## _cr09159

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### Executive Summary — Background and near-term policy
- Annual real GDP growth averaged 6 percent since the start of the decade; per capita GDP almost doubled from 1999 to 2008.
- Selected indicators (1990–95 / 1996–2000 / 2001–07 / 2008):
  - Real GDP growth: 5.2 / 3.2 / 6.6 / 5.6
  - Inflation, annual average: 6.3 / 2.8 / 3.4 / 14.9
  - Nominal GDP per capita (in U.S. dollars): 1,372 / 1,672 / 2,230 / 3,418
  - Unemployment rate (in percent of labor force): 17.3 / 13.8 / 14.5 / 12.7
  - Total government and government guaranteed net debt: 150.4 / 98.4 / 85.4 / 60.1
  - International reserves (in millions of U.S. dollars): 501 / 1,663 / 4,765 / 7,734
- Authorities’ near-term policy actions:
  - Fiscal: plan to increase capital spending substantially in 2009; lower subsidies and removal of fuel subsidies last year reduce expenditure; no additional stimulus planned unless additional concessional financing is forthcoming.
  - Monetary and exchange rate: peg to the U.S. dollar remains; CBJ allowed interest differential against dollar to widen; cautious monetary easing underway.
  - Banking sector: full guarantee of all bank deposits until end-2009; reductions in reserve requirements; enhanced supervision and encouragement to build capital buffers.

### Staff recommendations (summary)
- Fiscal stance for 2009:
  - 2009 fiscal stance balances reducing vulnerabilities and supporting domestic activity; further fiscal stimulus would carry significant risks.
  - If undertaken, additional stimulus should be temporary, well-targeted, and within a credible medium-term consolidation framework.
- Exchange rate and monetary policy:
  - Peg remains appropriate for Jordan.
  - Scope for a further modest cut in policy interest rates if balance of payments remains broadly stable.
- Financial sector policies:
  - Intensify banking supervision and contingency planning; steps taken by CBJ are welcome.

### Recent macroeconomic developments (2008–early 2009)
- Growth and inflation:
  - Real GDP growth averaged 5.6 percent in 2008; preliminary data indicate slowdown to 4 percent (y-o-y) in 2008Q4.
  - Headline inflation rose to 20 percent y-o-y in September 2008 and moderated to 1½ percent (y-o-y) by February 2009. Core inflation eased to below 4 percent.
- External sector:
  - Current account deficit narrowed to 12 percent of GDP in 2008 (from 17¾ percent in 2007 and 19 percent in 2008H1).
  - FDI financed about three quarters of the external deficit; positive errors and omissions estimated at 7 percent of GDP in 2008.
  - Official foreign exchange reserves: $7.7 billion by end-2008 (about 6 months of imports); increased to $8.5 billion at end-March.
  - Real effective exchange rate appreciated by 6 percent in 2008.
- Money and financial markets:
  - Bank deposits edged down in October 2008 then recovered; dinar deposit share increased.
  - Bank credit slowed sharply and was essentially flat since December 2008.
  - Stock market corrected since June 2008 peak; between end-2007 and end-2009Q1 the market showed a 25 percent decline.
  - CBJ measures: full guarantee of all bank deposits until end-2009; policy interest rates cut by 50 bps in late November 2008 and by 50 bps in mid-March 2009; reserve requirement reduced by 100 bps in late 2008 and another 100 bps from end-April 2009.
- Fiscal developments (2008):
  - Deficit excluding grants reached 11.2 percent of GDP in 2008, against 8.9 percent in 2007.
  - Summary fiscal ratios (prel. 2007 / 2008, in percent of GDP):
    - Total revenue and grants: 33.4 / 33.1
    - Budgetary revenue: 30.5 / 28.0
    - Tax revenue: 21.1 / 19.4
    - Nontax revenue: 9.4 / 8.6
    - Grants: 2.9 / 5.1
    - Total budgetary expenditure: 38.7 / 38.2
    - Current expenditure: 31.9 / 31.8
    - Fuel subsidy: 2.6 / 1.4
    - Food subsidy: 1.7 / 1.8
    - Capital expenditure and net lending: 6.7 / 6.4
    - Financing (= deficit including grants): 5.9 / 6.1
    - Overall balance, excluding grants: -8.9 / -11.2
    - Primary balance excluding grants: -5.7 / -8.5
    - Government and guaranteed net debt: 70.0 / 60.1
  - Rapid nominal GDP growth and the Paris Club debt buyback in early 2008 reduced total public debt to around 60 percent of GDP at end-2008.
- Banking sector soundness:
  - Risk weighted capital adequacy ratio (2003–08): 15.9 / 17.8 / 17.6 / 21.4 / 20.8 / 18.3
  - Nonperforming loans (percent of total loans, 2003–08): 15.5 / 10.3 / 6.6 / 4.3 / 4.1 / 4.2
  - Provisions (percent of classified loans, 2003–08): 51.9 / 63.8 / 78.4 / 79.6 / 67.8 / 63.3
  - Return on asset (2003–08): 0.7 / 1.1 / 2.0 / 1.7 / 1.6 / 1.4
  - Return on equity (2003–08): 10.9 / 13.6 / 21.7 / 14.8 / 14.0 / 11.5
  - Stress tests show limited exposure to market risks but vulnerability to credit and concentration risks, especially in real estate, construction, and foreign trade.

### Outlook and risks
- Short-term projection (2009):
  - Real GDP growth projected to slow to 3 percent in 2009.
  - Average inflation projected to decline to 4 percent.
  - Current account deficit projected to narrow to about 11 percent of GDP.
- Medium-term projection:
  - Growth expected to pick up to about 5½ percent.
  - Inflation projected to ease to 2 percent.
  - Current account deficit projected to narrow to about 9½ percent of GDP (mainly from increased mining exports).
  - Fiscal assumptions: capital spending relative to GDP gradually eases toward recent average; taxes recover moderately; fiscal deficit excluding grants narrows significantly by 2014, but lower grants keep overall fiscal deficit in the 5½–6½ percent range.
  - Public debt ratio projected to rise above its present level; adverse shocks would raise debt path significantly.
- Key risks:
  - Financing the sizable current account deficit.
  - Adverse external shocks (weaker exports, tourism, remittances, and/or grants).
  - Tightening of liquidity in GCC countries reducing capital flows.
  - Deeper domestic slowdown raising unemployment and weakening bank loan portfolios.
  - Upside: terms of trade gains from sharp declines in world fuel and food prices.

### Fiscal stance and 2009 projections
- 2009 projections and assumptions:
  - Deficit excluding grants projected to narrow by almost 1½ percent of GDP.
  - Lower world commodity prices and planned removal of barley and LPG subsidies will reduce expenditure by over 2 percentage points of GDP relative to 2008; around ¼ percent of GDP of the decline in subsidies attributable to policy changes.
  - A 30 percent increase in capital spending is planned to support activity.
  - With foreign grants expected to decline somewhat, overall deficit projected to narrow by almost 1 percentage point to about 5¼ percent of GDP.
  - Staff caution: projections assume grants remain relatively high; any shortfall would heighten fiscal and external vulnerabilities.
- Summary of fiscal operations (2009; in percent of GDP) — source columns implied:
  - Total revenue and grants: 33.1 35.4 32.4
  - Budgetary revenue, of which: 28.0 30.9 27.9
  - Tax revenue: 19.4 21.2 18.9
  - Nontax revenue: 8.6 9.7 9.0
  - Grants: 5.1 4.5 4.5
  - Total budgetary expenditure: 38.2 39.9 37.8
  - Current expenditure, of which: 31.8 31.2 29.9
  - Fuel subsidy: 1.4 0.4 0.1
  - Food subsidy: 1.8 1.4 0.9
  - Capital expenditure and net lending: 6.4 8.7 7.9
  - Financing ( = deficit including grants): 6.1...5.3
  - Memorandum:
    - Overall balance, excluding grants: -11.2 -8.9 -9.8
    - Primary balance excluding grants: -8.5 -6.1 -7.0
    - Government and guaranteed net debt: 60.1...60.4

### Authorities’ stance and medium-term consolidation
- Authorities will be cautious about increased spending because of high public debt and fiscal deficit; additional spending only if additional grants/concessional loans provided and would be well targeted, temporary, and accompanied by credible consolidation.
- Staff caution: without tightening measures public debt would exceed the legislative ceiling for 2011 of 60 percent of GDP.
- A reduction of the deficit by over 1 percent of GDP a year would be needed to keep the debt ratio on a downward trajectory.
- Authorities intend adjustment to concentrate on the expenditure side; public sector reform could include pension and civil service reforms; income tax reform to be considered.

### Monetary and exchange rate policy
- Policy geared to maintain confidence in peg and adequate domestic liquidity.
- CBJ allowed interest differential to widen to avoid balance of payments pressure; cautious approach to following U.S. rate cuts.
- With reserves building, inflation falling, and bank credit sluggish, CBJ cut rates (including cuts in late November 2008 and mid-March 2009) and reduced reserve requirements; further cuts depend on inflation, bank credit, and balance of payments.
- CBJ ready to tighten liquidity by resuming issuance of certificates of deposit once credit growth normalizes.
- Recapitalization of the CBJ to be considered over the medium term.
- Authorities concurred real exchange rate of the dinar broadly in line with fundamentals.

### Exchange rate assessment (Box 2 summary)
- Staff estimates: real exchange rate broadly in line with medium-term fundamentals.
- Averages from alternative methodologies—based on “underlying” current account in 2008 and projected medium-term level—range from small overvaluation to modest undervaluation.
- Underlying deficit in 2008 estimated at about 6–9 percent points of GDP after excluding transient Iraq-related factors (1–4 percent of GDP) and temporary terms-of-trade movements (about 2 percent of GDP).

### Financial sector — measures and FSAP recommendations
- Current conditions:
  - Banking system liquidity comfortable; average capitalization high.
  - All banks compliant with capital adequacy requirements; NPL ratio edged up from 4.1 percent at end-2007 to 4.2 percent at end-2008.
  - Banks monitoring exposures, repricing credits, and cutting lines to higher-risk customers (real estate, foreign trade).
- Preemptive supervisory and stability measures taken/in progress:
  - Encourage banks to build capital buffers.
  - Enhance global consolidated supervision; increase contacts with foreign supervisors and on-site visits.
  - Early warning system operational.
  - CBJ recruiting 12 additional banking supervision staff.
  - New on-site supervisory manual in final stages; CBJ guidelines on stress testing to be issued.
  - Automated data collection system for enhanced off-site monitoring to be introduced.
  - Implementation of Basle II framework proceeding.
- FSAP Update recommendations (selected):
  - Short Term: encourage capital increases for banks near regulatory minimum; enhance consolidated supervision; strengthen contingency planning and early warning systems; strengthen CBJ supervisory staffing.
  - Medium Term: recapitalize central bank; adopt bank resolution framework with explicit exit procedures; enhance stress testing capacity.

### Structural reforms and data initiatives
- Public financial management:
  - 2009 budget prepared within a medium-term framework; results-oriented budgeting introduced in 2008.
  - Aim to extend coverage of Treasury Single Account and roll out GFMIS at six pilot sites from mid-2009.
- Other reforms:
  - New PPP law being drafted.
  - Plans to fully liberalize the petroleum sector over the medium term; new logistics company for fuel storage expected in 2009.
  - Consider reforming the National Aid Fund (NAF); social security reforms under discussion.
- Data improvements and SDDS:
  - New surveys to improve wages and earnings data.
  - Efforts to align budget coverage with government financing flows; expedited progress needed to reduce statistical discrepancy.
  - Additional technical assistance from the Fund, possibly through METAC, may be helpful.

### Public Debt Sustainability Analysis (Appendix I) — baseline and shocks
- Baseline:
  - In absence of fiscal consolidation, public debt expected to rise to around 65 percent of GDP in 2014.
  - Debt ratio dropped by 10 percentage points in 2008 due to rapid nominal GDP growth and Paris Club buyback.
  - Under 2009 budget and unchanged policies, debt ratio projected to increase by about one percentage point per year over medium term.
  - Average primary deficit (including grants) slightly exceeds 3 percent of GDP in 2009–14.
- Key baseline figures (in percent of GDP):
  - Central government debt including government guarantees (net): 2008 = 60.1; 2009 = 60.4; 2014 = 65.9
  - Foreign-currency denominated share of debt: 2008 = 25.8; 2009 = 23.3; 2014 = 12.8
  - Primary deficit (including grants): 2008 = 3.4; 2009 = 2.6; 2014 = 2.8
  - Revenue and grants: 2008 = 33.1; 2009 = 32.4; 2014 = 30.5
  - Gross financing need (percent of GDP): 2008 = 7.8; 2009 = 7.1; 2014 = 6.7
  - Gross financing need (in billions of U.S. dollars): 2008 = 1.6; 2009 = 1.5; 2014 = 2.1
- Vulnerability shocks:
  - 30 percent real exchange rate depreciation would increase debt-to-GDP by around 11 percentage points relative to baseline in 2009 and push ratio above 70 percent over projection period (given about one half of debt is foreign currency denominated).
  - One-time contingent liabilities shock of 10 percent of GDP in 2009 would keep debt path about 9 percentage points above baseline throughout projection period.
  - Individual one-half standard deviation shocks to growth, interest rates, or primary balance, and a combined one-fourth standard deviation shock, would produce debt ratios exceeding 70 percent by end of projection period.
- Policy scenarios:
  - Holding primary deficit constant at 3.4 percent of GDP over 2009–14 would keep debt ratio somewhat above baseline by 2014.
  - Fiscal adjustment of one percentage point per year (relative to baseline) would stabilize debt ratio around 60 percent of GDP.
  - Historical-average scenario would reduce debt ratio toward about 40 percent by 2014 if historical averages held.

### Annexes and IMF Executive Board conclusions (Public Information Notice)
- IMF Executive Board concluded 2009 Article IV consultation on May 4, 2009.
- Board assessment:
  - Sound macroeconomic management enhanced Jordan’s resilience: growth remains robust; reserves strengthened; banking sector healthy and profitable.
  - Near-term focus: guard against vulnerabilities, expedite structural reforms, and remain vigilant to deeper-than-anticipated slowdown.
  - Fiscal priorities: complete public financial management reform (Treasury Single Account, budget classification, GFMIS), enhance public debt management.
  - Data transparency: expedite progress toward SDDS subscription and align budget coverage with government financing flows.
- Selected indicators (as presented):
  - Real GDP at market prices (annual percentage changes): 8.1 8.0 6.6 5.6
  - Consumer price index (average): 3.5 6.3 5.4 14.9
  - Unemployment rate (percent): 14.8 14.1 13.1 12.7
  - Central government revenue and grants (percent of GDP): 33.2 32.8 33.4 33.0
  - Central government overall fiscal balance including grants (percent of GDP): -5.0 -3.6 -5.9 -6.1
  - Government and government-guaranteed net debt (percent of GDP): 83.7 69.9 70.0 60.1
  - Current account balance (percent of GDP): -17.4 -10.8 -17.7 -12.1
  - Gross usable international reserves ($ millions): 4,745 6,103 6,865 7,734
  - Broad money growth (annual percentage changes): 17.0 14.1 10.6 17.3
  - Credit to private sector (annual percentage changes): 30.3 24.5 15.3 14.8

*Source: IMF staff report (Executive Summary) contained in _cr09159 - Executive Summary_*

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

### EXECUTIVE SUMMARY

### Background — Overview
- Annual real GDP growth averaged 6 percent since the start of the decade; per capita GDP almost doubled from 1999 to 2008.
- Selected indicators (1990–95 / 1996–2000 / 2001–07 / 2008):
  - Real GDP growth: 5.2 / 3.2 / 6.6 / 5.6
  - Inflation, annual average: 6.3 / 2.8 / 3.4 / 14.9
  - Nominal GDP per capita (in U.S. dollars): 1,372 / 1,672 / 2,230 / 3,418
  - Unemployment rate (in percent of labor force): 17.3 / 13.8 / 14.5 / 12.7
  - Total government and government guaranteed net debt: 150.4 / 98.4 / 85.4 / 60.1
  - International reserves (in millions of U.S. dollars): 501 / 1,663 / 4,765 / 7,734
- Key near-term challenge: manage the prospective slowdown while guarding against vulnerabilities—especially the still-large current account deficit.

### Authorities’ views and near-term policy actions
- Fiscal: Authorities plan to increase capital spending substantially in 2009 to support activity. Lower subsidies (due to lower world food prices and removal of fuel subsidies last year) will allow some reduction in the overall fiscal deficit despite cyclical weakening in revenue and lower grants. Additional stimulus is not planned at this stage and will be undertaken only if additional concessional financing is forthcoming.
- Monetary and exchange rate: The peg to the U.S. dollar remains in place. The Central Bank of Jordan (CBJ) allowed the differential against dollar interest rates to widen to guard against any deterioration in the balance of payments. With reserves continuing to build, inflation falling sharply, and bank credit sluggish, cautious monetary easing is being undertaken.
- Banking sector: CBJ took pre-emptive measures to ensure confidence and liquidity in the interbank market, including a full guarantee of all bank deposits until end-2009 and reductions in reserve requirements. Banking supervision is being enhanced and banks are being encouraged to build capital buffers, in line with FSAP Update recommendations.

### Staff recommendations (summary)
- Fiscal stance for 2009: The 2009 fiscal stance strikes a reasonable balance between reducing vulnerabilities and supporting domestic activity. Further fiscal stimulus would carry significant risks; if undertaken, it should be temporary, well-targeted, and presented within a credible medium-term fiscal consolidation framework.
- Exchange rate and monetary policy: The peg remains appropriate for Jordan. As long as the balance of payments position remains broadly stable, there may be scope for a further modest cut in policy interest rates.
- Financial sector policies: Intensified banking supervision is warranted in the current environment. Steps taken by the CBJ are welcome. Intensified contingency planning to deal with worst-case situations is advisable.

### Recent macroeconomic developments (2008–early 2009)
- Growth and inflation:
  - Real GDP growth averaged 5.6 percent in 2008; preliminary data indicate a slowdown to 4 percent (y-o-y) in 2008Q4.
  - Headline inflation rose to 20 percent y-o-y in September 2008 and moderated to 1½ percent (y-o-y) by February 2009. Core inflation eased to below 4 percent.
- External sector:
  - Current account deficit narrowed to 12 percent of GDP in 2008 (from 17¾ percent in 2007 and 19 percent in 2008H1).
  - FDI financed about three quarters of the external deficit; positive errors and omissions accounted for much of the remainder (estimated at 7 percent of GDP in 2008).
  - Official foreign exchange reserves rose to $7.7 billion by end-2008 (equivalent to about 6 months of imports) and increased to $8.5 billion at end-March.
  - The real effective exchange rate appreciated by 6 percent in 2008.
- Money and financial markets:
  - Bank deposits edged down in October 2008 but subsequently recovered; the share of dinar deposits continued to increase.
  - Bank credit slowed sharply and was essentially flat since December 2008; share of credit to construction and real estate edged down in 2008Q4.
  - The stock market corrected since its June 2008 peak; between end-2007 and end-2009Q1 the market showed a 25 percent decline.
  - CBJ policy actions: full guarantee of all bank deposits until end-2009; cut policy interest rates by 50 bps in late November 2008 and by a further 50 bps in mid-March 2009; reserve requirement reduced by 100 bps in late 2008 and another 100 bps from end-April 2009.
- Fiscal developments:
  - Deficit excluding grants reached 11.2 percent of GDP in 2008, against 8.9 percent in 2007.
  - Summary of fiscal operations (prel. 2007 / 2008, in percent of GDP):
    - Total revenue and grants: 33.4 / 33.1
    - Budgetary revenue: 30.5 / 28.0
    - Tax revenue: 21.1 / 19.4
    - Nontax revenue: 9.4 / 8.6
    - Grants: 2.9 / 5.1
    - Total budgetary expenditure: 38.7 / 38.2
    - Current expenditure: 31.9 / 31.8
    - Fuel subsidy: 2.6 / 1.4
    - Food subsidy: 1.7 / 1.8
    - Capital expenditure and net lending: 6.7 / 6.4
    - Statistical discrepancy, net: 0.5 / 1.0
    - Financing (= deficit including grants): 5.9 / 6.1
    - Overall balance, excluding grants: -8.9 / -11.2
    - Primary balance excluding grants: -5.7 / -8.5
    - Government and guaranteed net debt: 70.0 / 60.1
  - Higher grants contained the overall deficit at 6.1 percent of GDP in 2008.
  - Rapid nominal GDP growth and the Paris Club debt buyback in early 2008 reduced total public debt to around 60 percent of GDP at end-2008 (from 70 percent of GDP at end-2007).
- Banking sector soundness:
  - Risk weighted capital adequacy ratio (2003–08): 15.9 / 17.8 / 17.6 / 21.4 / 20.8 / 18.3
  - Nonperforming loans (in percent of total loans, 2003–08): 15.5 / 10.3 / 6.6 / 4.3 / 4.1 / 4.2
  - Provisions (in percent of classified loans, 2003–08): 51.9 / 63.8 / 78.4 / 79.6 / 67.8 / 63.3
  - Return on asset (2003–08): 0.7 / 1.1 / 2.0 / 1.7 / 1.6 / 1.4
  - Return on equity (2003–08): 10.9 / 13.6 / 21.7 / 14.8 / 14.0 / 11.5
  - Stress tests (FSAP Update) indicate limited exposure to interest rate, liquidity, interbank contagion, and other market risks, but vulnerability to credit and concentration risks, especially in real estate, construction, and foreign trade sectors.
- Structural reforms: Continued progress on public financial management, including improved budget classification, implementation of a Chart of Accounts, preparations for GFMIS, and implementation of the first phase of the Treasury Single Account.

### Outlook and risks
- Short-term projection (2009):
  - Real GDP growth projected to slow to 3 percent in 2009.
  - Average inflation projected to decline to 4 percent.
  - Current account deficit projected to narrow to about 11 percent of GDP.
- Medium-term projection:
  - Growth expected to pick up to about 5½ percent as the global recovery sets in.
  - Inflation projected to ease to 2 percent.
  - Current account deficit projected to narrow to about 9½ percent of GDP (mainly from increased mining exports).
  - Fiscal assumptions: capital spending relative to GDP gradually eases toward recent average; taxes recover moderately; fiscal deficit excluding grants narrows significantly by 2014, but lower grants keep the overall fiscal deficit in the 5½–6½ percent range.
  - Public debt ratio projected to rise above its present level; adverse shocks to growth, interest rates, or the exchange rate would result in a significantly higher debt path.
- Key risks:
  - Financing the sizable current account deficit remains a major risk.
  - Adverse external shocks could widen the current account deficit substantially (weaker exports, tourism, remittances, and/or grants).
  - Tightening of liquidity in GCC countries may reduce capital flows into Jordan more than envisaged.
  - A deeper domestic slowdown could increase unemployment, weaken asset prices, and deteriorate banks’ loan portfolios.
  - Upside risk: the terms of trade gain from sharp declines in world fuel and food prices could support domestic demand and imply significant upside risk to staff projections.

*Source: IMF staff report (Executive Summary) contained in _cr09159 - Executive Summary_*

### 12.      The fiscal stance in 2009 seeks to keep the deficit in check while providing some

### 12.      The fiscal stance in 2009 seeks to keep the deficit in check while providing some

### Fiscal stance and 2009 projections
- Deficit excluding grants is projected to narrow by almost 1½ percent of GDP.
- Lower world commodity prices and the authorities’ plan to remove barley and liquefied petroleum gas (LPG) subsidies during the year will reduce expenditure by over 2 percentage points of GDP relative to 2008.
- A 30 percent increase in capital spending is planned to support economic activity.
- Further cyclical weakening in sales tax and customs revenue is expected.
- With foreign grants expected to decline somewhat, the overall deficit is projected to narrow by almost 1 percentage point to about 5¼ percent of GDP.
- Staff caution: projections assume that grants will remain relatively high; any shortfall would heighten fiscal and external vulnerabilities.
- Footnote: Most of the projected decline in subsidies is due to lower commodity prices, with around ¼ percent of GDP attributable to policy changes.

### Summary of Fiscal Operations (2009; in percent of GDP) — as presented
- Prel. Budget 2008 / 2009 Proj. (columns implied in source)
- Total revenue and grants: 33.1 35.4 32.4
- Budgetary revenue, of which: 28.0 30.9 27.9
- Tax revenue: 19.4 21.2 18.9
- Nontax revenue: 8.6 9.7 9.0
- Grants: 5.1 4.5 4.5
- Total budgetary expenditure: 38.2 39.9 37.8
- Current expenditure, of which: 31.8 31.2 29.9
- Fuel subsidy: 1.4 0.4 0.1
- Food subsidy: 1.8 1.4 0.9
- Capital expenditure and net lending: 6.4 8.7 7.9
- Statistical discrepancy, net: 1.0......
- Financing ( = deficit including grants): 6.1...5.3
- Memorandum item:
  - Overall balance, excluding grants: -11.2 -8.9 -9.8
  - Primary balance excluding grants: -8.5 -6.1 -7.0
  - Government and guaranteed net debt: 60.1...60.4
- Sources: Jordanian authorities; and Fund staff projections.

### Authorities’ stance on spending and medium-term consolidation
- Authorities intend to proceed cautiously regarding calls for increased spending due to already high public debt ratio and fiscal deficit.
- Any additional spending would be undertaken only if additional grants and/or concessional loans are forthcoming, and would be:
  - well targeted,
  - temporary,
  - accompanied by a credible plan for consolidating public finances over the medium term.
- Staff caution: even without additional spending and absent tightening measures, public debt would exceed the legislative ceiling for 2011 of 60 percent of GDP.
- A reduction of the deficit by over 1 percent of GDP a year would be needed to keep the debt ratio on a downward trajectory.
- Authorities intend to significantly reduce the deficit over the medium term and agreed that adjustment should concentrate on the expenditure side given the relatively high revenue ratio.
- Public sector reform strategy could include pension and civil service reforms; income tax reform will be considered to enhance tax system efficiency.

### Fiscal structural and public financial management reforms
- 2009 budget prepared within a medium-term framework; results-oriented budgeting introduced in 2008.
- Ongoing efforts to strengthen public financial management:
  - Aim to extend coverage of the Treasury Single Account to government accounts in commercial banks.
  - Begin rolling out the GFMIS at six pilot sites from mid-2009.

### Monetary and exchange rate policy
- Monetary policy geared to maintaining confidence in the exchange rate peg and adequate domestic liquidity.
- Interbank market tightened after global financial turbulence; CBJ measures restored liquidity quickly.
- CBJ took a cautious approach to following U.S. interest rate cuts, allowing the interest differential to widen to avoid balance of payments pressure.
- Confidence in the peg evidenced by switching from dollar to dinar deposits and an improving current account, which allowed the CBJ to cut rates in March.
- Timing of future cuts will depend on inflation, bank credit, and the balance of payments.
- Once bank credit growth normalizes, CBJ ready to tighten liquidity by resuming issuance of certificates of deposit (CDs).
- Recapitalization of the CBJ will be considered over the medium term to strengthen its balance sheet.
- Authorities emphasize profit and loss considerations will not influence monetary policy conduct.
- Authorities concurred with staff that the real exchange rate of the dinar is broadly in line with fundamentals.
- Noted that the current account narrowed substantially in response to lower world fuel and food prices; considerable further narrowing in 2009 expected with full-year impact.
- Significant part of errors and omissions may represent unrecorded current inflows; transactions related to transient Iraqi migrants may have temporarily widened the current account deficit; the “underlying” current account deficit likely narrower than recorded.

### Exchange rate assessment (summary points from Box 2)
- Staff estimates: real exchange rate of the dinar broadly in line with medium-term fundamentals.
- Averages of estimates from alternative methodologies—based on the “underlying” current account in 2008 and its projected level over the medium term—range from small overvaluation to modest undervaluation.
- Wide range of estimates across approaches underscores imprecision and suggests caution in definitive policy prescriptions.
- Estimated “underlying” deficit excludes transient factors related to the conflict in Iraq (1–4 percent of GDP in 2008) and temporary terms of terms movements related to high commodity prices in 2008 (about 2 percent of GDP). Thus, the underlying deficit in 2008 is estimated at about 6–9 percent points of GDP, significantly narrower than the actual level.

### Financial sector—current conditions and measures
- Banking system liquidity position is comfortable; average capitalization ratio remains high.
- All banks in compliance with capital adequacy requirements and comfortably meeting liquidity requirements.
- Limited impact on credit quality: NPL ratio edged up from 4.1 percent at end-2007 to 4.2 percent at end-2008.
- Banks monitoring exposures closely, repricing credits and/or cutting credit lines to higher-risk customers, especially in real estate and foreign trade.
- Authorities view portfolio rebalancing process may be nearing completion; hopeful credit growth will normalize.

### Preemptive supervisory and stability measures (incl. FSAP recommendations)
- Measures broadly in line with FSAP Update recommendations:
  - Encourage banks to build capital buffers via profit retention and capital injections.
  - Enhance global consolidated supervision, including increased contacts with foreign supervisory agencies and on-site visits.
  - Early warning system for monitoring risks now operational.
  - CBJ recruiting 12 additional banking supervision staff.
  - New on-site supervisory manual in final stages; CBJ guidelines on stress testing to be issued soon.
  - Automated data collection system for enhanced off-site monitoring to be introduced in the next few months.
  - Implementation of the Basle II framework proceeding in line with expectations; FSAP Update found nearly all supervision principles largely compliant or better with the Basle Core Principles.
- Box 3: FSAP Financial Stability Recommendations
  - Short Term: Encourage banks near regulatory minimum to increase capital; Enhance global consolidated supervision; Strengthen contingency planning framework; Enhance early warning system; Strengthen staffing of CBJ supervisory department.
  - Medium Term: Recapitalize central bank; Adopt bank resolution framework with explicit exit procedures; Enhance stress testing capacity of the CBJ and commercial banks.

### Other structural reforms and data initiatives
- New Public-Private Partnerships (PPP) law being drafted to enhance regulatory framework and attract private financing for PPP projects.
- Plans to fully liberalize the petroleum sector over the medium term; a new logistics company responsible for fuel storage expected to be established in 2009.
- Authorities considering reforming the National Aid Fund (NAF) to improve targeted assistance to the poor.
- Social security reforms under discussion to enhance actuarial soundness of the pension system.
- Authorities working toward meeting remaining requirements for Special Data Dissemination Standards (SDDS) subscription:
  - New surveys designed to improve compilation and timeliness of wages and earnings data.
  - Efforts to align coverage of budget revenues and expenditures with government financing flows; expedited progress needed to reduce still-high statistical discrepancy in fiscal accounts.
  - Additional technical assistance from the Fund, possibly through METAC, may be helpful.

### Staff appraisal — key findings and policy recommendations
- Macroeconomic policies should remain focused on guarding against external and fiscal vulnerabilities given the adverse global outlook.
- Projected 2009 fiscal stance balances reducing vulnerabilities and supporting domestic activity; widening of the deficit relative to the budget seen as moderate stimulus.
- Further fiscal stimulus beyond the baseline carries significant risks:
  - Large share of any additional spending likely associated with increased imports, damping domestic impact and widening external deficit.
  - Efficiency of an even larger increase in capital spending would be difficult to maintain.
  - If further stimulus undertaken, it must be temporary, carefully targeted, and accompanied by a credible medium-term deficit reduction plan to maintain confidence.
- Once cyclical conditions improve, significant fiscal tightening needed to reduce public debt and vulnerabilities:
  - Given high revenue ratio, adjustment should concentrate on expenditures.
  - Reducing the overall deficit by about 1 percentage point of GDP a year is appropriate—achievable by limiting growth of recurrent spending, especially wages and pensions, supported by pension and civil service reforms.
  - This would help narrow external deficit and free domestic financing to support private sector growth.
  - If additional stimulus is undertaken in 2009, the necessary medium-term fiscal adjustment will need to be correspondingly larger.
- Monetary policy: moderate easing is appropriate provided reserves remain broadly stable and inflation remains in check; close monitoring of CBJ’s external and financial early warning indicators required to tighten liquidity quickly if balance of payments pressure emerges.
- Exchange rate peg remains appropriate nominal anchor; dinar broadly aligned with medium-term fundamentals.
- Banking sector: despite generally favorable indicators, weaker global environment poses significant risks; intensify banking supervision, strengthen contingency planning, coordinate CBJ, Ministry of Finance, and Deposit Insurance Corporation for worst-case situations.
- Public sector structural reforms: top priority to complete public financial management reforms—fully implement treasury single account, improve budget classification and control, roll out GFMIS, strengthen medium-term budget framework; continue enhancing public debt management (supported by Fund TA).
- Data improvements: priority to meet SDDS requirements—improve compilation and coverage of wages and earnings, align budget coverage with government financing flows, identify gaps in balance of payments to explain errors and omissions, improve quarterly production-based national accounts and frequency/timeliness of expenditure-based national accounts, and compile property price data.

*Source: Jordanian authorities; and Fund staff projections (IMF staff report content provided).*

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

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

### Real Sector Developments
- Output growth eased in 2008.
- Contributions moderated from trade and construction activity.
- Unemployment continued to decline.
- Industrial production decelerated significantly in the second half of 2008.
- Key indicators (as reported in Figure 1):
  - Growth y-o-y (In percent): plotted years 2000–2008 (0, 3, 6, 9, 12 scale shown).
  - Sectoral contribution to growth (In percent): plotted for 2006, 2007, 2008 (components include Trade, wholesale&retail; Financial/real estate; Transport and Communication; Government services; Construction; Manufacturing; Other).
  - Unemployment Rate (In percent): plotted 2000–2008 on a 12–16 scale.
  - Industrial Production (Annual growth, moving average): series showing Dec-04 to Dec-08 with annual growth (moving average) in range 0–14.

### External Sector Developments
- International reserves have continued to increase.
- Remittances and FDI inflows edged down.
- Errors and omissions in the BOP remained high.
- In 2008, a decline in textile exports to the U.S. was more than offset by strong commodity export growth.
- Since late 2008, import and export growth have fallen substantially, driven mostly by lower prices (especially fuel).
- Key indicators (from Figure 2 and Table 2):
  - Commodity export growth and Textile export growth: percentage changes shown for 2005-06, 2007, 2008 (examples: 5%, 31%, -9%, -15%, 109%, 15%, -40%, -20%, 0%, 20%, 40%, 60%, 80%, 100%, 120%).
  - Gross usable international reserves (In millions of US dollars): time series points include 4,745; 6,103; 6,865; 7,734; 7,311; 7,318; 7,480; 7,717; 7,935; 8,203 (Table 1).
  - Current account balance (In percent of GDP): -17.4; -10.8; -17.7; -12.1; -10.8; -10.6; -10.5; -9.9; -9.7; -9.6 (Table 1).
  - Current account balance (In millions of U.S. dollars): -2,199; -1,599; -2,933; -2,427; -2,346; -2,479; -2,617; -2,632; -2,802; -2,978 (Table 2).
  - Exports of goods, f.o.b. ($ billions) 2005–2014: 4.3; 5.2; 5.7; 7.8; 6.8; 7.5; 8.2; 8.9; 9.7; 10.6 (Table 1).
  - Imports of goods, f.o.b. ($ billions) 2005–2014: 9.3; 10.3; 12.2; 15.0; 13.7; 14.5; 15.7; 16.9; 18.3; 19.7 (Table 1).
  - Oil and oil products ($ billions) series: 2.2; 2.4; 2.6; 3.3; 2.0; 2.2; 2.5; 2.7; 3.0; 3.2 (Table 1).

### Monetary and Financial Indicators
- Construction related credit growth continued to moderate.
- The banking system's loan-to-deposit ratio has edged down in recent months.
- Commercial bank lending rates edged up, reflecting repricing of credits.
- Money growth picked up modestly in 2008, but private sector credit growth began to ease late in the year.
- Key statistics (from Figures 3 and Tables 3–4):
  - Broad money annual growth series: 17.0; 14.1; 10.6; 17.3; 7.1; 7.7; 6.7; 7.2; 7.8; 7.5 (Table 3 memo).
  - Credit to private sector (annual growth, percent): 30.3; 24.5; 15.3; 14.8; 7.2; 7.0; 5.0; 5.8; 7.6; 7.3 (Table 3 memo).
  - Deposits (y-o-y) and Loans (y-o-y) series plotted April-04 to Dec-08; Loan-deposit ratio (right-axis) shown.
  - Interest rates in banks plotted Apr-04 to Dec-08: interbank rate, Avg. Lending rate, Avg. Time deposit rate (0–10 scale shown).
  - Banking sector indicators (Table 7):
    - Nonperforming loans (excluding interest in suspense, as percent of loans): 17.1; 15.5; 10.3; 6.6; 4.3; 4.1; 4.2.
    - Risk-weighted capital adequacy ratio (in percent): 16.6; 15.9; 17.8; 17.6; 21.4; 20.8; 18.3.
    - Credit to private sector (in percent of GDP): 65.9; 61.5; 72.7; 85.6; 90.7; 93.9; 89.1.

### Fiscal Developments and Public Finances
- Domestic revenue softened, while external grant receipts increased in 2008.
- Current spending remained steady.
- The underlying budget deficit excluding grants widened in 2008.
- The external debt ratio declined sharply following the Paris Club buyback, although domestic debt increased.
- Key fiscal figures (from Figures and Tables 5–6):
  - Domestic revenue, grants, and total revenue and grants (In percent of GDP): Total revenue and grants series 33.2; 32.8; 33.4; 33.1; 35.4; 32.4; 30.6; 30.6; 30.5; 30.5 (2005–14).
  - Overall fiscal balance including grants (In percent of GDP): -5.0; -3.6; -5.9; -6.1; -4.5; -5.3; -6.5; -6.3; -6.1; -5.6; -5.5 (Table 5).
  - Overall fiscal balance excluding grants (In percent of GDP): -10.0; -6.7; -8.9; -11.2; -8.9; -9.8; -9.1; -8.6; -8.2; -7.8; -7.5 (Table 6 memo).
  - Government and government-guaranteed net debt (In percent of GDP): 83.7; 69.9; 70.0; 60.1; ...; 60.4; 62.1; 63.9; 65.0; 65.3; 65.9 (Table 5).
  - Of which: External debt (In percent of GDP): 56.5; 49.3; 44.8; 25.8; ...; 23.4; 20.9; 18.7; 16.5; 14.4; 12.8 (Table 5).
  - Budgetary revenue and expenditure (In millions of Jordanian dinars, 2005–14): Total revenue and grants examples: 2,971; 3,454; 3,920; 4,690; 5,436; 4,974; 5,053; 5,405; 5,778; 6,228; 6,687 (Table 5).
  - Fuel subsidy (In percent of GDP): 5.6; 2.6; 2.6; 1.4; 0.4; 0.4; 0.1; 0.0; 0.0; 0.0; 0.0 (Table 6).

### Macroeconomic Outlook and Projections (Selected)
- Output and prices (annual percentage changes, projections 2009–14 shown in Table 1):
  - Real GDP at market prices series: 8.1; 8.0; 6.6; 5.6; 3.0; 4.0; 4.5; 5.0; 5.5; 5.5.
  - GDP deflator at market prices series: 2.4; 8.8; 4.5; 14.6; 5.1; 3.6; 2.1; 2.1; 2.2; 1.8.
  - Nominal GDP at market prices (JD millions) examples: 8,954; 10,521; 11,722; 14,190; 15,354; 16,536; 17,637; 18,913; 20,397; 21,916.
  - Nominal GDP at market prices ($ millions) examples: 12,629; 14,839; 16,532; 20,013; 21,656; 23,323; 24,876; 26,676; 28,767; 30,911.
- External sector projections (Table 2 highlights):
  - Current account (in percent of GDP) projected to remain large negative: -10.5; -9.9; -9.7; -9.6 for later projection years.
  - Private capital inflows (net, percent of GDP): 19.6; 24.0; 22.4; 18.1; 8.5; 11.1; 11.9; 11.7; 11.4; 11.4.
  - Gross usable international reserves projections (In millions of U.S. dollars): 7,480; 7,717; 7,935; 8,203.

### Balance of Payments and Financing Details
- Summary BOP flows (Table 2):
  - Trade balance (In millions): -5,015; -5,056; -6,451; -7,216; -6,854; -6,958; -7,524; -8,017; -8,569; -9,119.
  - Services (net) and travel receipts: Services (net) examples -209; -63; -68; 30; 33; 133; 82; 46; 152; 85; travel receipts examples 1,441; 2,061; 2,311; 2,945; 2,651; 2,889; 3,149; 3,401; 3,640; 3,894.
  - Current transfers (net) examples 2,616; 2,940; 2,779; 3,535; 3,414; 3,178; 3,295; 3,417; 3,599; 3,771.
  - Capital account (total) examples 2,251; 3,312; 3,355; 1,347; 1,759; 2,418; 2,794; 2,938; 3,093; 3,320.
  - Errors and omissions: examples 814; -571; 1,299; 1,408; (later years shown as ..................).

### Central Bank and Monetary Accounts
- Central bank summary (Table 4 highlights):
  - Net foreign assets (stocks in millions of JD) example: 4,004; 4,984; 5,215; 5,137; 5,506; 5,671; 4,607; 5,464; 6,204; 6,238; 5,954.
  - Jordanian dinar reserve money (stocks in millions of JD): 2,821; 3,386; 3,199; 3,436; 3,270; 3,653; 3,584; 3,826; 4,301; 4,513; 4,773.
  - Money multiplier (for JD liquidity) examples: 3.4; 3.2; 3.5; 3.3; 3.6; 3.3; 3.5; 3.6; 3.4; 3.3; 3.4.

### Financial Vulnerability Indicators
- External public debt and reserves (Table 7):
  - Gross external public debt (In millions US$) examples: 7,222; 7,599; 7,541; 7,132; 7,315; 7,409; 5,154.
  - Gross usable reserves (In millions US$) 3,495; 4,740; 4,826; 4,745; 6,103; 6,865; 7,734.
  - Gross usable reserves (In percent of M2) series: 29.4; 35.5; 32.4; 27.2; 30.7; 31.2; 30.0.
  - Net international reserves (In percent of M2) series: 25.1; 32.5; 29.8; 26.1; 30.3; 31.4; 29.9.

### Indicators of Fund Credit and Debt Service
- Total Fund credit outstanding at end-period (Table 8):
  - In millions of SDR: 165.3; 105.2; 55.4; 17.9; 2.5; 0.0; 0.0; 0.0; 0.0; 0.0 (2005–14).
  - In millions of U.S. dollars: 236.6; 158.7; 87.3; 27.2; 7.2; 3.8; 0.0; 0.0; 0.0; 0.0.
  - In percent of Quota: 97.0; 61.7; 32.5; 10.5; 1.5; 0.0; 0.0; 0.0; 0.0; 0.0.
  - Charges and interest (In millions of SDR): 7.4; 7.6; 5.5; 2.6; 1.0; 0.6; 0.5; 0.5; 0.5; 0.5.

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

### Appendix I. Public Debt Sustainability Analysis

### Appendix I. Public Debt Sustainability Analysis

### Baseline outlook and projections
- In the absence of fiscal consolidation measures, Jordan’s public debt is expected to rise steadily to around 65 percent of GDP in 2014.
- The debt ratio dropped by 10 percentage points in 2008, thanks to rapid nominal GDP growth and the Paris Club debt buyback.
- Based on the 2009 budget and assuming largely unchanged policies thereafter, the debt ratio is projected to increase by about one percentage point per year over the medium term.
- Under the baseline outlook, the average primary deficit (including grants) slightly exceeds 3 percent of GDP in 2009–14.

### Key baseline figures (selected)
- Central government debt including government guarantees (net): 2008 = 60.1; 2009 = 60.4; 2014 = 65.9 (in percent of GDP).
- Foreign-currency denominated share of debt: 2008 = 25.8; 2009 = 23.3; 2014 = 12.8 (in percent of GDP).
- Primary deficit (including grants): 2008 = 3.4; 2009 = 2.6; 2014 = 2.8 (in percent of GDP).
- Revenue and grants: 2008 = 33.1; 2009 = 32.4; 2014 = 30.5 (in percent of GDP).
- Primary (noninterest) expenditure: 2008 = 36.5; 2009 = 35.0; 2014 = 33.3 (in percent of GDP).
- Gross financing need (in percent of GDP): 2008 = 7.8; 2009 = 7.1; 2014 = 6.7.
- Gross financing need (in billions of U.S. dollars): 2008 = 1.6; 2009 = 1.5; 2014 = 2.1.

### Vulnerabilities and bound-test shocks
- Exchange-rate shock:
  - Because almost one half of the debt is foreign currency denominated, a 30 percent real exchange rate depreciation would increase the debt-to-GDP ratio by around 11 percentage points relative to the baseline in 2009 and the ratio would exceed 70 percent over the projection period.
- Contingent liabilities shock:
  - A one-time contingent liabilities shock—an increase in the debt ratio by 10 percent of GDP in 2009—would cause the debt path to remain about 9 percentage points above the baseline throughout the projection period.
- Standard-permanent and smaller shocks:
  - Individual one-half standard deviation shocks to real growth, interest rates, and the primary balance, and a combined one-fourth standard deviation shock, would result in debt-to-GDP ratios exceeding 70 percent by the end of the projection period.
- Bound-test summary (qualitative):
  - Debt outlook remains vulnerable to adverse shocks; shaded bound tests show scenarios (interest rate shock, growth shock, combined shocks, 30% depreciation, contingent liabilities) that can materially worsen the debt path.

### Policy scenarios and requirements to stabilize debt
- Holding primary deficit constant:
  - Holding the primary deficit constant at 3.4 percent of GDP (its 2008 level) over 2009–14 would keep the debt ratio somewhat above the baseline scenario by 2014.
- Fiscal adjustment:
  - Fiscal adjustment of one percentage point per year (relative to the baseline) would stabilize the debt ratio around 60 percent of GDP.
- Historical-average scenario:
  - The debt ratio would decline (approaching 40 percent by 2014) if key assumptions are held at their historical averages, reflecting that the primary deficit (including grants) was, on average, in balance during 1999–2008.

### Mechanics and diagnostics
- Identified debt-creating flows (2009 baseline): 0.8 (change in central government debt identified as 4+7+12, in percent of GDP).
- Automatic debt dynamics contribution (2009 baseline): -1.8 (in percent of GDP).
- Residual, including asset changes (2009 projection): -0.5 (in percent of GDP).
- Central government debt-to-revenue ratio (2009 baseline): 186.5 (in percent).
- The analysis defines public debt as government and government-guaranteed debt; the domestic component is net of government deposits with the banking system, including privatization proceeds.

*Source: Appendix I. Public Debt Sustainability Analysis, IMF staff estimates (from _cr09159).*

### Annex II. Jordan: World Bank Group Strategy and Operations

### Annex II. Jordan: World Bank Group Strategy and Operations

### World Bank portfolio and performance
- As of December 31, 2008, Jordan had received 72 World Bank (Bank) loans, 2 guarantees, and 15 IDA credits totaling $2,405 million net of cancellations and terminations.
- Of the $2,405 million, $2,195 million have been disbursed to date.
- All the credits and 65 of the loans have been fully disbursed.
- There are seven active projects in the Bank’s portfolio for a total of $303.5 million.
- Overall performance of the portfolio is reported as good, reflecting:
  - generally good project implementation capacity of Jordanian institutions;
  - Jordan’s strong ownership of the program; and
  - the quality of the dialogue between the Bank and the government of Jordan.

### Country Assistance Strategy (CAS) 2006–10: objectives and program
- The Joint World Bank-IFC country assistance strategy (CAS) for 2006–10, endorsed in May 2006, is aligned with government priorities in the Ten-year National Agenda: poverty alleviation and creation of higher productivity jobs, while assisting transition through medium-term economic shocks.
- CAS four cross-sectoral clusters:
  - strengthening the investment environment and building human resources for value-added, skill-intensive, and knowledge-based economy;
  - supporting local development through increased access to services and economic opportunities;
  - reforming social assistance and expanding inclusion;
  - restructuring public expenditures and supporting public sector reform.
- CAS design and implementation notes:
  - Important cross-cutting issues such as gender and the environment will be mainstreamed.
  - Sectoral concerns (water and energy) will be integrated through a thematic approach.
  - CAS mixes policy lending, investment lending, and analytical services to address short-term financial challenges and longer-term institutional developments.
  - Lending ceiling up to US$540 million over four years.

### Recent Bank approvals and planned operations
- Since CAS discussions the Bank approved:
  - five investment loans and one supplemental loan for a total commitment amount of US$146 million, focusing on regionally balanced growth, access to services, employment opportunities, private investments outside Amman, social protection, and vocational and training sector reform.
  - a partial risk guarantee for the Amman East 370 MW power plant for US$45 million.
- Planned Board presentations this fiscal year:
  - two additional investment projects focusing on education and higher education reform (for about US$45–85 million);
  - a partial risk guarantee (for about US$47 million).
- Government sought Bank support to develop overall policy frameworks and serve as a catalyst for additional financing.
- Programmatic Bank support during the remaining CAS period will continue in:
  - public expenditure management,
  - social insurance,
  - poverty monitoring,
  - energy sector reform.

### World Bank Group and IFC private sector support
- World Bank Group support to private sector development will focus on:
  - improving the investment environment,
  - public private partnerships,
  - partial risk guarantees for major projects (to attract private sector participation and provide better financial packages for critical projects in water and energy),
  - IFC direct investment.
- IFC activity and positioning:
  - In FY08, IFC committed US$243 million in 8 projects—the largest investment program in Jordan—bringing the total committed portfolio to US$253 million.
  - IFC is playing a key role supporting strategic projects and is well positioned to support and mobilize financing in transportation, water, power, and ports.
  - IFC advisory activities aim to address critical areas for private sector development, such as improving the investment climate.
- The GoJ has brought a number of key infrastructure projects to the market for private participation.

### Joint Bank–IMF collaboration program (selected items and timing)
- Mutual information and joint work program highlights (provisional timing and expected delivery dates as provided):
  - Country Assistance Strategy Progress Report — Main Mission 1/2009; Board Disc. 4/2009.
  - Price Shocks and Subsidy Reform: Fiscal and Poverty Impact Study — Main Mission: 9/2008.
  - ICR ROSC — Main Mission: 1/2009; Report: 4/2009.
  - PFM TA (MTEF and budget preparation) — Ongoing; FY09.
  - Statistics TA (household survey, poverty mapping, wage and earnings data, and statistical master plan) — Ongoing; FY09.
  - Sector work on the social safety net, energy, and PPP framework — Work will be ongoing throughout FY09; next mission dates include Energy Strategy: 02/2009; Social Insurance: 3/2009; PPP: 1/2009.
- IMF work program (next 12 months timing shown):
  - Staff visit (budget discussion) — August 2009.
  - Article IV consultation — March 2009; May 2009; August 2009 (dates listed in table).
- Joint products and missions:
  - FSAP update — October 2008.
  - Debt management TA — June 2009 (with 2009 Article IV; August 2009).

### Annex III. Jordan: Statistical Issues

### General assessment
- Data provision is adequate for surveillance purposes, but staff analysis would be facilitated by improvements in coverage of fiscal, external, and national accounts statistics.
- Jordan has participated in the General Data Dissemination System (GDDS) since September 2000; GDDS metadata last updated in May/June 2007.
- An update to the data module for the Report on the Observance of Standards and Codes (ROSC) was posted in February 2004.
- Special Data Dissemination Standard (SDDS) assessment missions visited Amman in late 2006 and July 2007 to assist with SDDS subscription preparations.

### Real sector statistics
- Progress has been made in enhancing quality of national accounts statistics, but continued improvement requires strong commitment and additional resources.
- Needed improvements:
  - quarterly estimates of national accounts from the production approach;
  - annual estimates from the expenditure approach;
  - coverage of informal activities;
  - addressing discrepancies between the industrial production index and gross value added estimates for the manufacturing sector.
- New surveys have been implemented to improve compilation and timeliness of wages and earnings data.

### Price indices
- CPI and PPI are considered of good quality.
- CPI rebased and updated with 2006 weights starting from January 2009; covers all main urban centers and cities at the governorate level.
- PPI compiled since 2000; weights derived from the 1999 Survey of Industry at the 4-digit level; within-industry weights based on the 1999 Economic Establishment Census.

### Government finance statistics
- STA mission (July 2007) reviewed metadata for SDDS subscription and assisted in compiling financing data on central and general government operations.
- Current coverage shortfalls:
  - government finance statistics for the budgetary central government cover only transactions channeled through the treasury account and exclude other ministry transactions (grants and loans, earmarked taxes, privatization receipts);
  - social security and extrabudgetary agencies are not included in fiscal accounts.
- Required improvements ahead of SDDS subscription:
  - dissemination of data on central and general government operations with SDDS-prescribed coverage, periodicity, and timeliness in accordance with GFSM 2001 classification and sectorization;
  - enhanced procedures for verification of internal and intersectoral consistency of stock and flow data serving as source for government finance statistics;
  - strengthening government financing data by instrument and residency consistent with SDDS requirements.

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

### Balance of payments (BOP) and IIP
- CBJ adopted BPM5 methodology for BOP and IIP compilation and disseminates data in BPM5 format.
- Implementation of surveys in services area is important for further improvement.
- CBJ started compiling and disseminating the reserves template on its website.
- IIP data for 2004–05 incorporate results of the Department of Statistics foreign direct investment survey (released May 2007).
- A recent sharp increase in errors and omissions points to potentially serious issues in BOP statistics that need to be addressed.

### Common indicators (as of April 3, 2009) — selected data and periodicity notes
- Exchange rates: Date of latest observation Apr. 2009; Date received Apr. 2009; Frequency of data: W; Frequency of reporting: M; Frequency of publication: W.
- International reserve assets and reserve liabilities of the monetary authorities: Date of latest observation Mar. 2009; Date received Mar. 2009; Frequency of data: W; Frequency of reporting: M; Frequency of publication: M.
- Reserve/base money and Broad money: Date of latest observation Jan. 2009; Date received Mar. 2009; Frequency of data: MM; Frequency of reporting: M; Frequency of publication: M.
- Consumer price index: Date of latest observation Feb. 2009; Date received Mar. 2009; Frequency of data: M; Frequency of reporting: M; Frequency of publication: M.
- Revenue, expenditure, balance and composition of financing—general government: Date of latest observation 2008; Date received Mar. 2009; Frequency: A; Frequency of reporting: A; Frequency of publication: A.
- External current account balance: Date of latest observation Q4 2008; Date received Mar. 2009; Frequency: Q; Frequency of reporting: Q; Frequency of publication: Q.
- GDP/GNP: Date of latest observation Q4 2008; Date received Mar. 2009; Frequency: Q; Frequency of reporting: Q; Frequency of publication: Q.
- Footnote summaries on data quality use ROSC assessments indicating observation levels: O (fully observed), LO (largely observed), LNO (largely not observed), NO (not observed), NA (not available).

### Public Information Notice (PIN) No. 09/59 — IMF Executive Board conclusion of 2009 Article IV Consultation with Jordan

### Macroeconomic background and 2008 performance
- IMF Executive Board concluded the 2009 Article IV consultation with Jordan on May 4, 2009.
- 2008 macroeconomic performance described as generally favorable:
  - Real GDP growth averaged 5.6 percent.
  - Headline inflation fell sharply from about 20 percent year-on-year (y-o-y) in September (mainly due to prior surge in commodity prices) to 1½ percent (y-o-y) by February 2009.
  - Current account deficit narrowed to an estimated 12 percent of GDP in 2008 (from almost 18 percent in 2007).
  - FDI financed about three-quarters of the external deficit; the remainder largely came from positive errors and omissions.
  - Official foreign exchange reserves rose to $7.7 billion by end-2008 (equivalent to about 6 months of imports).

### Financial sector and monetary developments
- Money and financial markets weakened since mid-2008:
  - Bank deposits edged down slightly in October but subsequently recovered, with share of dinar deposits increasing.
  - Bank credit slowed sharply in recent months.
  - Stock market corrected since its June peak; performance between end-2007 and end-Q1 2009 was a 25 percent decline.
- Central Bank of Jordan (CBJ) policy responses:
  - October: full guarantee of all bank deposits until end-2009.
  - Operations to soak up liquidity were scaled back, and banks’ excess reserves increased sharply.
  - Late November: policy interest rates cut by 50 bps and the reserve requirement cut by 100 bps.
  - U.S. Federal Reserve deeper cuts widened the interest rate differential against the dollar (to which the dinar is pegged).
  - With reserves building, moderating headline inflation, and decelerating bank credit, CBJ cut rates by a further 50 bps in mid-March 2009 and announced reserve requirement would be reduced by another 100 bps from end-April.

### Fiscal developments in 2008
- High fuel and food prices and softening domestic revenues put pressure on the fiscal position in 2008.
- The deficit excluding grants reached 11.2 percent of GDP, against 8.9 percent in 2007.
- Outcome could have been worse given record world oil prices; the early 2008 decision to remove fuel subsidies and institute an automatic price adjustment mechanism helped.
- Higher grants contained the overall deficit (text ends before full fiscal outturn detail).

*Annex II and Annex III, and Public Information Notice (PIN) No. 09/59 as provided in the source PDF.*

### 6.1 percent of GDP. Rapid nominal GDP growth, together with the Paris Club debt buyback in

### _cr09159 - 6.1 percent of GDP. Rapid nominal GDP growth, together with the Paris Club debt buyback in

### Fiscal position and public debt
- Rapid nominal GDP growth, together with the Paris Club debt buyback in early 2008, resulted in a substantial reduction in total public debt to around 60 percent of GDP at end-2008 (from 70 percent of GDP at end-2007).
- The 2008 budget aimed to contain the overall deficit including grants to 4½ percent of GDP by raising revenue by about 12 percent in nominal terms and eliminating fuel subsidies that had amounted to 2.7 percent of GDP in 2007; the overall deficit reached about 6 percent of GDP.
- The 2009 budget:
  - Provides for a modest fiscal stimulus while adhering to fiscal consolidation objectives.
  - Targets a reduction in the deficit excluding grants by 1½ percent of GDP.
  - Aims to increase capital spending by about 2¼ percent of GDP.
- Authorities’ priorities and required actions:
  - Reduce public debt to meet the legislative ceiling of 60 percent of GDP by 2011.
  - Achieve a reduction of the deficit from its present level by over 1 percent of GDP a year, with the bulk of adjustment coming from the expenditure side given the relatively high revenue ratio.
  - Implement public sector reform strategy, enhance financial control, improve efficiency of expenditures, implement a Treasury Single Account, improve budget classification, and prepare for a financial management information system.
- Recommendation from Directors:
  - Maintain fiscal restraint, resist spending pressures, and adjust capital spending plans should grants fall below expectations.

### Banking sector and financial stability (FSSA / FSAP Update)
- Banking sector profitability and soundness indicators have so far remained favorable.
- Key structural and supervisory points:
  - Banks’ liquidity ratios are high and funding is predominantly from deposits.
  - Capitalization is healthy; the moderate decline in the capital adequacy ratio in 2008 owes mainly to the implementation of Basle II standards, especially the incorporation of operational risk.
  - Banks maintain capital ratios well above the regulatory minimum 12 percent ratio.
  - Stress tests indicate limited exposure to interest rate, liquidity, interbank contagion, and other market risks, but vulnerability to credit and concentration risks was identified.
  - Supervisory strengthening: high degree of compliance with Basel Core Principles (BCP); increased staffing in supervisory units; on-site supervisory visits to foreign subsidiaries of large banks; Insurance Commission issuing regulations and implementing a new risk-based supervision framework.
  - CBJ has urged banks to bolster their capital buffers and remains vigilant in monitoring bank performance.
- Directors’ views and recommendations:
  - Commended prompt actions in response to the FSAP Update.
  - Emphasized enhancing consolidated supervision, increasing capital adequacy of banks, developing contingency plans, and that recapitalizing the CBJ remains an important medium-term objective.
  - Encouraged development of the domestic money market and strengthening CBJ capacity to manage liquidity.

### Monetary policy and exchange rate
- Recent CBJ actions:
  - Since November 2008, policy interest rates were cut in several steps by a total of 150 basis points and reserve requirements brought down by 300 basis points.
  - The previous bank deposit guarantee of JD 10,000 per account was extended to a full guarantee of all bank deposits with effect until end-2009.
- Effects and considerations:
  - Interest rate differential with the U.S. has widened since early 2008, enhancing attractiveness of domestic currency assets and supporting reserve accumulation.
  - Directors saw room for a further cautious easing of monetary policy to support the domestic economy, provided reserves remain stable; urged close monitoring of external and financial indicators to tighten liquidity if balance of payments pressure emerges.
  - The exchange rate peg to the U.S. dollar remains an appropriate nominal anchor; staff assessments found no clear evidence of real exchange rate misalignment.
  - Staff: efforts should continue to develop the domestic money market and strengthen CBJ’s capacity to manage liquidity.

### External sector and reserves
- Despite an outflow of over $2 billion to buy-back Paris Club nonconcessional debt, official foreign exchange reserves increased to the equivalent of about 6 months of imports by end-2008 and have since continued to accumulate.
- Current account and external indicators:
  - The current account narrowed to 12 percent of GDP in 2008 as imports shrank and tourism receipts increased by nearly 27 percent.
  - The current account deficit is likely smaller than reported due to sizeable unrecorded remittance flows and re-exports, currently reflected in errors and omissions in the balance of payments amounting to about 7 percent of GDP.

### Executive Board assessment and policy guidance
- Directors noted sound macroeconomic management has enhanced Jordan’s resilience to the global crisis: growth remains robust, international reserves strengthened, and banking sector healthy and profitable.
- Near-term policy focus recommended:
  - Guard against vulnerabilities given close regional ties and reliance on external financing.
  - Expedite structural reforms to strengthen economic fundamentals and enhance competitiveness.
  - Remain vigilant in case the slowdown in growth is deeper than anticipated.
- Fiscal and public financial management priorities:
  - Top priority to complete reform of public financial management: fully implement the Treasury Single Account, improve budget classification and control, and strengthen the medium-term framework for budget formulation and preparation.
  - Enhance public debt management (supported by Fund technical assistance).
- Data transparency:
  - Authorities urged to expedite progress toward meeting remaining requirements for Special Data Dissemination Standard (SDDS) subscription, particularly aligning coverage of budget revenues and expenditures with government financing flows.

### Selected economic indicators (as presented)
- Real sector (Annual percentage changes)
  - Real GDP at market prices  8.18.0 6.6 5.6
  - Consumer price index (average) 3.56.3 5.4 14.9
  - Unemployment rate (percent) 14.814.1 13.1 12.7
  - Gross domestic investment (in percent of GDP) 34.030.5 31.4 28.6
  - Gross national savings (in percent of GDP) 16.619.7 13.7 16.1
- Public finance (In percent of GDP)
  - Central government revenue and grants 33.232.8 33.4 33.0
    - Of which: grants 5.03.2 2.9 5.1
  - Central government expenditure and net lending 1/ 38.236.4 39.4 39.2
  - Central government overall fiscal balance including grants -5.0-3.6 -5.9 -6.1
  - Government and government-guaranteed net debt 83.769.9 70.0 60.1
- Balance of payments (In percent of GDP)
  - Current account balance (after grants), of which: -17.4-10.8 -17.7 -12.1
    - Exports, f.o.b. ($ billions) 4.35.2 5.7 7.8
    - Imports, f.o.b. ($ billions) 9.310.3 12.2 15.0
  - Gross usable international reserves ($ millions) 2/ 47456103 6865 7734
    - In months of prospective import cover 4.75.1 4.7 5.8
    - Relative to short-term debt by remaining maturity 5.87.3 7.9 11.6
- Money and credit (Annual percentage changes)
  - Broad money 17.014.1 10.6 17.3
  - Credit to private sector 30.324.5 15.3 14.8
- Exchange rates
  - U.S. dollar per Jordanian dinar (end-period) 1.41.4 1.4 1.4
  - Real effective exchange rate (percent change) 3/ -0.32.6 -2.5 5.5

*Source: IMF staff report and Executive Board discussion (Jordan Article IV consultation and FSAP Update).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09159.pdf_