## _cr08290 - Executive Summary

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### Background and macroeconomic context
- Real GDP growth in 2007: 6 percent.
- Unemployment rate in 2007: 13.1 percent (fell further).
- Inflation developments:
  - Annual average inflation: 5.4 percent (2007).
  - Inflation jumped to 14 percent (y-o-y) in March 2008 after a 47 percent average increase in petroleum product prices.
  - Core inflation remains below 5 percent.
- External and reserve indicators:
  - Current account deficit in 2007: 17½ percent of GDP.
  - International reserves at end-2007: $6.9 billion (five months of prospective imports).
  - Reserves after Paris Club buyback: fell to $5.4 billion (3.7 months of prospective imports and almost 9 times short-term debt on a remaining maturity basis).
- Public debt and fiscal performance:
  - Total government and government guaranteed net debt: 73.0 percent of GDP in 2007.
  - Overall fiscal deficit for 2007: estimated at 6.2 percent of GDP versus original target of 2.8 percent.
  - Fuel subsidy as percent of GDP (2007 preliminary): 0.0 in one column and 2.7 in another (see Summary of Fiscal Operations table layout).
- Banking sector soundness (end-June 2007 unless noted):
  - Risk-weighted capital adequacy ratio: 18.8 percent (mid-2007); average eased to 19 percent in mid-2007 (text).
  - Non-performing loans: 4.2 percent of total loans (end-June 2007).
  - Loans to GDP ratio: 100.6 percent (2007).
  - Private credit growth moderated to 15 percent by end-2007.

### Recent developments and vulnerabilities
- Drivers of 2007 deterioration:
  - Sharp rise in world fuel and food prices increased fiscal and external deficits and pushed up inflation.
  - Weakness in the textile sector dampened export growth despite strong nontraditional export performance.
- Balance of payments financing and risks:
  - Strong FDI and portfolio inflows financed the current account deficit.
  - Errors and omissions rose to 8 percent of GDP in 2007, possibly reflecting unrecorded current receipts.
  - Paris Club buyback (March 2008): $2.4 billion debt buyback; payment $2.1 billion; principal face value reduction around 11 percent; external debt fell from 46 percent of GDP in 2007 to 28 percent in 2008; external debt service saving roughly 1¼ percent of GDP per year. Buyback financed by privatization revenues and external grants; following buyback, reserves: $5.4 billion.

### Authorities’ views (policy stance)
- Fiscal policy:
  - Authorities plan to lower the fiscal deficit in 2008 despite pressures to increase spending following removal of fuel subsidies.
  - Expect substantial medium-term deficit reduction mainly via lower expenditure growth; specific measures not yet identified.
- Monetary and exchange rate policy:
  - Exchange rate peg is seen as anchoring monetary policy and preventing worse current account outcomes when the dinar faced upward pressure.
  - Authorities will allow interest rate differentials against the U.S. to widen further to curb inflationary pressures and credit growth.
- Structural reform strategy:
  - Structural reforms proceeding to reduce distortions and enhance private sector growth prospects.

### Staff analysis and recommendations
- Fiscal policy recommendations and outlook:
  - Planned fiscal tightening in 2008 will help narrow fiscal and external imbalances and reduce inflation.
  - Significant further fiscal consolidation needed over the medium term to reduce still-high public debt and address the large current account deficit.
  - Priority fiscal/structural reform areas: public financial management; framework for public-private partnerships; liberalization of the petroleum sector; developing the debt market; continued enhancement of financial sector supervision.
- Monetary and exchange rate assessment:
  - The peg remains appropriate for Jordan.
  - As long as short-term capital inflows remain limited, there is scope to tighten monetary conditions to stem inflation.
  - Staff’s real exchange rate analysis finds no clear evidence of dinar misalignment; average misalignment estimate is very small.
  - Transient factors (conflict in Iraq, terms of trade movements, mining sector stoppages) may account for as much as one-half of the 2007 current account deficit.
- Financial stability and reforms:
  - Continue strengthening bank supervision and prudential regulation.
  - Monitor rapid growth in real estate and margin-related lending; enforce exposure limits.
  - Develop the domestic debt market and PPP framework to support fiscal adjustment and private sector growth.

### Near-term outlook and short-term projections
- Real GDP growth: expected to ease to 5½ percent in 2008.
- Inflation: projected to moderate to 9 percent (y-o-y) by December (assuming fiscal tightening is implemented).
- Current account deficit: projected to narrow moderately to 15½ percent of GDP in 2008 due to recovery of grants and buoyant mining export prices.
- Financing: current account expected to be financed by continued strong FDI and portfolio flows.
- Historical correlation: a 0.5 percentage point (p.p.) decline in global growth would reduce growth in Jordan by 0.1–0.3 p.p.

### Medium-term outlook and drivers
- Growth: projected to recover to 6 percent, broadly in line with estimated trend.
- Inflation: expected to converge to trading partner countries’ levels as fuel price effects wear off and given the exchange rate peg.
- Fiscal deficit: projected to come down moderately to 4½ percent of GDP by 2013, with lower spending more than offsetting a decline in grants.
- External current account: projected narrowing to about 9 percent driven mainly by gradual unwinding of transient factors.
- Commodity price impacts: WEO application implies a temporary adverse price effect of 6½ percent of GDP on the import side in 2007, partly offset by a temporary boost to mining exports by 1½ percent of GDP.

### Main risks and vulnerabilities
- Key risks: relatively high public debt and the current account deficit.
- Near-term risk: continued escalation of world fuel and food prices could widen the current account deficit and intensify pressures to relax fiscal policy.
- Large external financing requirement is a vulnerability despite expected strong FDI inflows.
- Baseline external debt outlook: outstanding external debt expected to decline to 14 percent of GDP by 2013.
- Gross financing requirement would remain sizable, implying continued vulnerability to a sharp slowdown in capital inflows.

### Fiscal policy: 2008 measures and medium-term stance
- 2008 budget aims to contain expenditure pressures from 2007.
- Removal of petroleum subsidies in early February and implementation of a monthly fuel price adjustment mechanism.
- Authorities estimate that, at a world oil price of $95/barrel, fuel subsidies could have been 5.8 percent of GDP higher in 2008 had the price adjustment not been implemented.
- Compensatory expenditure measures amount to 3.5 percent of GDP (including increase in public sector salaries, expansion of social safety net transfers).
- Authorities state compensatory package implied a fiscal deficit almost 2½ percent of GDP lower than if fuel subsidies had not been removed.
- Authorities intend additional measures of about 1½ percent of GDP to achieve the original budget deficit target of 5½ percent in 2008.
- Total fiscal policy adjustment in 2008, including net impact of removing fuel subsidies, would amount to almost 4 percent of GDP in 2008.
- Parliament adopted revised public debt management law placing a ceiling of 60 percent of GDP in 2011.
- Staff baseline: budget deficit excluding grants would decline by almost 3 percentage points over the medium term; tighter fiscal policy to achieve a primary surplus by 2011—implying an overall deficit of less than 3 percent—would lower debt to about 55 percent of GDP.

### Summary of Fiscal Operations (selected figures, percent of GDP)
- Total revenue and grants: 2007 Prel. 34.9; 2008 Budget 34.0; 2009 34.8; 2010 33.6; 2011 33.2; 2012 32.9.
- Tax revenue: 2007 Prel. 22.0; 2008 Budget 21.7; 2009 22.1; 2010 22.0; 2011 22.0; 2012 22.0.
- Grants: 2007 Prel. 3.1; 2008 Budget 3.4; 2009 3.4; 2010 2.4; 2011 2.1; 2012 1.9.
- Total budgetary expenditure: 2007 Prel. 40.4; 2008 Budget 39.5; 2009 40.4; 2010 38.8; 2011 38.3; 2012 37.8.
- Fuel subsidy: 2007 Prel. 2.7; 2008 Budget 0.0; 2008 Proj. 0.8; 2009 0.8; 2010 0.0; 2011 0.0; 2012 0.0.
- Financing (=deficit including grants): 2007 Prel. 6.2; 2008 Budget 5.5; 2009 5.5; 2010 5.3; 2011 5.1; 2012 4.9.
- Government and guaranteed net debt: 2007 Prel. 73.0; projected 62.4 (2008), 60.6 (2009), 59.9 (2010), 59.3 (2011).

### Box 4 — Fuel Price Adjustment and Compensatory Measures (selected points)
- Following a 47 percent average price increase in February, petroleum product prices are adjusted monthly by a committee using the world average oil price in the preceding month plus transportation and handling costs.
- 2008 compensatory measures included: (i) increase, on a progressive scale, in public sector wages and pensions; (ii) cash assistance to the poor in the private sector; (iii) increase in assistance provided by the National Aid Fund (NAF); (iv) financial support targeted at small-size farmers.
- Estimated cost of compensatory measures—including allocations in the forthcoming supplementary budget—is 3.5 percent of GDP.
- Average (weighted) price increases (in %): July 27.3; Sept 14.4; April 34.4; Feb 47.5.
- Components of offsetting expenditure measures (in % of GDP): wage increase for government employees 1.8; pension increase 0.9; wage/pension bonuses 0.3; cash transfers to public and private sectors 0.3; additional allocations to National Aid Fund 0.1; minimum wage increase 0.3; other 0.4.

### Monetary and exchange rate policy
- Exchange rate peg continues to underpin monetary policy; authorities see scope for tightening.
- CBJ policy rate actions: cut overnight rate by 50 bps in September 2007; lowered key policy rate by 25 bps in early February 2008 despite cumulative 250 bps cut in the Fed funds rate since September.
- Interest rate differentials against the U.S. allowed to widen to curb inflationary pressures and credit growth.
- No indications that widening interest differentials attracted significant short-term capital inflows to date.
- Prudential limits on banks’ open foreign exchange exposure and rules barring foreign currency lending to clients without export earnings reduce banks' incentive to mobilize inexpensive foreign funding.
- Authorities confident underlying inflationary pressures remain well contained and headline inflation would moderate quickly following large fuel price adjustments.

### Financial sector policies and reforms
- Banks’ prudential indicators remain strong: well capitalized; non-performing loan ratios low; strict loan classification and provisioning rules.
- Credit dynamics: bank credit growth outpaced deposits in recent years; credit expansion predominantly in local currency; rapid growth in loans for real estate and to buy stocks though pace decelerated in 2007.
- Several banks near 20 percent real estate exposure limit.
- Deposit growth tapered; dollarization declining but remains substantial.
- Financial supervision enhancements: corporate governance, risk management, internal control systems; anti-money laundering law enacted in 2007 and AML unit established in CBJ; electronic check clearing system operational in 2007; CBJ launched annual financial stability report in late 2007.
- Implementation of Basel II standards underway (from 2008); credit bureau legislation under discussion.
- Future focus: enhancing disclosure requirements and developing the secondary debt market.

### Banking sector resilience and regulation (section highlights)
- Prudential regulations are in place to limit banks’ currency, property, and stock market exposures.
- Proposed regulations on sources and uses of bank funds should help mitigate funding risk and curb credit growth.
- Staff recommendations: early progress on SDDS subscription issues; strengthen BOP statistics to reduce errors and omissions; coordinate MOF and CBJ to align budget coverage with financing flows; foster development of the secondary debt market.

### Public debt sustainability (APPENDIX I — selected findings)
- Public debt defined as central government and government-guaranteed debt; domestic component net of government deposits including privatization proceeds.
- Public debt expected to decline to just under 60 percent by 2011.
- Debt ratio projected to drop by about 10 percentage points in 2008 following the Paris Club debt buyback; use of privatization proceeds reduced the net impact of the buyback from 11 percent of GDP to about 3 percent.
- Baseline central government debt including government guarantees (net): 2007: 73.0; 2008: 62.4; 2009: 60.6; 2010: 59.9; 2011: 59.3; 2012: 58.8; 2013: 58.6.
- Of which: foreign-currency denominated: 2007: 46.8; 2008: 27.6; 2009: 23.7; 2010: 20.6; 2011: 17.9; 2012: 15.7; 2013: 13.9.
- Primary deficit (percent of GDP): 2007: 2.9; 2008: 2.4; 2009: 1.9; 2010: 1.9; 2011: 1.9; 2012: 1.7; 2013: 1.6.
- Gross financing need (percent of GDP): 2007: 9.7; 2008: 7.3; 2009: 7.0; 2010: 6.7; 2011: 6.3; 2012: 6.1; 2013: 5.8.
- Vulnerability tests:
  - 30 percent real exchange rate depreciation shock: debt ratios increase by 14 percentage points relative to baseline in 2008 and remain above 65 percent over projection period.
  - Contingent liabilities shock (increase debt ratio by 10 percent of GDP in 2008): shifts debt path about 9 percentage points above baseline.
  - No-policy-change scenario (primary deficit of 2007 kept constant): debt-to-GDP ratio increases from 63 percent at end-2008 to 74 percent by end of projection period.
- Staff conclusion: public debt sustainability hinges on appropriate adjustment policies; tighter fiscal policy could lower debt to about 55 percent of GDP by 2011 under more ambitious consolidation.

### External debt sustainability (APPENDIX II — selected findings)
- Baseline external debt (percent of GDP): 2007: 46.8; 2008: 27.6; 2009: 23.7; 2010: 20.6; 2011: 17.9; 2012: 15.7; 2013: 13.9.
- Change in external debt: 2008: -19.2; 2009: -4.0; 2010: -3.0; 2011: -2.7; 2012: -2.2; 2013: -1.8.
- Current account deficit, excluding interest payments (percent of GDP): 2007: 16.0; 2008: 14.4; 2009: 12.6; 2010: 11.4; 2011: 10.2; 2012: 9.5; 2013: 8.8.
- Net non-debt creating capital inflows (negative, percent of GDP): 2007: -22.4; 2008: -17.9; 2009: -15.0; 2010: -13.5; 2011: -12.1; 2012: -11.1; 2013: -9.6.
- Gross external financing need (percent of GDP): 2007: 21.1; 2008: 17.7; 2009: 15.4; 2010: 13.8; 2011: 12.5; 2012: 11.6; 2013: 10.6.
- External-debt risks: most vulnerable to current account deterioration; a sharp decline in private capital inflows after 2008 could keep external debt in the range of 30 percent of GDP—above baseline but not threatening sustainability.

### Data, administrative initiatives, and relations with the Fund
- Monetary and fiscal data practices: monetary data reported monthly; consistency checks between government finance statistics and monetary statistics not conducted at present.
- CBJ adopted BPM5 methodology for BOP and IIP; reserves template compiled and disseminated.
- Authorities expect to meet remaining requirements for SDDS subscription by end-2008.
- Selected data vintages (latest observations): exchange rates Mar. 2008; international reserve assets Mar. 2008; reserve/base money Jan. 2008; broad money Jan. 2008; consolidated banking system balance sheet Jan. 2008; interest rates Feb. 2008; CPI Feb. 2008; GDP Q4 2007.
- Membership and Fund relations:
  - Joined: August 29, 1952; Article VIII.
  - Quota: 170.50 SDR million 100.00 percent.
  - Fund holdings of currency: 219.34 SDR million 128.64 percent.
  - Executive Board concluded 2008 Article IV consultation with Jordan on May 12, 2008 (Public Information Notice No. 08/55 dated May 19, 2008).

### Staff appraisal: policy recommendations and priorities (summarized)
- Macroeconomic policy tightening is needed to bring inflation down and reduce fiscal and external vulnerabilities.
- The authorities’ intention to tighten fiscal policy is welcome; removal of fuel subsidies was necessary; compensatory measures were implemented to protect vulnerable groups.
- Achieving targeted narrowing of the budget deficit will require significant tightening, resisting additional spending pressures, and full operation of the new fuel price adjustment mechanism.
- Staff recommends targeting a more ambitious public debt ceiling of at most 55 percent of GDP to provide a cushion for unforeseen demands.
- Tighter fiscal policy would facilitate current account adjustment, limit risks to external stability, and create space for private sector growth.
- The Paris Club debt buyback improved external debt metrics and sent a positive signal to investors and rating agencies.
- Exchange rate peg remains a strong anchor; allowing interest differentials to widen and moderately increasing policy rates if needed is appropriate to keep inflation in check.
- Close coordination with the Ministry of Finance on government debt issuance is critical to determine appropriate central bank liquidity operations.

*IMF Staff: Executive Summary of the 2008 Article IV consultation with Jordan.*

### Executive Summary ......................................................................................................

### _cr08290 - Executive Summary

### Background and macroeconomic context
- Real GDP growth in 2007: 6 percent.
- Unemployment rate in 2007: 13.1 percent (fell further).
- Inflation developments:
  - Annual average inflation: 5.4 percent (2007).
  - Inflation jumped to 14 percent (y-o-y) in March 2008 after a 47 percent average increase in petroleum product prices.
  - Core inflation remains below 5 percent.
- External and reserve indicators:
  - Current account deficit in 2007: 17½ percent of GDP.
  - International reserves at end-2007: $6.9 billion (five months of prospective imports).
  - Reserves after Paris Club buyback: fell to $5.4 billion (3.7 months of prospective imports and almost 9 times short-term debt on a remaining maturity basis).
- Public debt and fiscal performance:
  - Total government and government guaranteed net debt: 73.0 percent of GDP in 2007 (public debt stock roughly unchanged despite higher borrowing).
  - Overall fiscal deficit for 2007: estimated at 6.2 percent of GDP versus original target of 2.8 percent.
  - Fuel subsidy as percent of GDP (2007 preliminary): 0.0 in one column and 2.7 in another (see Summary of Fiscal Operations table layout).
- Banking sector soundness (end-June 2007 unless noted):
  - Risk-weighted capital adequacy ratio: 18.8 percent (mid-2007).
  - Non-performing loans: 4.2 percent of total loans (end-June 2007).
  - Loans to GDP ratio: 100.6 percent (2007).
  - Average risk-weighted capital adequacy ratio eased to 19 percent in mid-2007 (text).
  - Private credit growth moderated to 15 percent by end-2007.
- Balance of payments financing:
  - Strong FDI and portfolio inflows financed the current account deficit.
  - Errors and omissions rose to 8 percent of GDP in 2007, possibly reflecting unrecorded current receipts.
- Paris Club buyback (Box 1):
  - March 2008: $2.4 billion debt buyback covering previously rescheduled nonconcessional debt.
  - Payment to Paris Club creditors: $2.1 billion.
  - Principal face value reduction: around 11 percent.
  - External debt fall from 46 percent of GDP in 2007 to 28 percent in 2008 (as a result of the buyback).
  - External debt service saving: roughly 1¼ percent of GDP per year.
  - Buyback financed by privatization revenues and external grants.
  - Following buyback, reserves: $5.4 billion.

### Recent developments and vulnerabilities
- Drivers of 2007 deterioration:
  - Sharp rise in world fuel and food prices increased fiscal and external deficits and pushed up inflation.
  - Weakness in the textile sector dampened export growth despite strong nontraditional export performance.
- Fiscal composition and financing (Summary of Fiscal Operations, 2005–07):
  - Total revenue and grants: 34.9 percent of GDP (2007 preliminary).
  - Budgetary revenue: 31.9 percent of GDP (2007 preliminary).
  - Grants: 3.1 percent of GDP (2007 preliminary), lower than prior year.
  - Total budgetary expenditure: 40.4 percent of GDP (2007 preliminary).
  - Current expenditure: 33.4 percent of GDP (2007 preliminary).
  - Fuel subsidy: reported 0.0 in one column and 2.7 in another for 2007 (table format reflects adjustments).
  - Capital expenditure and net lending: 7.0 percent of GDP (2007 preliminary).
  - Financing (=deficit including grants): 6.2 percent of GDP (2007 preliminary).
  - Domestic financing (net): 4.9 percent of GDP (2007 preliminary).
  - Overall balance excluding grants: -9.2 percent of GDP (2007 preliminary).
  - Primary balance excluding grants: -6.0 percent of GDP (2007 preliminary).
  - Government and guaranteed net debt: 73.0 percent of GDP (2007 preliminary).
- Monetary stance and exchange rate:
  - Dinar pegged to U.S. dollar; peg helped prevent even larger current account deterioration when there was upward pressure on the dinar.
  - CBJ policy rate adjustments: cut overnight rate by 50 bps in September 2007; lowered key policy rate by 25 bps in early February (2008) despite cumulative 250 bps cut in the Fed funds rate since September.
  - Interest rate differentials against the U.S. allowed to widen to curb inflationary pressures and credit growth.
  - No indications that widening interest differentials attracted significant short-term capital inflows to date.
- Financial sector developments (Box 2):
  - Bank credit growth outpaced deposits in recent years; credit expansion predominantly in local currency.
  - Rapid growth in loans for real estate and to buy stocks, though pace decelerated in 2007.
  - Several banks near 20 percent real estate exposure limit.
  - Deposit growth tapered; dollarization declining but remains substantial.
  - Bank lending and deposit interest rates increased in 2007.
  - Financial supervision enhancements: regulations on corporate governance, risk management, internal control systems; anti-money laundering law enacted in 2007 and AML unit established in CBJ; electronic check clearing system operational in 2007; CBJ launched annual financial stability report in late 2007.

### Authorities’ views (policy stance)
- Fiscal policy:
  - Authorities plan to lower the fiscal deficit in 2008 despite pressures to increase spending following removal of fuel subsidies.
  - Specific measures not yet identified; expect substantial medium-term deficit reduction mainly via lower expenditure growth.
- Monetary and exchange rate policy:
  - The exchange rate peg is seen as anchoring monetary policy and preventing worse current account outcomes when the dinar faced upward pressure.
  - Authorities will allow interest rate differentials against the U.S. to widen further to curb inflationary pressures and credit growth.
- Structural reform strategy:
  - Structural reforms proceeding to reduce distortions and enhance private sector growth prospects.

### Staff analysis and recommendations
- Fiscal policy recommendations and outlook:
  - The planned fiscal tightening in 2008 will help narrow fiscal and external imbalances and reduce inflation.
  - Significant further fiscal consolidation is needed over the medium term to:
    - Reduce still-high public debt.
    - Address the large current account deficit.
  - Priority fiscal/structural reform areas:
    - Public financial management.
    - Framework for public-private partnerships.
    - Liberalization of the petroleum sector.
    - Developing the debt market.
    - Continued enhancement of financial sector supervision.
- Monetary and exchange rate assessment:
  - The peg remains appropriate for Jordan.
  - As long as short-term capital inflows remain limited, there is scope to tighten monetary conditions to stem inflation.
  - Staff’s real exchange rate analysis finds no clear evidence of dinar misalignment; average misalignment estimate is very small (see Box 3).
  - Transient factors (conflict in Iraq, terms of trade movements, mining sector stoppages) may account for as much as one-half of the 2007 current account deficit, implying a stronger “underlying” current account.
- Financial stability and reforms:
  - Continue strengthening bank supervision and prudential regulation.
  - Monitor rapid growth in real estate and margin-related lending; enforce exposure limits.
  - Development of the domestic debt market and public-private partnership framework to support fiscal adjustment and private sector growth.

*IMF Staff: Executive Summary of the 2008 Article IV consultation with Jordan.*

### 9.      The near-term outlook remains generally favorable, but fiscal and external

### 9.      The near-term outlook remains generally favorable, but fiscal and external

### Near-term outlook and short-term projections
- Real GDP growth is expected to ease slightly to 5½ percent in 2008, with continued robust activity in construction and tourism broadly offsetting weaker external demand.
- Inflation is projected to moderate to 9 percent (y-o-y) by December, assuming the fiscal tightening envisaged by the authorities is implemented.
- Despite high import prices and weakness of textile exports, the current account deficit is projected to narrow moderately to 15½ percent of GDP due to a recovery of grants and buoyant prices of mining exports.
- The current account deficit is expected to be financed by continued strong FDI and portfolio flows.
- Historical correlation: a 0.5 percentage point (p.p.) decline in global growth would reduce growth in Jordan by 0.1–0.3 p.p.

### Medium-term outlook and drivers
- Under the baseline outlook, growth is projected to recover to 6 percent, broadly in line with estimated trend, supported by continued strong investment inflows, especially from the region.
- As the effect of recent fuel price adjustments on headline inflation wears off, and given the exchange rate peg, CPI inflation is expected to converge to trading partner countries’ levels.
- Fiscal deficit is projected to come down moderately to 4½ percent of GDP by 2013, with lower spending (in relation to GDP) more than offsetting a decline in grants.
- Projected narrowing of the external current account deficit to about 9 percent would be driven mainly by a gradual unwinding of transient factors rather than solely fiscal adjustment.
- Projected easing of world commodity prices over the medium term is expected to reduce the trade deficit by 5 percent of GDP, reflected in a gradual recovery in the private saving rate to the 2004–06 average.
- WEO commodity price application: implies a temporary adverse price effect of 6½ percent of GDP on the import side in 2007, partly offset by a temporary boost to mining exports by 1½ percent of GDP.

### Main risks and vulnerabilities
- Main risks relate to relatively high public debt and the current account deficit.
- Near-term risk: continued escalation of world fuel and food prices could widen the current account deficit and intensify pressures to relax fiscal policy.
- Large external financing requirement is a vulnerability, though FDI inflows—especially from oil-producing countries in the region—are expected to remain strong.
- Over the medium term, government and government-guaranteed debt is expected to decline in relation to GDP but will remain high compared with many emerging market economies.
- Adverse shocks to growth, interest rates, grants, or the exchange rate would result in a significantly higher debt path.
- Baseline external debt outlook: outstanding external debt is expected to decline to 14 percent of GDP by 2013.
- Gross financing requirement would remain sizable, implying continued vulnerability to a sharp slowdown in capital inflows.

### Fiscal policy: 2008 measures and medium-term stance
- 2008 budget aims to contain expenditure pressures that emerged in 2007.
- Removal of petroleum subsidies in early February and implementation of a monthly fuel price adjustment mechanism.
- Authorities estimate that, at a world oil price of $95/barrel, fuel subsidies could have been 5.8 percent of GDP higher in 2008 had the price adjustment not been implemented.
- Compensatory expenditure measures amount to 3.5 percent of GDP; measures include an increase in public sector salaries and an expansion of social safety net transfers.
- Authorities state the compensatory package yielded public acceptance and implied a fiscal deficit almost 2½ percent of GDP lower than if fuel subsidies had not been removed.
- A supplementary budget under preparation will seek additional allocations to fully cover compensatory measures.
- Authorities intend additional measures of about 1½ percent of GDP to achieve the original budget deficit target of 5½ percent in 2008.
- Some revenue measures already in place: a gasoline tax and higher mining royalties; further measures to be included in the supplementary budget.
- Significant underutilization of capital spending allocations and some restraint in executing current spending, plus modest gains in tax administration, expected to yield additional savings.
- Total fiscal policy adjustment in 2008, including net impact of removing fuel subsidies, would amount to almost 4 percent of GDP in 2008.
- Parliament adopted revised public debt management law placing a ceiling of 60 percent of GDP in 2011.
- Staff baseline: budget deficit excluding grants would decline by almost 3 percentage points over the medium term, but lower grants would keep the overall deficit above 4½ percent of GDP.
- Tighter fiscal policy to achieve a primary surplus by 2011—implying an overall deficit of less than 3 percent—would lower debt to about 55 percent of GDP.
- Authorities expect a moderate but steady decline in current spending relative to GDP and scope for lower capital expenditure (in relation to GDP) as PPP projects pick up.
- Ongoing fiscal structural reforms: implementation of the treasury single account; Government Financial Management Information System (GFMIS) moving into implementation; improved budget coverage and classification; retirement of government overdraft with CBJ by issuing government bonds to the CBJ.

Summary of Fiscal Operations, 2007–11 (selected figures, in percent of GDP)
- Total revenue and grants: 2007 Prel. 34.9; 2008 Budget 34.0; 2008 Proj. 0.9; 2009 34.8; 2010 33.6; 2011 33.2; 2012 32.9
- Tax revenue: 2007 Prel. 22.0; 2008 Budget 21.7; 2008 Proj. 0.4; 2009 22.1; 2010 22.0; 2011 22.0; 2012 22.0
- Grants: 2007 Prel. 3.1; 2008 Budget 3.4; 2008 Proj. 0.0; 2009 3.4; 2010 2.4; 2011 2.1; 2012 1.9
- Total budgetary expenditure: 2007 Prel. 40.4; 2008 Budget 39.5; 2008 Proj. 0.9; 2009 40.4; 2010 38.8; 2011 38.3; 2012 37.8
- Fuel subsidy: 2007 Prel. 2.7; 2008 Budget 0.0; 2008 Proj. 0.8; 2009 0.8; 2010 0.0; 2011 0.0; 2012 0.0
- Financing (=deficit including grants): 2007 Prel. 6.2; 2008 Budget 5.5; 2008 Proj. ...; 2009 5.5; 2010 5.3; 2011 5.1; 2012 4.9
- Government and guaranteed net debt: 2007 Prel. 73.0; Proj. 62.4; 60.6; 59.9; 59.3 (years span to 2011)

Box 4 — Fuel Price Adjustment and Compensatory Measures (selected points)
- Following a 47 percent average price increase in February, petroleum product prices are adjusted monthly by a committee using the world average oil price in the preceding month plus transportation and handling costs.
- 2008 compensatory measures included: (i) increase, on a progressive scale, in public sector wages and pensions; (ii) cash assistance to the poor in the private sector; (iii) increase in assistance provided by the National Aid Fund (NAF); (iv) financial support targeted at small-size farmers.
- Estimated cost of compensatory measures—including allocations in the forthcoming supplementary budget—is 3.5 percent of GDP.
- Average (weighted) price increases (in %): July 27.3; Sept 14.4; April 34.4; Feb 47.5 (selected product examples shown in source).
- Offsetting expenditure measures (in % of GDP): 1.0 (2005) and 3.5 (2008).
- Components of offsetting expenditure measures (in % of GDP): wage increase for government employees 1.8; pension increase 0.9; wage/pension bonuses 0.3; cash transfers to public and private sectors 0.3; additional allocations to National Aid Fund 0.1; minimum wage increase 0.3; other 0.4.

### Monetary and exchange rate policy
- Exchange rate peg continues to underpin monetary policy; authorities see scope for tightening.
- CBJ has allowed interest rate differentials against the U.S. to widen in recent months.
- Some switching from dollar to domestic currency deposits observed; no significant pickup in short-term capital inflows; reserves held broadly stable.
- Prudential limits on banks’ open foreign exchange exposure and rules barring foreign currency lending to clients without export earnings reduce banks' incentive to mobilize inexpensive foreign funding.
- Authorities see room to let interest differentials widen further and possibly increase certain policy rates to keep inflation expectations in check.
- Authorities confident underlying inflationary pressures remain well contained and headline inflation would moderate quickly following large fuel price adjustments in February.
- Authorities believe the real exchange rate of the dinar is in line with fundamentals and concurred with staff exchange rate analysis.
- They noted the peg helped achieve relatively low inflation in recent years and likely prevented an even larger current account deterioration in 2007.
- Envisaged fiscal consolidation, coming onstream of new mining exports, and increased grant inflows expected to narrow the current account substantially over the medium term.

### Financial sector policies and reforms
- Banks’ prudential indicators remain strong: well capitalized; non-performing loan ratios low; strict loan classification and provisioning rules.
- Share of credit to construction sector and to purchase stocks has increased; prudential regulations in place to curb banks’ exposure to real estate and stock market.
- Concern over continued rise in loan-deposit ratio, especially in some smaller banks with relatively high ratios that increasingly rely on the interbank market.
- Authorities considering prudential limits on sources versus uses of funds to mitigate funding risk and curb credit growth.
- Implementation of Basel II standards underway (from 2008) for the banking sector.
- Recent corporate governance regulations emphasize a risk-based approach to banking supervision.
- Credit bureau legislation under discussion.
- Capital market: accounting standards and margin financing regulations aligned with international best practice; tougher margin and capital requirements for brokerage firms implemented in 2006.
- Future focus on enhancing disclosure requirements and developing the secondary debt market.

### Other structural reforms and data/administrative initiatives
- Regulatory framework for PPP projects being established; MOF representatives to be part of PPP project approval committee to guard against fiscal risks.
- Plans to fully liberalize the petroleum sector over the next 2–3 years to reduce fiscal risks and improve resource allocation efficiency.
- Authorities considering reforms to the social security system to improve actuarial soundness of the pension system.
- Authorities expect to meet remaining requirements for Special Data Dissemination Standards (SDDS) subscription by end-2008.
- New surveys implemented to improve compilation and timeliness of wages and earnings data.
- Efforts to align coverage of budget revenues and expenditures with government financing flows to help reduce sizable statistical discrepancy in fiscal accounts.

### Staff appraisal: policy recommendations and priorities
- Jordan’s economy continues to grow briskly, but inflation has picked up and fiscal and external deficits have widened due to higher world food and fuel prices.
- Macroeconomic policy tightening is needed to bring inflation down and reduce fiscal and external vulnerabilities.
- The authorities’ intention to tighten fiscal policy is welcome; removal of fuel subsidies was necessary; compensatory measures were implemented to protect vulnerable groups.
- Achieving targeted narrowing of the budget deficit will require significant tightening, resisting additional spending pressures, and full operation of the new fuel price adjustment mechanism.
- Lower deficit is critical for bringing inflation down, reducing external imbalance, and preventing crowding out of private credit.
- Further consolidation of public finances will be needed over the medium term; revised public debt management law anchors budgetary position.
- Staff recommends gearing fiscal policy toward a more ambitious target of at most 55 percent of GDP to provide a cushion for unforeseen demands.
- Fiscal expenditure restraint would create space for the private sector and strengthen medium-term growth prospects.
- Tighter fiscal policy would facilitate current account adjustment and limit risks to external stability amid vulnerability to a slowdown in capital inflows.
- The Paris Club debt buyback lowered external debt, improved its currency composition, and sent a positive signal to investors and rating agencies.
- Exchange rate peg remains a strong anchor; allowing interest differentials to widen and moderately increasing policy rates if needed is appropriate to keep inflation in check.
- Higher policy and interbank interest rates would help curb rising loan-deposit ratios; close coordination with MOF on government debt issuance is critical to determine appropriate central bank liquidity operations.

*Source: IMF staff report (content unit: _cr08290 - 9. The near-term outlook remains generally favorable, but fiscal and external).*

### 27.      Banking sector risks appear manageable, supported by a strong supervisory

### 27.      Banking sector risks appear manageable, supported by a strong supervisory system

### Banking sector resilience and regulation
- Prudential regulations are in place to limit banks’ currency, property, and stock market exposures.
- The recent implementation of Basel II standards, along with the new corporate governance regulations, is expected to further enhance the stability and soundness of the banking system.
- The regulations under consideration on sources and uses of bank funds should help mitigate funding risk and, by curbing credit growth, also contain inflationary pressures.

### Structural reforms to sustain macroeconomic performance
- Important gains have been made in the fiscal structural area over the past year.
- Priority actions:
  - Further strengthen public financial management system through completing the implementation of the treasury single account and the GFMIS.
  - Establish a regulatory environment for PPP projects, complemented by an appropriate institutional framework to facilitate careful assessment of risks to the budget.
- The medium-term plan to fully liberalize the petroleum sector will further mitigate the impact of any future oil price shocks on the budget.

### Public debt, data transparency, and market development
- The recent resolution of the government’s overdraft facility with the CBJ will:
  - further improve the transparency of government debt statistics,
  - enhance central bank independence,
  - strongly signal the authorities’ resolve to rein in the fiscal position.
- Staff recommendations and priorities:
  - Early progress in addressing the remaining issues that are delaying SDDS subscription.
  - Further strengthen BOP statistics to reduce the errors and omissions component, which hampers current account analysis.
  - Coordinated effort by the MOF and CBJ to align budget coverage with government financing flows to facilitate assessment of fiscal developments and the policy stance.
  - Foster the development of the secondary debt market to support private investment and enhance longer-term growth.

*Source: _cr08290 - 27.      Banking sector risks appear manageable, supported by a strong supervisory system*

### 30.      It is proposed that the next Article IV consultation takes place on the standard

### _cr08290 - 30.      It is proposed that the next Article IV consultation takes place on the standard

### Real sector developments
- Growth has remained buoyant and broad based.
- Industrial production decelerated in 2006 and early 2007, but recovered somewhat in recent months.
- Consequently, unemployment has started to come down.
- Sectoral notes:
  - Construction, Manufacturing, and GDP contributions shown in Figure 1 (sectoral contributions and y-o-y growth trends).

### Fiscal developments and outlook
- Domestic revenue has increased markedly in recent years, driven by strong tax receipts.
- Current spending has also picked up, mostly on account of higher fuel and food subsidies.
- Over the medium term:
  - The budget deficit is expected to moderate gradually but remain reliant on grants.
  - There is a projected switch from external to domestic debt, with only a modest decline in total public debt.
- Impact noted from Paris Club buyback on debt dynamics (see Figure 2).

### External sector developments
- The current account deficit widened in 2007, as import growth began to surpass export growth in the second half of the year.
- The import increase mainly reflected price effects, and the impact of non-oil imports.
- Textile and apparel exports to the US fell in 2007 after many years of impressive growth.
- Exports performed strongly in fast-growing Middle East and Asian countries, with rising market shares.
- Domestic investment has risen alongside rising current account deficits, but ample financing was provided by FDI, which boosted reserves (Figure 3).

### Monetary and financial indicators
- Money and credit growth have slowed markedly.
- The interest differential with the Fed has widened, though the CBJ's liquidity operations and CD rates have eased.
- Banks' lending and deposit rates have edged up.
- Equity prices recovered strongly in 2007, but softened in early 2008 in line with global markets (Figure 4).

### Select findings and projections (exact figures preserved)
- Real GDP at market prices (annual percentage changes, 2004–13):
  - 8.6 7.1 6.3 6.0 5.5 5.8 6.0 6.0 6.0 6.0
- GDP deflator at market prices (annual percentage changes, 2004–13):
  - 3.1 3.2 5.2 6.0 10.8 6.5 4.3 3.7 3.0 2.5
- Nominal GDP at market prices (annual percentage changes, 2004–13):
  - 11.9 10.5 11.8 12.3 16.9 12.7 10.6 10.0 9.2 8.7
- Nominal GDP at market prices (JD millions, selected years):
  - 8,091 8,942 9,998 11,225 13,122 14,789 16,354 17,981 19,629 21,330
- Nominal GDP at market prices ($ millions, selected years):
  - 11,411 12,611 14,101 15,833 18,508 20,859 23,066 25,361 27,685 30,085
- Consumer price index (annual average, 2004–13):
  - 3.4 3.5 6.3 5.4 11.0 6.5 4.3 3.7 3.0 2.5
- Unemployment rate (percent, 2004–07):
  - 14.7 14.8 14.1 13.1
- Domestic revenue and fiscal balances (percent of GDP, 2004–13):
  - Revenue and grants: 36.6 33.2 34.5 34.9 34.8 33.6 33.2 32.9 32.7 32.6
  - Overall fiscal balance including grants: -1.7 -5.0 -3.8 -6.2 -5.5 -5.3 -5.1 -4.9 -4.8 -4.6
  - Overall fiscal balance excluding grants: -12.6 -10.1 -7.1 -9.2 -8.9 -7.6 -7.2 -6.8 -6.5 -6.2
  - Primary fiscal balance excluding grants: -9.8 -7.1 -3.9 -6.0 -5.7 -4.3 -4.1 -3.9 -3.5 -3.2
- Government and government-guaranteed net debt (percent of GDP, 2004–13):
  - 88.7 83.8 73.5 73.0 62.4 60.6 59.9 59.3 58.8 58.6
  - Of which: domestic debt: 22.7 27.3 21.6 26.2 34.8 37.0 39.3 41.3 43.2 44.7
- Current account balance (percent of GDP, 2004–13):
  - 0.8 -17.4 -11.3 -17.5 -15.5 -13.4 -12.1 -10.8 -10.0 -9.2
  - Excluding grants: -10.8 -23.4 -17.1 -19.9 -19.6 -16.6 -14.9 -13.4 -12.3 -11.3
- Exports and imports of goods f.o.b. ($ billions, 2004–13):
  - Exports f.o.b.: 3.9 4.3 5.2 5.7 6.5 7.3 8.0 8.8 9.6 10.6
  - Imports f.o.b.: 7.3 9.3 10.3 12.0 14.0 15.1 16.3 17.6 19.1 20.7
  - Oil and oil products ($ billions): 1.4 2.2 2.4 2.6 3.2 3.4 3.7 3.9 4.2 4.6
- Gross usable international reserves ($ millions, 2004–13):
  - 4,826 4,745 6,103 6,865 5,400 5,500 5,700 6,000 6,300 6,400
- Broad money (annual growth, percent, selected years):
  - 11.7 17.0 14.1 10.6 9.3 12.7 10.6 10.0 9.2 8.7

### Fiscal and policy implications highlighted
- Revenues have strengthened, largely through tax receipts, but higher current expenditures (notably fuel and food subsidies) have offset some gains.
- Medium-term fiscal sustainability remains dependent on grants; shift toward domestic borrowing is projected.
- External vulnerabilities: widening current account in 2007 driven by import growth; FDI financing and reserves accumulation have been important buffers.
- Monetary stance: slowdown in money and credit growth, widening interest differential with the Fed, and mixed liquidity signals from CBJ operations.

*Sources: Central Bank of Jordan; Department of Statistics; Jordanian authorities; and Fund staff estimates and projections.*

### APPENDIX I: PUBLIC DEBT SUSTAINABILITY ANALYSIS

### APPENDIX I: PUBLIC DEBT SUSTAINABILITY ANALYSIS

### Overview
- Public debt is defined as central government and government-guaranteed debt. The domestic component is net of government deposits with the banking system, including privatization proceeds.
- Jordan’s public debt is expected to decline to just under 60 percent by 2011.
- The debt ratio is projected to drop by about 10 percentage points in 2008 following the Paris Club debt buyback; use of privatization proceeds reduced the net impact of the buyback from 11 percent of GDP to about 3 percent.
- The projected debt path assumes the primary deficit (including grants) will decline to 1.6 percent of GDP by 2013.

### Vulnerabilities and Bound Tests (Public Debt)
- Debt ratios would deteriorate under a 30 percent real exchange rate depreciation shock, increasing by 14 percentage points relative to the baseline in 2008 and remaining above 65 percent over the projection period.
- A contingent liabilities shock—an increase in the debt ratio by 10 percent of GDP in 2008—would cause the debt path to shift by about 9 percentage points above the baseline.
- Individual one-half standard deviation shocks to real growth, interest rates, and the primary balance, and a combined one-fourth standard deviation shock, would keep debt ratios above the 60 percent threshold throughout the projection period.
- If key assumptions are held at their historical averages, debt would decline faster than under the baseline (to 53 percent by 2013), since the average historical level of the primary deficit (0.1 percent) was significantly lower than projected (2.4 percent for 2008 and 1.8 percent on average for 2009–13).
- Public debt sustainability hinges on appropriate adjustment policies. A no-policy-change scenario—that assumes the primary deficit of 2007 (2.9 percent of GDP) is kept constant during 2008–13—would cause the debt-to-GDP ratio to increase from 63 percent at end-2008 to 74 percent by the end of the projection period.

### Key public-debt statistics and projections (2002–13) — selected figures from Table A.1
- Baseline: Central government debt including government guarantees (net)
  - 2007: 73.0
  - 2008: 62.4
  - 2009: 60.6
  - 2010: 59.9
  - 2011: 59.3
  - 2012: 58.8
  - 2013: 58.6
- Of which: foreign-currency denominated
  - 2007: 46.8
  - 2008: 27.6
  - 2009: 23.7
  - 2010: 20.6
  - 2011: 17.9
  - 2012: 15.7
  - 2013: 13.9
- Change in central government debt
  - 2008: -10.7
  - 2009: -1.7
  - 2010: -0.7
  - 2011: -0.6
  - 2012: -0.4
  - 2013: -0.3
- Primary deficit (percent of GDP)
  - 2007: 2.9
  - 2008: 2.4
  - 2009: 1.9
  - 2010: 1.9
  - 2011: 1.9
  - 2012: 1.7
  - 2013: 1.6
- Revenue and grants (percent of GDP)
  - 2007: 34.9
  - 2008: 34.8
  - 2009: 33.6
  - 2010: 33.2
  - 2011: 32.9
  - 2012: 32.7
  - 2013: 32.6
- Automatic debt dynamics (contribution, percent of GDP)
  - 2008: -7.4
  - 2009: -3.7
  - 2010: -2.6
  - 2011: -2.4
  - 2012: -2.0
  - 2013: -1.7
- Privatization receipts (negative)
  - 2008: -1.0
- Residual, including asset changes (2-3)
  - 2008: -4.6
  - 2009: 0.1
  - 2010: 0.0
  - 2011: -0.1
  - 2012: -0.2
  - 2013: -0.2
- Gross financing need (percent of GDP)
  - 2007: 9.7
  - 2008: 7.3
  - 2009: 7.0
  - 2010: 6.7
  - 2011: 6.3
  - 2012: 6.1
  - 2013: 5.8
- Scenario results:
  - Scenario with key variables at their historical averages: 64.7, 62.4, 60.2, 57.9, 55.7, 53.5 (end-2008 through end-2013)
  - Scenario with no policy change (constant primary balance) in 2007–12: 64.9, 65.3, 67.5, 70.2, 74.1, 78.0 (end-2008 through end-2013)

### Appendix II (External Debt Sustainability) — Overview
- Jordan’s external debt ratios are expected to fall to near 20 percent of GDP by the end of the decade and to around 14 percent of GDP by 2013.
- A large part of this drop is due to the Paris Club debt buyback that reduced external debt by around 11 percentage points of GDP in 2008.
- Projections assume gradual current account adjustment, strong export growth, falling medium-term import unit prices, and continued growth in earnings from tourism and remittances.
- External borrowing is expected to remain cautious and rely mainly on concessional sources from multilateral and regional development banks.

### External-debt risks and bound tests
- The standard bound tests indicate external debt sustainability is most vulnerable to developments in the current account position: a one-half standard deviation worse current account would result in only a marginal decline in the debt ratio by 2013.
- External debt is robust to shocks in the external interest rate or GDP growth.
- A sharp depreciation would lead to an immediate deterioration in the debt ratio, but not an adverse impact over time if other assumptions hold.
- A shock where capital inflows fall to the historical average after 2008 (non-debt creating capital inflows remain baseline in 2008 but then drop) would keep external debt in the range of 30 percent of GDP—above baseline but not threatening sustainability.
- If key assumptions are held at their historical averages, external debt would fall faster, reflecting past current account surpluses prior to 2004.

### Key external-debt statistics and projections (2002–13) — selected figures from Table A.2
- Baseline: External debt (percent of GDP)
  - 2007: 46.8
  - 2008: 27.6
  - 2009: 23.7
  - 2010: 20.6
  - 2011: 17.9
  - 2012: 15.7
  - 2013: 13.9
- Change in external debt
  - 2008: -19.2
  - 2009: -4.0
  - 2010: -3.0
  - 2011: -2.7
  - 2012: -2.2
  - 2013: -1.8
- Identified external debt-creating flows (4+8+9)
  - 2008: -4.6
  - 2009: -3.0
  - 2010: -2.8
  - 2011: -2.4
  - 2012: -2.1
  - 2013: -1.4
- Current account deficit, excluding interest payments (percent of GDP)
  - 2007: 16.0
  - 2008: 14.4
  - 2009: 12.6
  - 2010: 11.4
  - 2011: 10.2
  - 2012: 9.5
  - 2013: 8.8
- Net non-debt creating capital inflows (negative, percent of GDP)
  - 2007: -22.4
  - 2008: -17.9
  - 2009: -15.0
  - 2010: -13.5
  - 2011: -12.1
  - 2012: -11.1
  - 2013: -9.6
- Automatic debt dynamics (percent of GDP)
  - 2008: -1.1
  - 2009: -0.6
  - 2010: -0.6
  - 2011: -0.5
  - 2012: -0.5
  - 2013: -0.5
- Contribution from nominal interest rate (percent)
  - 2008: 1.1
  - 2009: 0.8
  - 2010: 0.7
  - 2011: 0.6
  - 2012: 0.5
  - 2013: 0.4
- External debt-to-exports ratio (percent)
  - 2007: 81.3
  - 2008: 49.0
  - 2009: 42.3
  - 2010: 37.1
  - 2011: 32.1
  - 2012: 27.9
  - 2013: 24.5
- Gross external financing need (in percent of GDP)
  - 2007: 21.1
  - 2008: 17.7
  - 2009: 15.4
  - 2010: 13.8
  - 2011: 12.5
  - 2012: 11.6
  - 2013: 10.6
- Scenario results:
  - Scenario with key variables at their historical averages: 23.7, 13.5, 3.7, -5.9, -15.2, -24.6 (selected years)
  - Scenario with sharp decline in private capital inflows after 2008: 27.4, 30.8, 33.2, 34.2, 34.6, 33.7 (selected projection years)

### Policy implications (synthesis of findings)
- Policies that help reduce the current account deficit and maintain recent growth and FDI momentum provide the strongest assurances of sustainable public and external debt positions.
- Fiscal adjustment (reducing primary deficits toward the baseline assumption of 1.6 percent of GDP by 2013) is critical to prevent deterioration under adverse shocks.
- Continued cautious external borrowing policies and reliance on concessional financing reduce external debt vulnerability.

*Source: APPENDIX I: PUBLIC DEBT SUSTAINABILITY ANALYSIS and APPENDIX II: EXTERNAL DEBT SUSTAINABILITY ANALYSIS (IMF staff estimates and Jordanian authorities).*

### 36.      Monetary statistics. Monetary data for the Central Bank of Jordan (CBJ) and the

### _cr08290 - 36.      Monetary statistics. Monetary data for the Central Bank of Jordan (CBJ) and the

### Monetary statistics — findings and data practices
- Monetary data for the Central Bank of Jordan (CBJ) and the commercial banks are reported and published on a monthly basis.
- Consistency checks between government finance statistics and monetary statistics are not conducted at present.
- The CBJ Research Department proposed the establishment of an interagency group to monitor the intersectoral consistency of macroeconomic statistics (reported to the 2003 data ROSC Update mission).
- Timeliness of reporting monetary data for publication in International Financial Statistics is satisfactory.
- Little progress has been achieved so far in implementing the Standardized Report Forms for reporting monetary data to the Fund.

### Balance of payments (BOP) and international investment position (IIP)
- The CBJ has adopted the methodology of the fifth edition of the Balance of Payments Manual (BPM5) for the compilation of the BOP statistics and the international investment position (IIP), and has disseminated data in the BPM5 format.
- Implementation of surveys in the area of services is important for further improvement of BOP quality.
- The CBJ has started compiling and disseminating the reserves template on the CBJ’s website.
- The IIP data for 2004–05 incorporates the results of the Department of Statistics foreign direct investment survey released in May 2007.
- The CBJ and Ministry of Finance have agreed on the modalities for compiling and disseminating external debt statistics in line with SDDS requirements.
- The authorities agreed to form a technical group to examine proposals for developing quarterly source data on nonbank private sector debt.

### Memo items — data vintage, frequency, and quality assessments (selected entries)
- Exchange rates: Date of Latest Observation: Mar. 2008; Date Received: Mar. 2008; Frequency of Data: W; Frequency of Reporting: M; Frequency of Publication: W.
- International reserve assets and reserve liabilities of the monetary authorities 1/: Date of Latest Observation: Mar. 2008; Date Received: Mar. 2008; Frequency of Data: W; Frequency of Reporting: M; Frequency of Publication: W.
- Reserve/base money: Latest observation Jan. 2008; Date Received Mar. 2008; Frequency of Data: MM; Frequency of Reporting: M.
- Broad money: Latest observation Jan. 2008; Date Received Mar. 2008; Frequency of Data: MM; Frequency of Reporting: M.
- Central bank balance sheet: Latest observation Jan. 2008; Date Received Mar. 2008; Frequency of Data: MM; Frequency of Reporting: M.
- Consolidated balance sheet of the banking system: Latest observation Jan. 2008; Date Received Mar. 2008; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M; Data quality—methodological soundness: O, O, LO, LO; Data quality—accuracy and reliability: O, LO, O, O, LO.
- Interest rates 2/: Date of Latest Observation: Feb. 2008; Date Received: Mar. 2008; Frequency of Data: W; Frequency of Reporting: M; Frequency of Publication: W.
- Consumer price index: Date of Latest Observation: Feb. 2008; Date Received: Mar. 2008; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M; Data quality—methodological soundness: O, LO, O, O; Data quality—accuracy and reliability: O, LO, O, O, O.
- Revenue, expenditure, balance and composition of financing — general government 4/: Latest observation 2005; Date Received Apr. 2007; Frequency of Data: A; Frequency of Reporting: A; Frequency of Publication: A.
- Revenue, expenditure, balance and composition of financing — central government: Latest observation Nov. 2007; Date Received Jan. 2008; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M; Data quality—methodological soundness: O, LO, LNO, O; Data quality—accuracy and reliability: O, O, O, O, NA.
- Stocks of central government and central government-guaranteed debt 5/: Latest observation Dec. 2007; Date Received Feb. 2008; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M.
- External current account balance: Latest observation Q4 2007; Date Received Mar. 2008; Frequency of Data: Q; Frequency of Reporting: Q; Frequency of Publication: Q.
- Exports and imports of goods and services: Latest observation Jan. 2008; Date Received Mar. 2008; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: Q.
- GDP/GNP: Latest observation Q4 2007; Date Received Feb. 2008; Frequency of Data: Q; Frequency of Reporting: Q; Frequency of Publication: Q.
- Gross external debt: Latest observation Jan. 2008; Date Received Feb. 2008; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M.

### Relations with the Fund — membership, resources, and safeguards
- Membership Status: Joined: August 29, 1952; Article VIII.
- Quota (General Resources Account): Quota 170.50 SDR million 100.00 percent.
- Fund holdings of currency: 219.34 SDR million 128.64 percent.
- Reserve position in Fund: 0.26 SDR million 0.15 percent.
- SDR Department: Net cumulative allocation 16.89 SDR million 100.00 percent; Holdings 3.55 SDR million 21.01 percent.
- Outstanding Purchases and Loans: Extended Arrangements 49.07 SDR million 28.78 percent.
- Latest Financial Arrangements (type, approval date, expiration date, amount approved (SDR million), amount drawn (SDR million)):
  - SBA: 7/03/02 — 7/02/04 — 85.28 — 10.66
  - EFF: 4/15/99 — 5/31/02 — 127.88 — 127.88
  - EFF: 2/09/96 — 2/08/99 — 238.04 — 202.52
- Projected Obligations to Fund (Expectations Basis) (SDR million; based on existing use of resources and present holdings of SDRs):
  - Principal: 2008 31.18 15.35 2.54
  - Charges/Interest: 1.46 0.92 0.52 0.47 0.47
  - Total: 32.64 16.27 3.06 0.47 0.47
- Safeguards Assessment: The CBJ was subject to a full assessment with respect to the Stand-By Arrangement (SBA) approved on July 3, 2002 and expired on July 2, 2004. The assessment was completed on June 27, 2003, concluded that the CBJ has made progress in strengthening its safeguards, and proposed a set of measures, the majority of which have been implemented.

### Exchange system and Article IV timing
- The Jordanian dinar is fully convertible and is officially pegged to the SDR. In practice, the authorities have pegged its exchange rate to the U.S. dollar since October 1995, at JD 1 = $1.41044.
- The 2006 Article IV consultation was concluded by the Executive Board on March 5, 2007.
- The 2008 Article IV consultation: On May 12, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the 2008 Article IV consultation with Jordan. (Public Information Notice No. 08/55 dated May 19, 2008.)

### Technical assistance and capacity building (selected items, 2000–2008)
- Fiscal technical assistance highlights:
  - May 2000: Framework for managing nontreasury accounts.
  - January–June 2002: Pension reform.
  - January–September 2002: GST reform.
  - November 2002: Macrofiscal capacity and treasury single account.
  - February, October 2003; February, June, October 2004: Peripatetic advisor on single treasury account and revenue administration reform.
  - April 2005: Fiscal ROSC.
  - February, May 2006: Public financial management.
- Monetary and financial technical assistance:
  - January–February, April–May 2001: International reserve management.
  - April–May 2008: Debt management strategy.
- Statistical technical assistance:
  - July 2000: National accounts statistics.
  - January–February 2002: Report on the Observation of Standards and Codes—Data module.
  - Oct. 2003–Jan. 2004, Mar–May 2004: Balance of payments statistics.
  - April–May 2004: Government finance statistics.
  - December 2006: National accounts statistics.
  - October–November 2006: SDDS Assessment mission.
  - July 2007: Follow-up on SDDS/Government Finance Statistics.
- Other: March 2008: Financial programming workshop.

### World Bank Group — strategy and financials (selected figures and directions)
- As of December 31, 2007, Jordan had received 68 World Bank loans, 1 guarantee, and 15 IDA credits totaling $2,343 million net of cancellations and terminations.
- Of the $2,343 million, $2,154 million have been disbursed to-date.
- All the credits and 63 of the loans have been fully disbursed.
- There are five active projects in the Bank’s portfolio for a total of $249 million.
- The CAS for 2006–10 is aligned with government priorities and sets a four-year program organized in four cross-sectoral clusters; the CAS lending ceiling is up to US$540 million over four years.
- IFC: current portfolio of $212 million in thirteen companies as of January 2008; in FY07 IFC committed US$16 million in Jordan for two projects in the financial sector.

### IMF Public Information Notice — macro background (from PIN No. 08/55, May 19, 2008)
- The economy continued to perform well in 2007 in a more challenging external environment.
- Output grew by 6 percent in 2007.
- The unemployment rate declined further in 2007.
- FDI inflows remained strong and international reserves increased substantially in 2007.
- Rapidly rising world fuel and food prices put pressure on the fiscal and external accounts in the second half of 2007.
- Inflation started to pick up in late 2007 and jumped in early 2008 following a 47 percent average increase in petroleum product prices.
- Core inflation also picked up, but remains below 5 percent.
- The fiscal position deteriorated in 2007, mainly reflecting the higher cost of fuel and food subsidies and a shortfall in external grants.

*Source: IMF staff report content as provided in the input PDF excerpt.*

### 6.2 percent of GDP, against an original target of 2.8 percent. Higher fuel and food subsidies on

### _cr08290 - 6.2 percent of GDP, against an original target of 2.8 percent. Higher fuel and food subsidies on

### Fiscal developments and public debt
- Fiscal outturn: central government overall fiscal balance including grants widened to -6.2 percent of GDP, against an original target of 2.8 percent.
- Main fiscal drivers:
  - Higher fuel and food subsidies due to increased world prices.
  - Lower-than-anticipated grants.
  - Partly offset by lower capital expenditure and net lending, and overperformance on domestic revenue.
- Financing and debt:
  - Increased domestic borrowing to finance the larger deficit resulted in only a marginal decline in the overall public debt stock to 73 percent of GDP.
  - Government and government-guaranteed net debt: 73.0 (in percent of GDP) in 2007.
- Policy guidance from Directors:
  - Strong support for tightening fiscal policy and resisting additional spending pressures.
  - Recommendation to continue consolidation of public finances over the medium term.
  - Note that the new public debt ceiling limits total public debt to 60 percent of GDP by 2011, but Directors recommended gearing fiscal policies to a more ambitious debt target to leave some cushion for unforeseen demands.

### External sector and reserves
- Current account:
  - Current account deficit increased to 17½ percent of GDP in 2007, reflecting higher import costs, a slowdown in export growth, and a shortfall in external grants.
  - Current account balance (after grants) row in table: 0.8 (2004), -17.4 (2005), -11.3 (2006), -17.5 (2007).
- Trade flows (f.o.b.):
  - Exports ($ billions): 3.9 (2004), 4.3 (2005), 5.2 (2006), 5.7 (2007).
  - Imports ($ billions): 7.3 (2004), 9.3 (2005), 10.3 (2006), 12.0 (2007).
- Reserves and external debt:
  - Gross usable international reserves ($ millions): 4,826 (2004), 4,745 (2005), 6,103 (2006), 6,865 (2007).
  - Reserves rose to $6.9 billion by year-end 2007, equivalent to five months of prospective imports, from $6.1 billion at end-2006.
  - Following a US$2 billion buyback of nonconcessional Paris Club debt in early 2008, the external debt stock declined by 11 percent of GDP.
- Directors’ observations:
  - Continued strong FDI and portfolio inflows financed the current account deficit, but Jordan remains vulnerable to a slowdown in capital inflows.
  - Tighter fiscal policy would facilitate current account adjustment; gradual unwinding of transient factors and some softening of world commodity prices would likely narrow the external deficit over the medium term.

### Monetary policy and financial sector
- Monetary stance:
  - Monetary policy remained geared toward maintaining the exchange rate peg.
  - The overnight interest rate was cut by 50 basis points (bps) in September 2007 following the reduction in the Fed Funds rate.
  - Despite a further 250 bps cumulative cut in the Fed Funds rate, the Central Bank of Jordan (CBJ) lowered its key policy rate by only 25 basis points (in early February) to avoid an excessively accommodative stance.
  - Directors agreed that the recent widening in interest rate differentials against U.S. dollar rates had been warranted given inflation risks; they recognized scope to let interest differentials widen further as long as short-term capital inflows remain limited.
- Banking sector indicators:
  - Average risk-weighted capital adequacy ratio eased to 19 percent in mid-2007.
  - Private credit growth moderated to 15 percent by end-2007.
  - The banking system’s loan-deposit ratio continued to edge up.
- Regulatory and institutional developments:
  - Implementation of Basel II standards and passage of a new anti-money laundering law welcomed.
  - Directors supported strict financial sector supervision and looked forward to the FSAP update mission.

### Inflation, growth, and structural issues
- Inflation and prices:
  - Directors noted that higher international food and fuel prices, given Jordan’s high dependence on food and fuel imports, have pushed up inflation and widened fiscal and external deficits.
  - Some Directors noted that the public sector salary increase could fuel inflation further.
- Growth and labor market:
  - Real GDP at market prices (annual percentage changes): 8.6 (2004), 7.1 (2005), 6.3 (2006), 6.0 (2007).
  - Unemployment rate (percent): 14.7 (2004), 14.8 (2005), 14.1 (2006), 13.1 (2007).
- Structural reform priorities recommended by Directors:
  - Further strengthening public financial management.
  - Establishing a regulatory environment for public-private partnership projects.
  - Full liberalization of the petroleum sector over the medium term.
  - Early progress in addressing data issues to allow Special Data Dissemination Standard subscription.
  - Priority attached to sustaining macroeconomic performance through structural reforms.

### Selected economic indicators (extract)
- Real sector (annual percentage changes)
  - Real GDP at market prices: 8.6 (2004), 7.1 (2005), 6.3 (2006), 6.0 (2007).
  - Consumer price index (average): 3.4 (2004), 3.5 (2005), 6.3 (2006), 5.4 (2007).
  - Gross domestic investment (percent of GDP): 27.4 (2004), 34.1 (2005), 31.9 (2006), 31.9 (2007).
  - Gross national savings (percent of GDP): 28.2 (2004), 16.6 (2005), 20.6 (2006), 14.4 (2007).
- Public finance (percent of GDP)
  - Central government revenue and grants: 36.6 (2004), 33.2 (2005), 34.5 (2006), 34.9 (2007).
  - Grants (of which): 10.9 (2004), 5.0 (2005), 3.3 (2006), 3.1 (2007).
  - Central government expenditure and net lending 1/: 38.3 (2004), 38.3 (2005), 38.3 (2006), 41.1 (2007).
  - Central government overall fiscal balance including grants: -1.7 (2004), -5.0 (2005), -3.8 (2006), -6.2 (2007).
- Money and credit (annual percentage changes)
  - Broad money: 11.7 (2004), 17.0 (2005), 14.1 (2006), 10.6 (2007).
  - Credit to private sector: 17.3 (2004), 30.3 (2005), 24.5 (2006), 15.3 (2007).
- Exchange rates
  - U.S. dollar per Jordanian dinar (end-period): 1.4 (2004), 1.4 (2005), 1.4 (2006), 1.4 (2007).
  - Real effective exchange rate (percent change, end of period): -3.8 (2004), 7.0 (2005), -1.3 (2006), -4.1 (2007).

*Source: IMF Executive Board discussion summary (May 12, 2008) as presented in the provided document.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08290.pdf_