pressure on fiscal spending and reserves will build if food prices stay elevated.
  - The large 0.8 percent of GDP cost of universal food price subsidies consumed significant fiscal space this year, crowding out infrastructure spending.
  - Fed policy rate hikes will weigh on demand via CBJ interest rate response to defend the peg and via tighter global financial conditions on EM risk premia and capital flows.
- Fiscal policy:
  - The proposed fiscal adjustment in 2023 is appropriate to support the recovery and protect the vulnerable; a slightly more gradual fiscal consolidation is warranted given global headwinds, monetary tightening, and very high unemployment.
  - Authorities are committed to passing a 2023 budget that protects the population against higher international food prices and envisages somewhat higher capital spending, within continued strong projected revenue mobilization.
  - To bring debt-to-GDP below 80 percent by end-2027, it will be important to adhere to the agreed fiscal consolidation path, implement revenue and expenditure measures identified at the fourth review, take decisive steps to arrest NEPCO deficits, pursue options to better target universal food price subsidies (with IMF TA), and adopt contingency deficit-reducing measures if envisaged savings fall short.
- Monetary and financial sector policy:
  - Monetary policy should remain anchored to safeguarding the peg and financial stability; CBJ must maintain adequate reserve buffers and be agile to preempt major BoP outflows.
  - CBJ should better target and gradually unwind subsidized lending schemes and continue to closely monitor banks’ asset quality and the sustained application of prudent accounting, reporting, and provisioning standards.
- Sectoral reforms:
  - Electricity and water sector reforms are critical for public finance sustainability:
    - Decisive reforms and steadfast implementation of an action plan (prepared with development partners) are required to credibly reduce NEPCO’s deficits starting 2023.
    - Cabinet adoption of the financial sustainability roadmap for the water sector is a welcome step; better coordination and timely cash transfers between MOF and WAJ are needed to reduce arrears.
- Structural reforms for growth and employment:
  - To realize growth potential, more forceful action is needed to enhance employment, investment, and governance, including:
    - Eliminating gender-biased legislations and ensuring a safe workplace environment for women.
    - Reducing labor market segmentation and lowering the cost of hiring youth.
    - Reducing entry barriers for businesses, strengthening competition regulations, enhancing governance and transparency, and improving data provision.

*Source: IMF country report excerpt (1jorea2023001).*

### 37. Staff supports the authorities’ request for the completion of the fifth review under the

### 37. Staff supports the authorities’ request for the completion of the fifth review under the extended arrangement and modification of targets

### Program review and requested modifications
- Staff supports the authorities’ request for the completion of the fifth review under the extended arrangement and modification of targets.
- Staff supports modification of:
  - the two end-December 2022 and end-June 2023 fiscal QPCs to protect the recovery and the vulnerable,
  - end-December 2022 and end-June 2023 NIR QPCs,
  - end-December 2022 and all 2023 ITs on water sector arrears.
- Stepped-up and timely development partner support is needed to:
  - help Jordan cope with global economic headwinds,
  - maintain reform momentum,
  - address water scarcity,
  - shoulder the burden of hosting 1.3 million Syrian refugees.

### Real sector developments (Figure 1)
- GDP growth: strong in 2022-23; medium-term projection revised down slightly.
- Inflation:
  - has increased,
  - "driven by high energy prices, and core inflation has picked up recently."
- Labor market:
  - Youth unemployment rate declined but remains high.
  - Overall unemployment remains elevated relative to peers.
- Sectoral GDP relative to pre-pandemic (Q2 2022 vs Q2 2019) — graphical data presented (percent differences by sector).

### Fiscal developments (Figure 2; Table 2 series)
- Domestic revenue has been robustly recovering from COVID.
- Tax revenues recorded a strong rebound in 2022, mainly driven by income and profits taxes.
- Government expenditure increased due to fuel and food subsidies.
- Public debt trajectory: continuing downward with slight improvement relative to the fourth review due to a mark-up in nominal GDP.
- Despite spending pressures, the central government primary balance is expected to deliver a sustained improvement.
- Selected fiscal figures (Table 1 and Table 2 summaries):
  - Total revenue and grants: 22.4, 25.0, 26.1, 26.1, 25.4, 25.8, 25.9, 25.8, 26.2, 26.0 (percent of GDP for 2020–2027 as listed in Table 1).
  - Expenditure: 29.6, 31.3, 30.8, 31.7, 30.4, 31.0, 30.6, 30.3, 30.1, 29.7 (percent of GDP for 2020–2027).
  - Overall central government balance: -7.2, -6.3, -4.7, -5.6, -4.8, -5.2, -4.7, -4.4, -3.9, -3.6 (percent of GDP, 2020–2027).
  - Primary government balance (excluding grants): -5.6, -4.4, -3.4, -3.7, -2.7, -2.9, -1.7, -0.9, -0.3, 0.0 (percent of GDP, 2020–2027).
  - Government and guaranteed gross debt: 88.8, 112.3, 114.4, 113.1, 114.5, 112.6, 112.0, 111.2, 109.8, 108.3 (percent of GDP, net of SSC's holdings also reported).
  - Nominal GDP at market prices (JD millions): 31,369; 32,478; 34,077; 34,624; 36,042; 36,911; 39,004; 41,174; 43,464; 45,882 (2020–2027).
  - Nominal GDP at market prices ($ millions): 44,245; 45,809; 48,064; 48,836; 50,835; 52,060; 55,013; 58,073; 61,303; 64,714 (2020–2027).
- Central government fiscal operations (Table 2a highlights, amounts in JD millions):
  - Total revenue and grants: 7,029; 8,128; 8,907; 9,049; 9,211; 9,524; 10,087; 10,634; 11,375; 11,932 (2020–2027).
  - Domestic revenue*: 6,238; 7,325; 8,034; 8,234; 8,473; 8,744; 9,391; 10,094; 10,846; 11,429 (2020–2027).
  - Tax revenue (of which): 4,958; 5,627; 6,128; 6,228; 6,472; 6,601; 7,108; 7,690; 8,309; 8,742 (2020–2027).
  - Total expenditures, incl. other use of cash*: 9,294; 10,172; 10,506; 10,986; 10,947; 11,449; 11,922; 12,457; 13,090; 13,604 (2020–2027).
  - Overall central government balance (JD millions): -2,266; -2,044; -1,599; -1,937; -1,795; -1,925; -1,835; -1,812; -1,702; -1,658 (2020–2027).

### External sector developments (Figure 3; Table 1 highlights)
- Dollar peg and synchronized monetary tightening with the U.S. drove up the exchange rate.
- Rising import prices, especially fuel, contributed to a higher-than-expected current account deficit.
- Exports:
  - surged driven by rising fertilizer prices and higher volumes (key merchandize exports include Potash, Phosphates, Clothes).
  - Exports to GCC countries grew, indicating deeper regional integration.
- Tourism receipts grew, reaching pre-pandemic levels.
- Import growth continued, fueled by rising prices with energy a key driver.
- Selected external figures (Table 1):
  - Current account balance (including grants): -5.7; -8.7; -6.7; -7.8; -4.8; -5.7; -4.7; -3.4; -2.2; -3.1 (USD billions, 2020–2027 as listed).
  - Exports of goods, f.o.b. ($ billions): 8.0; 9.4; 11.3; 12.0; 11.6; 12.2; 11.5; 12.0; 12.8; 13.2 (2020–2027).
  - Imports of goods, f.o.b. ($ billions): 15.4; 19.2; 22.1; 23.9; 22.0; 22.9; 22.4; 22.8; 23.6; 24.9 (2020–2027).
  - Oil and oil products ($ billions): 2.1; 3.0; 4.6; 4.4; 4.2; 3.9; 3.8; 3.7; 3.6; 3.7 (2020–2027).
  - Gross usable international reserves ($ millions): 15,127; 17,272; 16,916; 16,061; 16,894; 16,561; 16,458; 17,046; 17,431; 18,586 (2020–2027).
  - Net international reserves ($ millions): 13,844; 15,646; 14,764; 13,927; 14,782; 14,465; 14,498; 15,297; 15,881; 17,272 (2020–2027).

### Monetary and financial indicators (Figure 4)
- Policy rates have risen since March, in line with Fed rate increases; deposit and lending rates have followed.
- Banks’ liquidity conditions remain comfortable; private sector credit growth has been robust.
- Demand for CBJ’s subsidized SME lending scheme slowed significantly.
- Ample reserves have kept dollarization down.
- Selected monetary figures (Table 1):
  - Broad money growth: 5.8; 6.7; 6.1; 6.6; 5.8; 6.6; 5.7; 5.6; 5.6; 5.6 (annual percent change, 2020–2027).
  - Credit to private sector: 6.3; 4.9; 4.1; 6.3; 4.3; 4.3; 5.5; 6.0; 6.5; 6.9 (annual percent change, 2020–2027).
  - Net foreign assets: 0.2; -0.8; -0.2; -6.7; 14.6; 16.8; 2.7; 6.8; 4.6; 10.6 (annual percent change, 2020–2027).

### Banking sector indicators (Figure 5)
- Banks remain well-capitalized; Tier 1 Capital to Risk Weighted Assets shown (percentiles and averages).
- Non-performing loans net of provisions have been stable.
- Profitability recovered after heavy provisioning in 2020.
- Loans continue to be stably funded by deposits.
- Sample covers 14 Jordanian banks; averages are weighted by total assets.

### Key macroeconomic outlook highlights (Table 1 recap)
- Real GDP at market prices (annual percent change): -1.6; 2.2; 2.4; 2.7; 2.7; 2.7; 2.7; 3.0; 3.0; 3.0 (2020–2027).
- Consumer price inflation (annual average): 0.4; 1.3; 3.8; 4.4; 3.0; 3.8; 2.9; 2.5; 2.5; 2.5 (2020–2027).
- Unemployment rate (period average, percent for Jordanians only): 22.7; 24.1; [series continuation in source table].
- Nominal exchange rate (peg to the US dollar): 1.41 (period average and peg maintained as listed).

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1jorea2023001.pdf*

### 1. Central government primary balance (ex grants)-1,767-1,444-1,159-1,298-955-1,088-680-371-1300

### 1jorea2023001 - 1. Central government primary balance (ex grants)-1,767-1,444-1,159-1,298-955-1,088-680-371-1300

### Central government primary balance (ex grants)
- Levels (absolute): -1,767, -1,444, -1,159, -1,298, -955, -1,088, -680, -371, -1300
- (in percent of GDP): -5.7, -4.4, -3.4, -3.7, -2.6, -2.9, -1.7, -0.9, -0.3, 0.0

### Balance of utilities (NEPCO, WAJ, water distribution companies)
- Levels (absolute): -408, -541, -398, -462, -625, -593, -539, -492, -444, -398
- (in percent of GDP): -1.3, -1.7, -1.2, -1.3, -1.7, -1.6, -1.4, -1.2, -1.0, -0.9

### Combined public balance (1+2)
- Levels (absolute): -2,175, -1,985, -1,557, -1,761, -1,580, -1,682, -1,219, -863, -574, -398
- (in percent of GDP): -7.0, -6.1, -4.6, -5.1, -4.4, -4.6, -3.1, -2.1, -1.3, -0.9

### SSC balance
- Levels (absolute): 614, 734, 786, 993, 816, 1,119, 1,022, 1,031, 1,063, 1,051
- (in percent of GDP): 2.0, 2.3, 2.3, 2.9, 2.3, 3.0, 2.6, 2.5, 2.4, 2.3

### General government primary balance (ex grants) (3+4)
- Levels (absolute): 1/-1403, -1106, -566, -563, -568, -361, 2240, 0734, 910
- (in percent of GDP): -4.5, -3.4, -1.7, -1.6, -1.6, -1.0, 0.1, 1.0, 1.7, 2.0

### General government overall balance
- Levels (absolute): -1,751, -1,364, -860, -986, -1,139, -978, -865, -730, -483, -346
- (in percent of GDP): -5.6, -4.5, -2.5, -2.8, -3.2, -2.6, -2.2, -1.8, -1.1, -0.8

*Source: 1jorea2023001 - 1. Central government primary balance (ex grants)-1,767-1,444-1,159-1,298-955-1,088-680-371-1300*

### 7. General government balance excluding grants -2,559-2,178-1,769-1,836-1,908-1,787-1,591-1,300-1,043-879

### 7. General government balance excluding grants -2,559-2,178-1,769-1,836-1,908-1,787-1,591-1,300-1,043-879

### General government balance and percent of GDP
- General government balance excluding grants (levels): -2,559 -2,178 -1,769 -1,836 -1,908 -1,787 -1,591 -1,300 -1,043 -879
- (in percent of GDP): -8.2 -6.7 -5.2 -5.3 -5.3 -4.8 -4.1 -3.2 -2.4 -1.9

### Consolidated and unconsolidated government debt
- Consolidated debt of general government (Debt = t-1 + Net borrowing need) (levels): 27,295 29,474 31,007 31,064 32,370 32,560 33,615 34,662 35,503 36,376
- Consolidated debt (in percent of GDP): 87.5 90.7 91.0 89.7 89.8 88.2 86.2 84.2 81.7 79.3
- Unconsolidated debt of general government (levels): 27,707 36,477 38,805 39,167 41,010 41,563 43,668 45,765 47,706 49,680
- Unconsolidated debt (in percent of GDP): 88.8 112.3 114.4 113.1 114.5 112.6 112.0 111.2 109.8 108.3

### Net borrowing need and components (levels)
- Net borrowing need (selected components and items reported): 
  - General government overall deficit incl. discretionary measures: 1,751 1,473 860.3 986 1,139 978 865 730 483 346
  - Prefunding of amortizing debt and use/buildup of deposits: 241 242 161 51 11 11 13 13
  - SSIF investment outside GG: 21 25 43 43 73 13 37 16 40 45 95 52 45 62 61 0 (as listed)
  - Guaranteed off-budget project loans: 419 676 212 366 760 435 0
  - CBJ repurchases in respect of 2012 EFF: 117 4 -18 -13 -177 -172 -346 -278 -261 -145
  - Recapitalization and guarantee of Royal Jordanian: 333 500 0 0 0 0 0 0 0
  - Securitization of domestic arrears: 105 105

### Memorandum items and SSIF
- SSIF interest income government debt: 309 378 350 420 406 421 486 543 600 659
- SSIF government debt holding (% of total Assets): 57 53 58 54 59 54 56 57 57 58
- Nominal GDP at market prices (levels): 31,186 32,478 34,077 34,624 36,042 36,911 39,004 41,174 43,464 45,882

*Sources: Jordanian authorities; and IMF staff estimates and projections.*

### Annex I. Public Debt Sustainability Analysis

### Annex I. Public Debt Sustainability Analysis

### Sustainability assessment — overall finding
- Final assessment: Sustainable.
- Overall risk of sovereign stress: Moderate.
- Medium-term risk: Moderate.
- Long-term risk: Moderate.
- Near term: n.a. (The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement.)

### Key conclusions and narrative
- The debt/GDP ratio is projected to decline to 80 percent by 2027.
- Financing risks remain manageable, supported by:
  - A relatively long effective debt maturity of 6 years.
  - Robust development partner support.
  - A large share of concessional debt providing an important cushion.
- Baseline fiscal consolidation is gradual and backed by identified measures.
- Downside risks identified:
  - Further tightening of global financial conditions.
  - Higher-for-longer commodity prices.
  - Failure to arrest the deficits of the water and electricity sectors.
  - Weaker global growth.
  - Higher EM risk premia.
- Long-term considerations:
  - Jordan’s strong social security system will not reach its first break-even point until 2039.
  - Ongoing explorations in mining (rare earth, gold, lithium, phosphate, potash) represent significant upside risk.
  - Pressing water scarcity challenges (e.g., service payments on the Aqaba-Amman conveyor project starting 2028) and NEPCO's weak financial position pose long-term structural risks.

*Source: IMF staff calculations.*

---

### Baseline projections and key fiscal/debt figures (selected series, percent of GDP unless otherwise noted)
- Public debt (actual and projection):
  - 2021: 90.7
  - 2022: 89.7
  - 2023: 88.2
  - 2024: 86.2
  - 2025: 84.2
  - 2026: 81.7
  - 2027: 79.3
  - 2028: 77.5
  - 2029: 75.8
  - 2030: 73.9
  - 2031: 73.2
- Change in public debt (percent of GDP):
  - 2021: 3.2
  - 2022: -1.0
  - 2023: -1.5
  - 2024: -2.0
  - 2025: -2.1
  - 2026: -2.4
  - 2027: -2.4
  - 2028: -1.7
  - 2029: -1.7
  - 2030: -1.9
  - 2031: -0.7
- Contribution of identified flows (percent of GDP):
  - 2021: 1.1
  - 2022: -0.7
  - 2023: -0.8
  - 2024: -1.7
  - 2025: -1.9
  - 2026: -2.2
  - 2027: -2.2
  - 2028: -1.6
  - 2029: -1.6
  - 2030: -1.8
  - 2031: -0.6
- Primary deficit (percent of GDP):
  - 2021: 0.7
  - 2022: -0.7
  - 2023: -1.1
  - 2024: -1.8
  - 2025: -2.3
  - 2026: -2.9
  - 2027: -3.1
  - 2028: -2.8
  - 2029: -2.6
  - 2030: -2.5
  - 2031: -2.0
- Noninterest revenues (percent of GDP):
  - 2021: 37.0
  - 2022: 38.8
  - 2023: 38.8
  - 2024: 38.7
  - 2025: 38.6
  - 2026: 39.0
  - 2027: 38.9
  - 2028: 39.4
  - 2029: 39.4
  - 2030: 39.4
  - 2031: 39.0
- Noninterest expenditures (percent of GDP):
  - 2021: 37.8
  - 2022: 38.1
  - 2023: 37.6
  - 2024: 36.8
  - 2025: 36.4
  - 2026: 36.1
  - 2027: 35.8
  - 2028: 36.6
  - 2029: 36.7
  - 2030: 36.8
  - 2031: 37.0
- Automatic debt dynamics (percent of GDP):
  - 2021: 0.4
  - 2022: -1.7
  - 2023: -1.1
  - 2024: -0.3
  - 2025: -0.4
  - 2026: -0.2
  - 2027: -0.3
  - 2028: -0.7
  - 2029: -0.8
  - 2030: -1.1
  - 2031: -0.4
- Real interest rate and relative inflation (contribution, percent of GDP):
  - Combined row shows values: 1.4, 0.7, 1.2, 2.0, 2.1, 2.3, 2.1, 1.6, 1.4, 1.1, 1.7
- Real interest rate (percent):
  - 2021: 2.2
  - 2022: 0.2
  - 2023: 0.6
  - 2024: 1.7
  - 2025: 1.9
  - 2026: 2.1
  - 2027: 1.9
  - 2028: 1.4
  - 2029: 1.3
  - 2030: 1.0
  - 2031: 1.6
- Relative inflation (percent):
  - 2021: -0.8
  - 2022: 0.5
  - 2023: 0.6
  - 2024: 0.3
  - 2025: 0.2
  - 2026: 0.2
  - 2027: 0.2
  - 2028: 0.2
  - 2029: 0.2
  - 2030: 0.1
  - 2031: 0.1
- Real GDP growth (percent):
  - 2021: -2.0
  - 2022: -2.4
  - 2023: -2.4
  - 2024: -2.3
  - 2025: -2.5
  - 2026: -2.5
  - 2027: -2.4
  - 2028: -2.3
  - 2029: -2.3
  - 2030: -2.2
  - 2031: -2.2
- Other identified flows (percent of GDP):
  - 2021: 0.0
  - 2022: 1.7
  - 2023: 1.4
  - 2024: 0.5
  - 2025: 0.8
  - 2026: 0.8
  - 2027: 1.2
  - 2028: 1.9
  - 2029: 1.9
  - 2030: 1.8
  - 2031: 1.8
- Contribution of residual (percent of GDP):
  - 2021: 2.1
  - 2022: -0.3
  - 2023: -0.6
  - 2024: -0.3
  - 2025: -0.2
  - 2026: -0.2
  - 2027: -0.2
  - 2028: -0.2
  - 2029: -0.2
  - 2030: -0.1
  - 2031: -0.1
- Gross financing needs (GFN, percent of GDP):
  - 2021: 4.3
  - 2022: 20.4
  - 2023: 16.1
  - 2024: 13.5
  - 2025: 13.8
  - 2026: 19.0
  - 2027: 14.0
  - 2028: 16.0
  - 2029: 19.6
  - 2030: 18.8
  - 2031: 21.2
- Of which: debt service (percent of GDP):
  - 2021: 3.6
  - 2022: 21.1
  - 2023: 17.2
  - 2024: 15.4
  - 2025: 16.1
  - 2026: 21.9
  - 2027: 17.0
  - 2028: 18.7
  - 2029: 22.3
  - 2030: 21.3
  - 2031: 23.2
- Local vs foreign currency component of GFN (percent of GDP):
  - Local currency (selected years): 2021: 2.3; 2022: 13.0; 2023: 12.3; 2024: 11.3; 2025: 8.2; 2026: 12.3; 2027: 9.5; 2028: 11.7; 2029: 15.1; 2030: 15.5; 2031: 17.1
  - Foreign currency (selected years): 2021: 1.3; 2022: 8.1; 2023: 4.9; 2024: 4.1; 2025: 7.9; 2026: 9.6; 2027: 7.6; 2028: 7.0; 2029: 7.1; 2030: 5.8; 2031: 6.1
- Memo macro assumptions (selected):
  - Real GDP growth (percent): 2022 onward: 2.7, 2.7, 2.7, 3.0, 3.0, 3.0, 3.0, 3.0, 3.0
  - Inflation (GDP deflator; percent): 2022: 3.8; 2023: 3.8; 2024: 2.9; 2025–2031: 2.5 each year
  - Nominal GDP growth (percent): 2022: 6.6; 2023: 6.6; 2024: 5.7; 2025–2031: 5.6 each year
  - Effective interest rate (percent): 2021: 4.3; 2022: 4.0; 2023: 4.5; 2024: 5.0; 2025: 4.9; 2026: 5.1; 2027: 4.9; 2028: 4.4; 2029: 4.2; 2030: 3.9; 2031: 4.8

---

### Debt coverage, structure, and disclosures
- Chosen coverage seeks to approximate general government and includes:
  - Central government (budgetary central government): Yes.
  - Social security funds (SSFs): Yes.
  - Public nonfinancial corporations (e.g., NEPCO, WAJ, water distribution companies): Yes.
  - Extra budgetary funds (EBFs): No.
  - Local governments: No.
  - Central bank: No.
  - Other public financial corporations: No.
- GCC deposits at the CBJ amounting to US$833 million are not included in public debt because the CBJ is assessed to have adequate capacity to repay without detrimental measures.
- Debt by currency: Public debt is expected to remain about evenly split between foreign and local currency-denominated instruments.
- Residual debt maturity: 6. years.
- Debt is mainly held by:
  - Domestic commercial banks.
  - External official creditors.
- Public debt by maturity: projected maturities mostly in the 1-5 years range.

---

### Realism of baseline assumptions and forecast track record
- The realism tools do not raise significant red flags.
- Forecast errors for the primary deficit projection flag "red", reflecting repeated revisions to the fiscal path during the COVID-19 shock.
- Contributing factors affecting past debt-creating flows:
  - Growth was held back during 2017-21 due to ISIS aftermath, weak structural reforms (off-track Fund program), and COVID.
  - 2022-26 period expected to feature post-COVID recovery and structural reforms under an on-track EFF.
  - Large fiscal deficits and SFAs from issuance of “comfort letters” during 2017-21 are set to tighten with programmed fiscal consolidation.
  - The US dollar’s effective depreciation during 2017-21 is now reversing, likely reducing the debt burden going forward.
- On interest bill/GDP ratio: marginal interest rates were raised significantly since the 4th review (reflecting Fed tightening), but fiscal drag from higher inflation and relatively long maturity of debt offset this.

---

### Medium-term risk analysis (selected indicators)
- Fanchart width: 51.2
- Probability of debt not stabilizing (pct): 2.90.0 (as listed)
- Terminal debt level x institutions index: 43.20.9
- Debt fanchart index: 1.7
- Average GFN in baseline: 16.15.5
- Bank claims on government (pct bank assets): 22.47.3
- Change in claims on govt. in stress (pct bank assets): 7.72.6
- GFN financeability index: 15.3
- Medium-term index (MTI): Moderate (normalized level and weightings indicate moderate risk)
- Prob. of missed crisis, 2022-2027 (if stress not predicted): 18.2 pct.
- Prob. of false alarm, 2022-2027 (if stress predicted): 21.6 pct.
- Assessment: While debt-to-GDP is high, the probability of non-stabilization is relatively close to the median given assumed fiscal effort. SSC holds about 19 percent of GDP in assets outside general government, 70 percent of which are deposits or stocks that should be liquid and provide reasonable interest income to general government, reducing GFNs. Comfortable banking sector position makes extreme stress scenarios unlikely. Medium-term risk is assessed as moderate.

---

### Annex II summary — Restoring NEPCO’s financial sustainability (selected findings and measures)
- Problem statement:
  - Absent corrective measures, NEPCO’s operational balance deterioration will increase its burden on public finances and taxpayers.
  - In 2022, NEPCO’s revenue was hit by reductions in bulk tariffs due to distribution companies’ lower profit margins.
  - Natural gas import prices increased by 20 percent in 2022Q2 relative to 2021Q2.
  - The first of the two Attarat oil shale plants began operating at full capacity since October 25.
- NEPCO’s average bulk tariff was lowered to 63 fils/kWh (an 11 percent drop from 71 fils/kWh in 2022Q1).
- Distribution companies’ financial pressures:
  - The three distribution companies (EDCO, IREL and JEPCO) are on average more profitable than most economic sectors (except mining) despite bearing little risk.
  - Under current contractual agreements, the EMRC must adjust NEPCO’s bulk tariffs when distribution company profits deviate meaningfully from guaranteed levels.
  - Recent months show declining profitability as expenses (share of sales) remained elevated while sales grew more slowly than assets, indicating declining operational efficiency.
- NEPCO action plan measures to reduce losses (selected):
  - Extend the connection fee for self-generation to businesses to compensate for use of NEPCO grid.
  - Implement time-of-use tariffs and other adjustments to generate JD 50 million in revenue in 2023 to compensate NEPCO for higher input costs.
  - Enforce more stringent KPIs for distribution companies, including targets for technical losses and O&M expenses.
  - Reduce non-technical losses due to tampering with electricity meters.
  - Replace the Floating Storage Regasification Unit (FSRU) with cheaper substitutes.
  - Establish a specialized company for LNG purchases.
  - Apply mining royalties from oil shale PPA.
  - Secure a telecom license to enable NEPCO to provide billable telecom services using its fiber optics infrastructure.
  - Strengthen electricity grid interconnections with Egypt, Syria, Iraq, and Saudi Arabia; hire advisors to initiate discussions to optimize costs related to PPA commitments.

*Source: IMF staff calculations.*

### 4. Decisions on NEPCO’s bulk tariffs should guard NEPCO against exogenous shocks.

### 4. Decisions on NEPCO’s bulk tariffs should guard NEPCO against exogenous shocks

### Key risks and rationale
- Savings from implementing the plan could reduce NEPCO’s deficit substantially, but risks outside NEPCO’s control could hurt NEPCO’s balance if materialized:
  - continued increase in the costs of distribution companies against the backdrop of fixed consumer tariff prices;
  - persistently high natural gas prices.
- Determination of bulk tariffs should incorporate NEPCO’s revenue and cost structure (in particular, the portion that NEPCO has no control over) to:
  - ensure that NEPCO is not left to absorb the impact of exogenous shocks on its own;
  - avoid generating untargeted electricity subsidy at NEPCO’s expense.

### Recommendations on bulk tariffs
- Incorporate NEPCO’s full revenue and cost structure into bulk-tariff decisions, explicitly accounting for cost elements NEPCO cannot control.
- Design bulk-tariff adjustments so that exogenous shocks (e.g., higher distribution company costs, higher fuel prices) are not absorbed solely by NEPCO.
- Ensure tariff-setting prevents the creation of untargeted electricity subsidies borne by NEPCO.

### EMRC independence, mandate, and transparency
- An independent EMRC with the power and capacity to execute its mandate in a transparent manner is critical.
- The published regulation includes a clear mandate and timeline for the EMRC to update tariffs; the EMRC should be re-empowered to:
  - ensure the financial sustainability of the sector by factoring in NEPCO’s financial imbalance when adjusting electricity tariffs, including the fuel adjustment clause.
- The EMRC should enhance its public communications of electricity tariff decisions to ensure more transparency and commitment when adjusting tariffs:
  - Just as it does for oil derivatives pricing, the EMRC should describe the timeline of, and principles guiding, any future electricity tariff adjustments.

### Medium-term regulatory strategy
- Consider implementing a more incentives-based regulatory framework for the distribution companies to improve their efficiency.
- Current framework:
  - mostly focused on cost-of-service (rate-of-return) regulation: the EMRC evaluates the cost of capital of the distribution companies for the purposes of setting NEPCO’s bulk supply tariff.
- Rationale for change:
  - NEPCO’s challenging financial outlook and high expenses of distribution companies warrant at least a revision from the current profit-margin protective licenses towards a more incentives-based framework over the medium term.
- Trade-offs to consider when choosing the regulatory regime:
  - economic efficiency;
  - financial sustainability of the sector;
  - equity considerations;
  - governance capacity.
- Design detail:
  - In incentives-based regulatory frameworks, the period between tariff adjustment is typically between 4 to 6 years, which offers enough time to reap benefits from improvements in efficiency.

### Footnotes and contextual points
- Before the pandemic, the automatic electricity tariff adjustment mechanism (the “fuel clause”), adopted in 2017, was used to insulate NEPCO from swings in oil prices and contain its losses. However, the fuel clause was set to zero as the country entered the pandemic and has remained at zero since then, despite large increases in natural gas prices this year.

*Source: 1jorea2023001 - 4. Decisions on NEPCO’s bulk tariffs should guard NEPCO against exogenous shocks.*

### 9.      Fiscal policy in 2023 will aim at keeping general government debt on a firmly declining

### 9.      Fiscal policy in 2023 will aim at keeping general government debt on a firmly declining path while supporting the economic recovery

### Fiscal stance and 2023 budget targets
- 2023 budget targets a primary deficit (excluding grants) of 2.9   percent of GDP, implying a 0.8 percent of GDP annual consolidation.
- Consolidation measures:
  - revenue-enhancing measures at the fourth review: 0.2 percent of GDP;
  - elimination of temporary fuel subsidies: 1.1 percent of GDP (partly offset by higher capital expenditures and the winddown of one-off non-tax revenues in 2022).
- Submitted to Parliament a budget consistent with a JD 1088 million central government primary deficit (excluding grants and transfers to NEPCO and WAJ).
- Prior action: commitment not to shift any capital spending allocation to current spending.

### Medium-term revenue strategy (2024–27)
- Committed revenue-side reforms expected to yield 1.1 percent of GDP over 2024-27.
- Expected timing and magnitudes:
  - additional 0.4   percent of GDP in revenue measures in 2024;
  - additional 0.7   percent of GDP over 2025–27.
- Key components:
  - broaden income tax base by rationalizing new tax exemptions via the new investment law and implementing compliance improvement plans in the Large Taxpayer and Free Professionals Directorates;
  - broaden the GST base by introducing place of taxation rules and rationalizing new GST exemptions via the new investment law, plus anticipated reduction in smuggling after customs reform;
  - closure of key tax loopholes by bringing ASEZA within national tax and customs systems;
  - full implementation of track-and-trace system for alcohol and stronger measures against cigarette smuggling (inter-agency border control and domestic compliance enforcement).
- Continued efforts to reduce tax evasion and avoidance; will seek further IMF TA.

### Expenditure-efficiency reforms and savings
- Reforms expected to deliver:
  - 0.2 percent of GDP in savings in 2024;
  - an additional 0.3 percent of GDP over 2025-27.
- Reform measures include:
  - contain growth of the public wage bill below nominal GDP growth and implement public sector efficiency reforms;
  - roll out e-procurement to the broader public sector;
  - efficiencies in the health care sector via improved targeting of exemptions and incentivizing more efficient use of resources in public hospitals.

### Debt trajectory and fiscal sustainability
- Fiscal consolidation projected to reduce debt from 90.9 percent of GDP in 2021 to 80 percent of GDP in 2027.
- Commitment to bring debt-to-GDP to 80 percent over the medium term as agreed during the fourth review.
- Measures to limit drain from NEPCO and expectation of improvement in its financial position over the medium term.

### Structural fiscal reforms — Tax policy and revenue administration
- New investment law “Regulating the Investment Environment and Doing Business Law”:
  - MOF given central role in granting and managing all fiscal incentives;
  - establishes a fiscal incentives ministerial committee with MOF oversight;
  - bylaws to be issued by end-March 2023 to clarify cost-benefit assessment mechanism for incentives.
- GST law amendments enacted to introduce place-of-taxation rules; instructions issued to implement.
- ASEZA law amendments implemented to impose a single tax administration and single customs service, bringing ASEZA participants under ISTD and Customs national control.
- Revenue mobilization plan (developed with IMF FAD in 2021) being implemented; ISTD preparing an FAD-supported holistic roadmap to be shared with Fund staff by May 2023.
- ISTD capacity and compliance improvements:
  - upgrade IT infrastructure including a new Integrated Tax Administration System (ITAS);
  - strengthen audit function with risk-based practices and specialized audit teams for high-risk sectors in the Large Taxpayer Directorate (LTD);
  - new leadership program incentivizing staff ideas (best proposals rewarded with promotions or prizes);
  - proposed e-audit system using AI (proposed SB for June 2023).
- Digital track-and-trace systems:
  - cigarette sector: digital track-and-trace system finalized;
  - alcohol sector: expected start of implementation next year (SB for June 2023).
- E-invoicing system:
  - proposed SB for June 2023;
  - aim to roll out by end-2023;
  - incentives to expand invoicing use, including a lottery scheme rewarding customers with ISTD-recognized invoices.

### Structural fiscal reforms — Social safety net
- IMF-supported program includes a floor on social spending (IT) covering:
  - non-wage components of education and health current expenditure envelope;
  - NAF’s and other entities’ social protection programs;
  - the school feeding program.
- Coverage and support measures:
  - unified cash assistance program reached 120,000 families in 2022;
  - JD30 million allocated over summer 2022 to support around 220,000 NAF beneficiary households and financial aid to 74,000 vulnerable university students (in lieu of blanket fuel subsidy).
  - commitment to safeguard and increase the NAF budget allocation in coming years.
- Targeting and delivery improvements:
  - targeting methodology improvements with World Bank technical support (adjusting weights for dependent adult children and female-headed households);
  - all cash transfer payments shifted to virtual means (e-wallets, bank transfers, mobile payments).
- Integration and institutionalization:
  - plan to integrate all existing NAF programs for Jordanian nationals into one single program by end-2024;
  - considering institutionalizing food assistance into a single unified platform.
- Extended support against higher international food prices until end-2023; exploring options with IMF FAD TA to better target support, strengthen supply-chain audits, and stiffen penalties for misuse.

### Structural fiscal reforms — Public sector administrative reform and efficiency
- Public Sector Modernization Reform to adopt an action plan to:
  - strengthen separation between regulatory bodies and operators to increase accountability, independence, and transparency;
  - revise civil service staffing practices, develop merit-based hiring and promotions;
  - increase digitalization of government services;
  - merge various public agencies and enhance institutional roles to strengthen budgetary oversight and human resource planning.

### Structural fiscal reforms — Public financial management (PFM)
- Reduction of central government health-sector arrears by JD 196 million between end-December 2020 and end-December 2021.
- Incurrence of health and energy arrears continued, totaling JD 187 million by end-September 2022, mainly from the health sector (JD 183 million).
- Established a committee of technical experts to follow and forecast cash flows daily to improve cash management.
- Recent IMF TA on cash management identified reforms in cash forecasting and integration of cash and debt management.
- Measures to eliminate off-budget expenditures: strengthening top-down budgeting and improving fiscal projection quality.

### Structural fiscal reforms — Public procurement
- Staffing and rollout of eGovernment Procurement system, JONEPS:
  - expanded coverage to include the Education and Health Ministries ahead of time (met SB for December 2022);
  - start implementation for municipalities in 2022, beginning with GAM, with full coverage of GAM expected by June 2023.

### Structural fiscal reforms — Fiscal transparency and fiscal risks management
- New macro-fiscal unit (MFU) at MOF to prepare and publish a Fiscal Risk Statement with the 2024 budget (proposed SB December 2023).
- Fiscal Commitments and Contingent Liabilities Unit (FCCL) gathered information on three major PPPs (powerplants IPP3 and IPP4, and AIG) and completed assessments of explicit fiscal costs and fiscal risks (met SB for June 2022); assessments not published due to confidentiality.
- Hiring a dedicated expert in the FCCL unit to build risk assessment capacity and expand coverage to an additional 3 of the largest PPPs by end-September 2023.
- Continued publication of COVID-related spending information, including beneficial ownership of entities awarded contracts, on the MOF website.

### Structural fiscal reforms — Investment quality and predictability
- National Conveyor PPP project subjected to requirements of the new PPP law, including robust FCCL analysis and transparent bidding; FCCL analysis completed in April 2022.
- Legislative basis prepared for National Registry of Investment Projects (NRIP) comprising the Public Investment Project (PIP) Databank and the PPP Project Databank.
- Plan to include in the NRIP all PIPs in the 2023 General Budget greater than JD 1 million.

### Fiscal policy and debt management capacity
- Strengthening MFU tasked with medium-term macroeconomic forecasts and quarterly fiscal projections; MFU aims to assess dynamic and distributional impacts of policy measures with FAD assistance.
- Recruitment status: two division heads and two staff recruited for MFU, with four pending hires including two at a senior level.
- PMU in MOF has driven the structural fiscal reform agenda.

### Monitoring public enterprise and local government balance sheets
- Royal Jordanian (RJ):
  - passenger numbers increased in 2022;
  - higher operational costs due to elevated fuel prices will pressure RJ’s bottom line;
  - JD 70 million capital injection in 2022;
  - expectation that RJ will return to profitability soon; continued oversight and regular data collection.
- Greater Amman Municipality (GAM):
  - measures to strengthen revenues, decrease operating costs (including reducing wage bill and green savings on electricity and fuel), incentivize bill payment, and improve service delivery;
  - expects to eliminate deficits gradually over the medium term;
  - Bus Rapid Transportation (BRT) project inaugurated, with remaining routes in first phase to be rolled out through 2023;
  - tender for a second phase of BRT (additional 40 km of routes) expected to be launched in 2023.

### Monetary and financial policies and access to finance
- Central Bank of Jordan (CBJ) commitment:
  - maintain exchange rate peg to the US dollar as nominal anchor for monetary and financial stability;
  - raised policy rates in line with the Fed;
  - issued certificates of deposit (CDs) of JD600 million since August 2022 to tighten monetary policy.
- Credit to private sector reached 8.2 percent y-o-y in September 2022.
- CBJ operational target: maintain international reserves above 100 percent of the Fund’s Reserve Adequacy Metric.
- CBJ measures to mitigate rising interest rate impact on retail borrowers (June instruction):
  - encouraged banks to offer households with variable interest rate loans a new repayment schedule with fixed monthly installments together with either extended maturity or a variable bullet payment at maturity;
  - banks asked to adhere to special instructions regarding age of the customer, life insurance, and applicable legislation/policies.
- CBJ support to businesses, focused on SMEs:
  - created a JD 500 million SME lending scheme in 2020 (85 percent guaranteed by Jordan Loan Guarantee Corporation and partly supported by Government of Jordan); envelope increased to JD 700 million in March 2021;
  - adjusted an existing scheme (launched 2012) to make available up to JD 1.3 billion at low interest rates to support ten productive sectors;
  - in March (year not specified in this excerpt) raised borrowing limits to JD 1 million for firms importing basic commodities (wheat, sugar, oil);
  - as recovery firms up through 2023 and demand for SME scheme dwindles, CBJ will unwind the scheme (extended from end-September 2022 to end-December 2022);
  - JD 1.3 billion scheme continues to support productive economic sectors; CBJ considering reviewing the interest rate of this scheme over the medium term.

*Source: IMF staff report chapter on Jordan fiscal and monetary policies.*

### 18.      Our banking system has remained liquid and well-capitalized. The system-wide

### 18.      Our banking system has remained liquid and well-capitalized.

### Banking system health and capital adequacy
- System-wide capital adequacy ratio was 17.1 percent at end-June 2022, a drop by about 1 percentage point compared to 2021, but still well above the CBJ regulatory minimum of 12 percent.
- Non-performing loans decreased to 4.6 percent as of end-June 2022 down from 5 percent in 2021.
- Provisions in percent of classified loans have increased by about 3 ½ percentage point to 83.4 percent at end-June 2022 compared to 2021.

### Prudential and supervisory framework
- CBJ’s accounting, reporting, and provisioning practices are designed to ensure adequate and timely monitoring of risks.
- CBJ continuously conducts stress tests to ensure banks have sufficient buffers against a significant rise in NPLs and hit to profits.
- Banks are required to follow strict provisioning standards, in line with IFRS9’s forward-looking expected loss approach.
- If capital adequacy falls below the 12 percent CBJ threshold for any bank, the CBJ will require the bank to submit a credible capital restoration plan to rebuild capital.

### Insurance sector solvency reform
- Commitment to develop a risk-based capital and solvency regime for the insurance sector (June 2023 SB).
- Objectives of new regime:
  - (i) provide incentives for insurance companies to better manage risks; and
  - (ii) help the CBJ get a better perspective of the risk profiles of individual insurers and the market as a whole.
- New framework requirements: forward-looking, encourage market development, align with international trends and best practices while reflecting Jordanian market conditions.
- CBJ is working with the World Bank on solvency margin instructions; draft instructions expected during November 2022 and to be circulated for stakeholder consultation. Instructions expected to be issued in the first quarter of 2023.

### Inspection management system and supervisory enhancements
- Launched an inspection management system (IMS) to improve effectiveness and efficiency of onsite inspection operations and procedures for CBJ-supervised financial sectors.
- IMS covers full inspection process from planning to report issuance and follow up.
- Phase one ongoing and to be completed by March 2023, covering: (i) banking supervision; (ii) consumer protection; (iii) payment systems; and (iv) currency exchange.
- Inclusion of insurance and microfinance sectors to be completed in phase two.

### AML/CFT strengthening
- Jordan working to ensure effective implementation of FATF action plan items by end-October 2023.
- According to Jordan’s second follow up report to the FATF, 11 action items out of 24 are addressed or largely addressed.
- Measures taken include:
  - (i) strengthening capabilities of the AML/CFT Supervision Department (increasing supervisors and training);
  - (ii) enhancing AML/CFT risk-based supervision by increasing on-site inspections;
  - (iii) ensuring compliance with Security Council resolutions related to terrorism, its financing, and proliferation financing;
  - (iv) applying financial sanctions on regulated Financial Institutions for regulatory breaches;
  - (v) raising awareness for regulated FIs on Targeted Financial Sanctions through training programs and workshops.
- Technical compliance: Jordan has carried out extensive legal revisions and is rated compliant or largely compliant with 32 out of 40 recommendations.

### Financial inclusion and access to finance
- National Financial Inclusion Strategy (2018–20) achieved substantial progress; CBJ developing a new National Financial Inclusion Strategy expected to be launched next year.
- New strategy will focus on low-income population, women, youth, refugees, and micro, small and medium-sized enterprises; pillars: Credit, Payment, Saving, and Insurance plus cross-cutting enablers.
- CBJ launched in Q4 2021 a new financing program allocating USD 30 million from the new Arab Fund for Economic and Social Development loan to be lent directly to microfinance institutions at zero interest, partly subsidized by the government.
- To date, four MFIs have accessed financing under this program totaling USD 24.7 million.

### Financial Sector Assessment Program (FSAP) and IMF technical assistance
- Joint IMF-World Bank FSAP approaching completion; IMF-focused workstream covers: (i) risk assessment framework; (ii) financial stability oversight frameworks; and (iii) crisis management framework.
- Ongoing IMF TA includes:
  - comprehensive monetary and economic policy modeling framework;
  - CBDC conceptual and operational framework (considering wholesale vs. retail options);
  - analysis of components of excess liquidity in banks;
  - risk-based banking supervision training;
  - redevelopment of property price indices, particularly residential property price indices.
- TA requested/received to update monetary statistics after bringing some nonbank financial corporations under CBJ in mid-2021.
- Implemented an FDI survey to improve balance of payments statistics (SB for end-Oct 2022 met).
- CBJ received TA on external sector statistics to enhance data quality.

### NEPCO and electricity sector financial challenges
- NEPCO’s financial outlook has become more difficult due to adverse international developments.
- Natural energy import prices increased, though—thanks to long-term stable-price gas contracts—by a small fraction of the roughly 100 percent increase in global gas prices.
- Losses in distribution companies forced reductions in bulk supply tariff, pushing NEPCO’s sales down.
- Pressures on NEPCO include elevated energy import prices, relatively weak electricity demand, and coming on-stream of the oil shale PPA.

### NEPCO action plan and revenue measures
- Adopt an action plan with World Bank and Fund staff aiming to reduce NEPCO’s losses by JD 90 million in 2023 and JD 135 million in 2024, including measures to:
  - (i) extend the connection fee for self-generation to businesses;
  - (ii) implement time of use tariffs and other adjustments to compensate NEPCO for higher input costs;
  - (iii) enforce stringent KPIs for distribution companies (technical losses and O&M expenses targets);
  - (iv) reduce non-technical losses due to tampering with electricity meters;
  - (v) replace the Floating Storage Regasification Unit (FSRU) with cheaper substitutes;
  - (vi) establish a specialized company for LNG purchases;
  - (vii) collect mining royalties from oil shale PPA;
  - (viii) secure a telecom license to enable NEPCO to provide billable telecom services using its fiber optics infrastructure (prior action).
- As part of execution, implement time of use tariffs and other adjustments needed to generate JD 50 million in revenue for NEPCO in 2023 (proposed SB for May 2023).
- Strengthen electricity grid interconnections with Egypt, Syria, Iraq, and Saudi Arabia; hired advisors to optimize PPA costs and distribution of PPA risks.

### Electricity sector governance and arrears
- Strengthen oversight by issuing a four-year loss target and a four-year O&M budget reduction target for each distribution company to reduce electricity losses and improve efficiency.
- NEPCO cleared its arrears to SAMRA (100 million at end-2021) in June 2022; NEPCO incurred JD 100 million in new arrears with SAMRA as of end-Sep 2022.
- Commitment to reach agreement with SAMRA on a repayment schedule.
- Cabinet decision in January 2022 to replace current meters for all governmental entities with prepaid ones; meter replacements will start early next year.

### Water sector financial sustainability and reforms
- Cabinet approved the Financial Sustainability Roadmap (FSR) for the Water Sector on November 2, 2022, with five levers: (1) optimizing efficiency of existing systems; (2) managing existing debt; (3) minimizing cost of capital for new water systems; (4) minimizing OPEX of new water system; and (5) improving predictability of revenue flows.
- Key reforms and targets:
  - Reduce non-revenue water (NRW) from current level of over 50 percent of total water supplied to 37 percent by 2030 and 25 percent by 2040.
  - Investment plan of around US$1.3 billion, supported by grants and concessional loans, to be implemented over 2023–40 to achieve NRW targets.
  - Increase energy efficiency and use of renewable energy: expect energy efficiency savings of 257 GWh/year and adding renewable energy capacity of 193 MWh/yr.
  - Develop agricultural water reduction strategy including measures to reduce unauthorized freshwater use in agriculture, highland and desert groundwater conservation, rotational fallowing, and national program of treated wastewater reuse.

### PPP due process and Aqaba-Amman National Conveyor Project (AANCP)
- All new PPPs adhere to best practices consistent with the new PPP law for procurement decisions and granting of government guarantees.
- For AANCP (tendering started before new PPP law), due process required by PPP law will be followed for remainder of tendering.
- New benchmark for AANCP established on greenhouse gas emissions and renewable energy and power supply, along with several addendums to original RFP.
- Final submission date for bids extended to March 30, 2023; expect to reach financial closure by September 2024.
- In October 2022, the International Finance Corporation pledged an investment loan of $400 million for the project, adding to the $1.8 billion pledged by donors in March 2022.

### Water sector arrears and cash transfers
- Committed to arrest accumulation of arrears towards water sector PPPs and electricity distribution companies, including timely cash transfers from MOF to WAJ.
- MOF established automatic monthly transfers of JD 7 million to WAJ, with possibility of an additional JD 5–7 million if needed.
- Cabinet decision to issue a directive for a joint committee between MOF and the Ministry of Water and Irrigation to meet quarterly to clear all arrears of the water sector by end-March 2024 (proposed SB for March 2023).

### Structural labor market reforms to promote jobs and growth
- Unemployment and participation context:
  - Unemployment for Jordanians peaked at 25 percent in 2021Q1 and was 22.6 percent in 2022Q2.
  - Youth unemployment is 48 percent; young females face even higher unemployment.
  - Labor force participation level around one-third; female labor force participation 13.7 percent.
- Policy pillars and measures:
  i. Increase female labor force participation and gender equality:
    - Ministry of Social Development completed review of nursery licensing process and established technical committee to set amendments to nursery licensing instructions.
    - Set targets under wage-support public programs to include floors on financial support for childcare services.
    - Labor Law amendments enhancing protections for women and removing restrictions on female employment tabled for Parliament (completed SB for November 2022); government to prioritize discussion and issue secondary legislation within four months of enactment to implement workplace code of conduct protecting women from harassment.
    - Revise social security survivor benefits legislation to remove gender discrimination.
    - Develop measures to ensure minimum female participation in boards of state-owned enterprises (May 2023).
    - Pilot program granting SMEs employing women, youth, and people with disabilities preferential access to small-sized (under 10,000 JD) public procurement contracts.
  ii. Address labor market segmentation:
    - Conduct comprehensive review of labor legislation including assessment of policies affecting labor-market costs and segmentation; review to be shared with Fund staff by end-September 2023.
    - Formulate an action plan with the Civil Service Bureau by October 2023 to enhance civil service efficiency and productivity through Public Sector Modernization plan and aligning remuneration with market comparators.
    - Phase out Defense Order 6 in 2023 following phasing out of Istidama program during 2023 to reduce segmentation between new entrants and established workers.
  iii. Reduce youth unemployment:
    - Streamline and enhance TVET efforts, draft legislation to consolidate initiatives and transition beneficiaries into labor market.
    - SSC proposing amendments to social security law to reduce applicable social security contribution rate for workers under age 30 without harming SSC financial sustainability.
    - National Employment Scheme: around 35,727 applicants since launch; resulted in 9,831 new hires to date, of which 5,535 are female and 751 are NAF beneficiaries.
    - Labor legislation review will assess options to reduce costs of hiring youth leveraging international experience.
  iv. Encourage formality:
    - Ministry of Labor issued approximately 37,404 flexible working permits for Syrian refugees as of end of September 2022 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.

*Source: 1jorea2023001 - Excerpt pages 18–65.*

### 35.      A key element of our growth strategy is enhancing the business environment, and we

### 1jorea2023001 - 35.      A key element of our growth strategy is enhancing the business environment, and we

### Enhancing the business environment: policies and actions
- Objective: improve competition, foster investment, and boost export competitiveness.
- Public investment approach:
  - Given limited fiscal space, focus on aligning new investment projects with the Economic Modernization Vision and mobilizing private sector know-how and financing through PPPs.
  - In the first quarter of 2022, tenders were issued to bring to market important projects from the PPP pipeline, including the King Hussein Bridge Land Border Crossing Terminal, and the construction of 15 new public schools across Jordan.
- Streamlining transactions:
  - Implementing the Property Values Estimation Bylaw (No. 4 of 2019) to establish pre-estimated values for land to enhance transparency, good governance, and reduce time for property valuation.
- Insolvency framework:
  - Operationalized new insolvency framework.
  - Licensed 13 insolvency practitioners (of which 5 have been appointed by courts).
  - Continuing to train judges; establishing the Insolvency Committee and the Licensing and Monitoring Insolvency Practitioners Unit.
  - Launching an electronic insolvency registry by end of 2023.
- Competition framework:
  - Submitted to Parliament draft legislation to strengthen the competition framework, including strengthening antitrust legislation, increasing penalties, and requiring the government to refer violations to the Public Prosecutor (completed SB for end-August 2022).
  - The Competition Directorate at the Ministry of Industry and Trade will complete a study of the state of competition for the oil derivative and transport sectors, including identifying potential unfair practices, and share with Fund staff by February 2024.
- Reducing entry barriers:
  - Abolish sectoral licenses for bookstores, cultural centers, and sport centers.
  - Submit legislation to enable abolishment of five other licenses in the tourism sector identified in the 2019 cabinet decision for elimination (new proposed SB for December 2023).
- Trade and transport facilitation:
  - Jordan Customs to upgrade infrastructure to fully leverage the National Single Window (including for all points of border entry).
  - Launch a trade-related permit issuance system at Jordan Customs connected to the four licensing GoJ agencies.
  - Establish a single border authority under Jordan Customs to improve effectiveness and efficiency of international trade management and reduce traders’ burden.

### Strengthening governance and transparency
- Integrity and Anti-Corruption Commission (IACC):
  - Ensuring 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 strengthening via legislative changes and bylaws to criminalize illicit gains from public procurement.
- Beneficial ownership:
  - Established a beneficial ownership registry for companies to be launched in 2023.

### Economic statistics and data improvements
- Importance: timely and accurate economic data critical amid high global uncertainty.
- Department of Statistics (DoS) actions:
  - Increasing quality of primary statistics from annual industry surveys and ensuring consistency with quarterly surveys.
  - Compiled annual GDP estimates using primary annual statistics with technical support from METAC.
  - Developing an annual compilation system based on a top-down supply-use framework.
  - Will publish the 2017–18 annual GDP and revised quarterly GDP estimates.
  - Will publish the 2019 annual GDP statistics by March 2023 (new proposed SB for March 2023).
  - Will adhere to a regular publication and revision schedule that includes revisions to quarterly GDP based on annual GDP estimates.

### Program monitoring, performance criteria, and reporting
- Monitoring framework:
  - Progress monitored through semi-annual reviews, quantitative performance criteria (PCs), indicative targets (ITs), and structural benchmarks; detailed in Tables 1 and 2 and the Technical Memorandum of Understanding (TMU).
  - Quantitative targets for December 2022, June 2023, and December 2023 are PCs.
  - IMF disbursements will be on-lent to the government during the program period.
  - Memorandum of Understanding signed between the Central Bank of Jordan (CBJ) and the Ministry of Finance on responsibilities for servicing financial obligations to the IMF.
- Data and sector reporting commitments for program monitoring:
  - MOF to provide Fund staff with monthly data on wheat and barley purchases together with tenders’ details and proceeds from sales to the mills (TMU, ¶57).
  - Produce and share quarterly and annual financial results of the electricity sector (NEPCO and the three distribution companies), and water sector without delay.

### Selected structural conditionality and benchmarks (highlights)
- Prior actions included submission of a budget consistent with a JD 1088 million central government primary deficit (excluding grants and transfers to NEPCO and WAJ) and a Cabinet adoption of an action plan to reduce NEPCO’s losses by JD 90 million in 2023 and JD 135 million in 2024 with specified measures.
- Proposed new structural benchmarks (time frames):
  - Publish 2019 annual and revised quarterly GDP data — March 2023.
  - Issue cabinet decision for a joint committee (Ministry of Finance and Ministry of Water and Irrigation) to meet quarterly to clear all arrears of the water sector by end-March 2024 — March 2023.
  - Implement time of use tariffs and other adjustments to generate JD 50 million in revenue for NEPCO in 2023 — May 2023.
  - Apply e-audit system, utilizing AI, to all submitted tax returns to identify compliance risks — June 2023.
  - Launch for one-third of sales transactions a new e-invoicing system to collect data — June 2023.
  - Submit legislation to enable abolishment of five licenses in the tourism sector identified in the 2019 cabinet decision for elimination — December 2023.
  - New macro-fiscal unit at MOF to prepare and publish a Fiscal Risk Statement with the 2024 budget — December 2023.
- Existing structural benchmarks met or in progress include:
  - FCCL Unit to publish fiscal costs and fiscal risks of major PPPs — June 2022 (Met).
  - Table amendments introducing “place-of-taxation” rules into the GST law — July 2022 (Met).
  - Issue cabinet decision to contain the 2022 fuel subsidy cost to JD 350m and the 2022 primary deficit (excluding grants) to 3.4 percent of GDP — August 2022 (Met).
  - Submit draft legislation to strengthen competition framework — August 2022 (Met).
  - Table new “Regulating the Investment Environment and Doing Business Law” — August 2022 (Met).
  - Implement a foreign investment survey based on BPM6 — October 2022 (Met).
  - Table Labor law amendments removing gender-biased articles — November 2022 (Met).
  - Expand coverage of JONEPS to Education and Health Ministries — December 2022 (Met).
  - Other benchmarks with later due dates include developing a risk-based capital and solvency regime for insurance (June 2023), start implementation of digital track-and-trace for alcohol companies (June 2023), and implementation of Jordan’s FATF action plan by end-October 2023.

### Technical Memorandum highlights: definitions, exchange rates, and program terms
- The TMU sets out definitions of quantitative performance criteria, indicative targets, and reporting requirements for the Extended Fund Facility arrangement.
- Exchange rate and gold price assumptions for program purposes:
  - Exchange rate of the Jordanian dinar to the U.S. dollar is set at JD 0.709 = $1.
  - Gold price is set at JD 1046.52 per fine troy ounce for the measurement of the program performance criterion on net international reserves.
- Program exchange rates (Jordanian Dinar per unit of foreign currency):
  - British Pound 0.911106
  - Japanese Yen 0.006505
  - Euro 0.786889
  - Canadian dollar 0.538721
  - SDR 0.975744
- Policy response principle:
  - Any developments that could lead to a significant deviation from quantitative program targets will prompt discussions between the authorities and IMF staff on an appropriate policy response.
- Debt definition:
  - For program monitoring purposes, debt is defined as set forth in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107), adopted December 5, 2014.

*Source: IMF — Jordan program documents and Technical Memorandum of Understanding (excerpts).*

### 7. A performance criterion (ceiling) on the combined primary deficit of the central government

### 7. A performance criterion (ceiling) on the combined primary deficit of the central government

### Overview of monitored fiscal and monetary targets
- Performance criteria and indicative targets covered:
  - A performance criterion (ceiling) on the combined primary deficit of the central government (as defined), the operational loss of NEPCO, the overall deficit of WAJ, and the overall deficit of Aqaba, Miyahuna, and Yarmouk water companies (“combined public deficit”);
  - A performance criterion (floor) on the net international reserves (NIR) of the Central Bank of Jordan (CBJ);
  - A continuous performance criterion (zero ceiling) on the accumulation of external debt service arrears;
  - An indicative target (floor) on social spending by the central government;
  - An indicative target (ceiling) on public debt, net of SSC’s holdings of government debt;
  - An indicative target (ceiling) on the domestic payment arrears of NEPCO;
  - An indicative target (ceiling) on the domestic payment arrears of WAJ;
  - An indicative target (ceiling) on the domestic payment arrears of Aqaba, Miyahuna, and Yarmouk Water Companies;
  - An indicative target (ceiling) on the net domestic assets (NDA) of the CBJ;
  - An indicative target (ceiling) on the Social Security Investment Fund’s net financing to the central government.

- Monitoring cadence:
  - The performance criteria on the central government’s primary fiscal deficit and the combined public deficit, and the indicative targets on social spending by the central government are monitored semi-annually (with indicative targets for the other quarters) on a cumulative basis from the beginning of the calendar year.
  - The performance criterion on the NIR and the indicative targets on public debt, short-term public debt, domestic payment arrears of NEPCO, WAJ, and Aqaba, Miyahuna, and Yarmouk Water Companies, and NDA of the CBJ are monitored semi-annually (with indicative targets for the other quarters) in terms of stock levels.
  - The performance criterion on the accumulation of external debt service arrears is monitored on a continuous basis.

### B. Ceiling on the Primary Deficit of the Central Government Excluding Grants and Net Transfers to NEPCO and State-Owned Water Sector — definitions
- Central government:
  - Defined as the budgetary central government covered by the annual General Budget Law (GBL); includes all ministries and government departments operating within the central authority system. Operations measured on a cash basis.

- Primary deficit for program monitoring:
  - Defined as the sum of:
    - (i) net external financing of the central government;
    - (ii) receipts from the sale of government assets received during the relevant period;
    - (iii) net domestic bank financing of the central government;
    - (iv) net domestic nonbank financing of the central government;
    - (v) grants received from abroad by the central government, including grants from the Gulf Cooperation Council;
    - less (vi) domestic and foreign interest payments by the central government; and
    - (vii) net transfers from the central government to NEPCO and the stated-owned water sector.

- Component definitions:
  - Net external financing: cash external debt disbursements received by the central government, less external debt repayments paid by the central government; covers central government debts and foreign debts channeled through the central government to finance rest of public sector.
  - Receipts from sale of government assets: transfers of monies received by the central government including sale of shares, sale of non-financial assets, leases, and sale of licenses or exploration rights with duration of 10 years and longer.
  - Net domestic bank financing: change in banking system’s claims in Jordanian dinars and in foreign currency on the central government, net of the balance of the General Treasury Account with the CBJ.
  - Net domestic nonbank financing: central government borrowing from, less repayments to, the non-bank sector (including the nonfinancial public sector not covered by the general budget, and specifically the Social Security Investment Fund); equivalent to cumulative change from level on December 31 of the previous year in stocks of government debt held by nonbanks and in the float.
  - Net transfers to NEPCO and state-owned water sector: (i) direct transfers from the central government to NEPCO and the state-owned water sector (or to their creditors) including subsidies, cash advances, payment of debt or guarantees if called, minus (ii) any transfers of cash from NEPCO and the state-owned water sector to the central government including repayments of debt, arrears or cash advances.

### B. Ceiling — Adjustors for the primary deficit ceiling
- Downward adjustments:
  - By the extent to which foreign budgetary grants received by the central government (as specified in Table 1) 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 to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation (such as write-off of intra-governmental claims).
  - By the extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million (the programmed stock as specified in Table 1 of the MEFP) in case of the end-year indicative target or performance criterion.

- Upward adjustments:
  - By the extent to which foreign budgetary grants received exceed levels 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).
  - By the extent to which the stock of arrears by WAJ and the distribution companies falls below the projected stock specified in Table 1 of the MEFP, excluding any one-off settlement operation.
  - For 2020 and 2021, upward by the equivalent amount of unbudgeted spending directly related to COVID-19 prevention, detection, control, treatment and/or containment (emergency outlays and medical supplies and equipment), authorized by cabinet resolution and funded through exceptional treasury advances, with amounts and nature of expenses reported to staff monthly. For 2021, if treasury advances for these purposes exceed ½ percent of GDP, the authorities will consult Fund staff on program adaptation. For 2022, upward by up to JD 110 (0.3 percent of GDP) should weekly cases, hospitalizations or the share on non-fully-vaccinated population exceed levels agreed in the Cabinet.

### C. Ceiling on the Combined Public Deficit — definition and scope
- Combined public deficit defined as the sum of:
  - (i) the primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector (per Section B);
  - (ii) the operational loss of NEPCO; and
  - (iii) the overall deficit of the state-owned water sector.

- Operational loss of NEPCO:
  - Defined as difference between total operating revenues and total costs for normal operations within the year as reported in the unaudited income statement.
  - Total operating revenues: (i) sales of operating power; and (ii) all other revenue, excluding proceeds from central government transfers or payments of NEPCO’s obligations on NEPCO’s behalf.
  - Total costs: (i) purchase of electric power, including fuel costs, capacity and energy charges, and all costs related to electricity generation to be borne by NEPCO; (ii) any fuel transportation costs; (iii) depreciation costs; (iv) all other maintenance and operating expenses, including wages and remuneration of the board of directors, and provisions; and (v) interest expense and any other financial costs.

- Overall balance of the state-owned water sector:
  - Defined as difference between total revenues and current and capital expenditures.
  - Total revenues: (i) sales of goods and services; (ii) property income; and (iii) all other revenue, excluding grants and proceeds from central government transfers or payments of WAJ, Aqaba, Miyahuna or Yarmouk water companies’ obligations on their behalf.
  - Current and capital expenditures: (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.

### C. Combined public deficit — Adjustors
- Downward adjustments:
  - By the extent to which foreign budgetary grants received by the central government (as specified in Table 1) 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 to which the combined stock of health and energy arrears by the central government falls above the projected combined stock of health and energy arrears specified in Table 1 of the MEFP, excluding any one-off settlement operation.
  - By the extent to which the stock of checks issued by the central government but not yet cashed by the beneficiary exceeds JD 200 million (the programmed stock as specified in Table 1 of the MEFP) in case of the end-year indicative target or performance criterion.

- Upward adjustments:
  - By the extent to which foreign budgetary grants received by the central government during the relevant period exceed levels 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 (applicable limit 100 percent) deployed for protecting livelihoods of workers severely affected by containment measures (spending not covered under paragraph 35 of the TMU).

- COVID-19 related exceptional treatment:
  - For 2020 and 2021, upward by unbudgeted COVID-19-related spending as described under Section B; reporting and consultation provisions identical to Section B. For 2022, upward by up to JD 110 (0.3 percent of GDP) under the specified epidemiological conditions.

### D. Floor on the Net International Reserves (NIR) of the CBJ — definitions and stocks
- NIR of the CBJ in U.S. dollars:
  - Defined as 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, and holding 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, subsidiaries or branches of Jordanian commercial banks located abroad, claims in foreign exchange arising from derivatives in foreign currencies vis-à-vis domestic currency (such as 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 (such as futures, forward, swaps and options, including any portion of the CBJ monetary gold that is collateralized), and Jordan’s outstanding liabilities to the IMF.

- Foreign liabilities (excluded):
  - 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 stock:
  - The stock of foreign assets and liabilities of the CBJ shall be valued at program exchange rates.
  - As of September 30, 2022, the stock of NIR amounted to USD 13,833.7 million (at program exchange rates).

### D. NIR — Adjustors
- Upward (downward) adjustment:
  - By the extent to which the sum of foreign budgetary grants and foreign budgetary loans—excluding programmed guaranteed and non-guaranteed Eurobonds—received by the CBJ (as specified in Table 1) during the relevant period exceeds (falls short of) the levels specified in Table 1 of the MEFP within any calendar year.
  - For the end-year floor on the NIR of the CBJ, the downward adjustment is capped at 75 percent of the aforementioned shortfall.
  - Given uncertainty on timing of the Eurobond issuance assumed under the program in the first and second quarter of 2023 for a minimum of US$500 million in each quarter, the floor of the NIR for end-March and end-June 2023 will be adjusted downward by the total shortfall relative to the programmed amount (which is $1billion), if the issuance is delayed.
  - The floors will also be adjusted upward by the amount that the outstanding balance of bilateral accounts with the Central Bank of Iraq is repaid, including both principal and interest payments.

### E. Ceiling on the Accumulation of External Debt Service Arrears
- Definition:
  - External debt service arrears are debt service payments (principal and interest) arising in respect of obligations to non-residents incurred directly or guaranteed by the central government or the CBJ, that have not been made at the time due, taking into account any contractual grace periods.

- Monitoring:
  - Continuous performance criterion: zero ceiling on accumulation of external debt service arrears.

### F. Floor on Social Spending by the Central Government — definition
- Social spending defined as central government spending on:
  - (i) non-wage components of the education and health sectors’ current expenditure envelope, including all spending directly related to efforts to prevent, detect, control, treat and/or contain the spread of COVID-19 spending;
  - (ii) NAF’s and other entities’ social protection programs; and
  - (iii) the school feeding program.

### G. Ceiling on Public Debt — definition and adjustor
- Public debt defined as sum of:
  - (i) central government direct debt (including off budget project loans);
  - (ii) central government guarantees extended to NEPCO, WAJ and other public entities; and
  - (iii) the stock of the CBJ’s liabilities to the IMF (excluding SDR allocations) not lent on to the central government;
  - minus the Social Security Corporation (SSC) holdings of government debt.

- Guarantee concept:
  - A guarantee arises from any explicit legal obligation of the central government, or of any other agency acting on its behalf, to service such a debt in event of nonpayment by the recipient (involving payments in cash or in kind), or from any implicit legal or contractual obligation to finance partially or in full any shortfall incurred by the debtor.

- Adjustor:
  - Downward by the extent to which the cumulative disbursements under the EFF during the relevant period fall short of the levels specified in Table 1.

### H. Ceiling on the Domestic Payment Arrears of NEPCO — definition
- Domestic payment arrears by NEPCO:
  - Defined as belated settlement of a debtor’s liabilities that are due under obligation (contract) for more than 60 days, or the creditor’s refusal to receive a settlement duly offered by the debtor.
  - Arrears to be covered include outstanding payments on wages and pensions; social security contributions; tax payments; and obligations to banks and other private companies and suppliers.
  - Arrears exclude obligations to the central government arising from net transfers as specified in paragraph 12.

### I. Ceiling on the Domestic Payment Arrears of WAJ, and Aqaba, Miyahuna, and Yarmouk Distribution Companies — definition
- Domestic payment arrears by WAJ, and Aqaba, Miyahuna, and Yarmouk Distribution Companies:
  - Defined as belated settlement of a debtor’s liabilities that are due under obligation (contract) for more than 60 days, or the creditor’s refusal to receive a settlement duly offered by the debtor.
  - Arrears to be covered include outstanding payments on wages and pensions; social security contributions; tax payments; and obligations to banks and other private companies and suppliers.
  - Arrears exclude obligations to the central government arising from net transfers as specified in paragraph 12.

### J. Ceiling on the Net Domestic Assets (NDA) of the CBJ — definitions
- Reserve money of the CBJ:
  - Defined as the sum of:
    - (i) currency in circulation (currency outside banks and commercial banks’ cash in vaults); and
    - (ii) non-remunerated deposits of licensed banks with the CBJ in Jordanian dinars.

- Net domestic assets of the CBJ (for program monitoring):
  - Defined as the difference between the reserve money of the CBJ and its NIR as defined in Section D.

*Source: 1jorea2023001 - 7. A performance criterion (ceiling) on the combined primary deficit of the central government*

### 55. Adjustors: The ceilings on the NDA of the CBJ will be adjusted:

### 55. Adjustors: The ceilings on the NDA of the CBJ will be adjusted:

### Adjustor mechanics for NDA ceilings (paragraphs 56–57)
- Upward (downward) by the extent to which the floors on the net international reserves of the CBJ are adjusted downward (upward).  
- Downward (upward) by the extent to which the CBJ decreases (increases) reserve requirements on Jordanian dinar deposits of the banking system.  
  - The adjustment will equal the change in the required reserve ratio multiplied by the stock of deposits with licensed banks at the start of the first month when the new reserve requirement ratio applies that are: (i) denominated in Jordanian dinars and; (ii) subject to reserve requirements.

### Data provision to IMF for program monitoring (paragraphs 58–96)
- To permit monitoring under the program, the government will provide to the IMF (Division B of the Middle East and Central Asia Department) the specified information below.

- Related to the ceiling on the primary deficit of the central government excluding grants and net transfers to NEPCO and the state-owned water sector:
  - The standard fiscal data tables as prepared by the ministry of finance covering detailed information on: revenue, including expanded information on revenues from oil derivatives, vehicles, and cigarettes, as agreed with IMF staff; expenditure; balances of government accounts with the banking system; foreign grants; domestic and external amortization and interest; net lending; debt swaps with official creditors; and monthly change in the stocks and the monthly value of stocks of uncashed checks and trust accounts.
  - The government financing information from the Treasury account, as agreed by both the Ministry of Finance and the Central Bank of Jordan, and any potential discrepancy between the government financial data and the monetary survey data (monthly).
  - Gross transfers to and from NEPCO and WAJ detailing the amounts paid or received in connection with debt transactions, transfers to cover losses, and any amount directed to repay any outstanding arrears of NEPCO or WAJ (monthly), including those to and from the relevant distribution companies.
  - Gross transfers to and from the trade account used by the Ministry of Industry and Trade for wheat and barley transactions including the sale price to mills (monthly).

- Related to central government arrears:
  - The stock of all pending bills of the central government that have not been paid for more than 60 days at the end of each quarter (quarterly), including those of the health insurance fund, to distribution electricity companies, and to the Jordan Petroleum Refinery Company.
  - The value and quantity of fuel products consumed by public sector entities from the Jordan Petroleum Refinery Company (monthly).

- Related to the combined public sector deficit:
  - All the information specified in paragraph 28.
  - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days (quarterly) in order to compute the PC on NEPCO net loss, prepared by NEPCO’s accounting department on a quarterly basis.
  - Latest audited income statement signed by the auditor (usually available twice yearly with a six-month delay) with full explanation of any changes made to the unaudited version transmitted to the IMF, as soon as it becomes available to NEPCO’s management.
  - Full unaudited income statement and the stock of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by WAJ’s Directorate of Finance and Accounting on a quarterly basis.
  - Full unaudited income statements and the stocks of accounts payable and payments overdue less and more than 60 days (quarterly), prepared by each of the water distribution companies (Aqaba, Miyahuna, and Yarmouk) and WAJ’s Directorates of Finance on a quarterly basis.
  - Full consolidated financial balance of WAJ and the water distribution companies (Aqaba, Miyahuna, and Yarmouk) prepared by WAJ’s Directorates of Finance.
  - Breakdown of overdue payments by major creditor, and all overdue payments vis-à-vis the central government (quarterly).

- Energy and fuel flow monitoring:
  - 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).

- Related to the floor on NIR of the CBJ and ceiling on its NDA:
  - 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).

- Related to the continuous performance criteria:
  - Details of official arrears accumulated on interest and principal payments to non-resident creditors. External arrears data will be provided using actual exchange rates and on a daily basis.

- Related to the floors on public debt:
  - 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).

- 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:
  - Interest rates and consumer prices; and exports and imports; travel receipts and tourist arrivals; remittances; outstanding balance of non-resident purchases of domestic treasury bills and bonds; and GCC grants received by the CBJ and grants transferred by the CBJ to the Ministry of Finance (monthly).
  - Balance of payments (current and capital accounts) and external debt developments (quarterly).
  - List of short-, medium- and long-term public and publicly-guaranteed external loans contracted during each quarter, identifying, for each loan: the creditor, the borrower, the amount and currency, the maturity and grace period, interest rate arrangements, and the amortization profile (quarterly).
  - National accounts statistics (quarterly).

- Data timeliness requirements:
  - Weekly data and data on CD auctions should be sent to the Fund with a lag of no more than one week.
  - Monthly and quarterly data should be sent within a period of no more than six weeks (for the monetary and fiscal variables), and within a period of no more than eight weeks for other data (three months for national accounts statistics and balance of payments and external debt statistics).
  - Data related to the continuous performance criterion should be sent within one week after the date when the arrear was incurred.
  - Any revisions to previously reported data should be communicated to the staff in the context of the regular updates.

### Definitions and statistical treatment (paragraph 97)
- Any variable mentioned for monitoring a performance criterion and not explicitly defined shall be defined in accordance with the Fund’s standard statistical methodology, such as the Government Financial Statistics.
- For variables omitted from the TMU but relevant for program targets, the authorities of Jordan shall consult with the staff on the appropriate treatment based on the Fund’s standard statistical methodology and program purposes.

### Staff and authorities’ statements and assessments (Statement by the Staff Representative; Statements by Jordanian authorities)
- Staff update (December 21, 2022):
  - Cabinet adoption on December 11 of an action plan to reduce NEPCO’s deficit over 2023–26 is assessed as met.
  - The action plan includes: (i) extension of connection fee for self-generation to businesses; (ii) implementation of time of use tariffs and other adjustments; (iii) reduction of losses of distribution companies; (iv) reduction of losses on electricity distribution networks; (v) replacement of the Floating Storage Regasification Unit (FSRU) with cheaper alternatives such as onshore regasification; (vi) establishment of a specialized company for LNG purchases; (vii) allocation of oil shale mining royalties to NEPCO; and (viii) revenue generation from telecom license to sell billable services using Fiber Optic infrastructure.
  - The plan also includes two new measures involving optimized use of two retiring power plants, and of the existing gas transport infrastructure.
  - Staff assesses the action plan is consistent with reducing NEPCO’s deficit by JD 90 million in 2023 and JD 135 million in 2024, in line with the requirements of the prior action.
  - Staff notes that firm implementation and close monitoring of the action plan will be essential and the authorities committed to undertake necessary measures if yields fall short.

- Statement by Mahmoud Mohieldin, Ali Alhosani, and Maya Choueiri (December 21, 2022):
  - Authorities thank the Fund for support and note challenging external headwinds: sharply elevated international food and fuel prices, tightening global financial conditions, lingering effects from the COVID-19 pandemic, and risks from global economic fragmentation, amid persistently high unemployment, particularly among the youth.
  - Financing needs under the Jordan Response Plan remain 87 percent underfunded as of 2022; Jordan hosts 1.3 million Syrian refugees.
  - Program performance:
    - All end-June 2022 quantitative performance criteria (QPCs) and most indicative targets (IT) met.
    - Revenue growth remains strong; prices of gasoline and diesel aligned with international market levels as agreed in the Fourth Review.
    - Authorities requested modification of QPCs for end-December 2022 and end-June 2023 on the central government primary deficit and the combined public deficit to absorb exogenous fiscal impact of commodity shocks while safeguarding priority spending.
  - Structural reforms and progress:
    - All structural benchmarks due by end-2022 met.
    - Parliament enacted tax legislations introducing “place-of-taxation” rules into the General Sales Tax Law and strengthened governance of fiscal incentives.
    - Government submitted legislations to improve competition framework and remove legal impediments to female employment.
    - Cabinet limited cost of untargeted fuel subsidies and extended e-procurement to health and education ministries ahead of schedule.
    - CBJ progressed on a risk-based solvency regime in insurance, strengthened AML/CFT regime, and implemented a new FDI survey.
  - Fiscal policy and outlook:
    - Fiscal policy aims to support recovery while rebuilding fiscal space.
    - A 0.7 percent of GDP fiscal consolidation is projected for 2022, despite high international fuel and food prices, although consolidation would fall slightly short of target.
    - Authorities aligned prices on gasoline 90 and 95 with international market prices in August and October, respectively, and announced diesel prices in December 2022 fully in-line with international market levels.
    - Authorities committed to bringing debt to GDP to 80% by end-2027 through structural fiscal reforms and measures addressing NEPCO’s financial challenges.
  - Monetary policy and financial stability:
    - CBJ maintained monetary stability anchored by the peg to the U.S. dollar and preserved financial stability during rapid Fed normalization and global financial tightening.
    - CBJ continued subsidized lending schemes to SMEs and productive sectors; will unwind the SME scheme as recovery firms up through 2023 and consider reviewing the interest rate of the scheme over the medium term.
  - Structural reform agenda:
    - Authorities continue to strengthen social safety nets, reduce unemployment, promote labor force participation (youth and women), boost competition, and improve governance and transparency.
    - Economic Modernization Vision launched in June 2022 aims to generate over 1 million jobs in the next ten years.
    - Cabinet adopted the water sector Financial Sustainability Roadmap (FSR) in November with five levers to restore financial sustainability: (i) optimizing efficiency of existing systems; (ii) managing existing debt; (iii) minimizing cost of capital for new water systems; (iv) minimizing operational expenditure of new water systems, including the Aqaba-Amman Conveyor project; and (v) improving predictability of revenue flows.
  - Conclusion:
    - Authorities request completion of the Fifth review under the EFF and modification of performance criteria.
    - Authorities are interested in financing under the Fund’s Resilience and Sustainability Facility and will engage with Fund staff.

*Source: 1jorea2023001 - 55. Adjustors: The ceilings on the NDA of the CBJ will be adjusted: (IMF PDF chapter/section).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1jorea2023001.pdf_