Key Questions on Jordan

Last Updated: March 25, 2020

The Executive Board of the International Monetary Fund (IMF) approved a 48-month arrangement under the Extended Fund Facility (EFF) with Jordan for an amount equivalent to SDR 926.37 million (about US$ 1.3 billion or 270 percent of Jordan’s quota) to support the country’s economic and financial reform program. Although the program was designed before the COVID-19 outbreak, changes were made to the program to support unbudgeted spending to contain the virus.

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How is the IMF helping Jordan cope with the impact of coronavirus on the economy?

  • Jordan, like other countries, has been impacted by COVID-19 outbreak. The authorities have taken a number of measures to mitigate the economic and human impact of the outbreak as they try to stop the spread of the virus.
  • It is difficult to quantify the magnitude of the broader economic impact at this stage, as it depends on the duration and depth of the outbreak both in Jordan and globally, as well as the full extent of policies in its response.
  • However, in light of the ongoing COVID-19 outbreak, the IMF has included in the new Extended Fund Facility (EFF) arrangement that was agreed with the Jordanian authorities’ provision for spending to contain and treat COVID-19. The government is already using this provision.
  • If the impact of the outbreak is deep enough to put at risk program objectives, the program will be adapted further to the changed circumstances to ensure that the authorities are able to provide the people of Jordan the necessary resources needed to overcome the crisis while meeting the objectives of the program.
  • The EFF to Jordan is the first financial assistance package provided by the IMF in the Middle East and North Africa region since the COVID-19 outbreak.
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    What are the main objectives of the new Extended Fund Facility program?

  • On March 25, 2020, the IMF Executive Board approved a 48-month arrangement under the Extended Fund Facility (EFF) with Jordan for about US$ 1.3 billion or 270 percent of Jordan’s quota to support the country’s economic and financial reform program. The program is anchored on structural reforms designed to spur growth by creating jobs -- especially for youth and women.
  • The program includes provision for health spending and spending on containment to fight the spread of coronavirus that has impacted Jordan’s economy. The primary aim of the program is to support stronger and more inclusive growth, create jobs, especially for women and young people, and reduce poverty.
  • The structural reforms program addresses two significant areas:
    1. Support growth and tackle unemployment—especially among youth and women: The program aims to remove the impediments to growth and incentivize businesses to hire more people. That means reducing the cost of starting and operating a business – specifically by addressing two significant areas: (a). reducing the high cost of electricity, while directing electricity subsidies only to those who need them most; and (b). temporarily reducing the cost of social security contributions for start-ups hiring young people as new entrants.
    2. Improving the fiscal situation – Given the continued need for elevated levels of security spending—and the need to increase investments to jumpstart growth—the government and the IMF believe that decisive actions are needed to mobilize additional revenues. As such, the new program focuses on: (a). revamping tax and customs administration to cracking down on tax evasion and to improve tax collections; and (b). rationalizing tax exemptions currently received by businesses through an overhaul of the investment incentives framework.
  • In addition, the new program also includes significant technical assistance and training provided by the Fund, which will help Jordan strengthen economic institutions and effectively implement policies.
  • Continued support from donors, particularly through concessional loans and budget grants, will be critical to program success and help Jordan cope with humanitarian and economic needs.
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    Why does Jordan need a program with the IMF?

  • Over the last few years, Jordan has managed to maintain overall macroeconomic stability and undertake significant policy reforms against a difficult external environment.
  • But economic growth remains below potential, unemployment is high, particularly for youth and women, the refugee crisis is weighing on the economy and public finances, gross public debt is high (about 94 percent of GDP); and the coronavirus health crisis will add new challenges.
  • To tackle these challenges, the authorities have embraced a medium-term program to enhance conditions for more inclusive growth.
  • Financing from the IMF will also help maintain an adequate level of international reserves, support the exchange rate regime, finance imports like fuel and foodstuffs, and encourage other donors to provide concessional loans and grants. The London Conference last year is an example of the IMF’s critical role in helping to mobilize US$5.1 billion in additional external assistance.
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    What is your response to those who say that the IMF loan adds to Jordan’s debt burdens?

  • It is important to recognize that countries come to the IMF for support because they are already experiencing significant economic difficulties. The policies we support under a program are tailored to each country’s specific circumstances to put their finances back on a sustainable path and enhance the prospects for stronger and inclusive growth.
  • Jordan is facing extraordinary pressure due to a combination of factors, some of which are beyond the authorities’ control, including coping with COVID-19 outbreak. Countries, like Jordan, borrow from the IMF because it is much cheaper than borrowing from the markets. Moreover, the IMF program has catalyzed substantial international support through budget grants and concessional loans and has ensured improved protection for the poor and middle class mostly impacted by reforms.
  • In this context, the Jordanian authorities have asked the IMF for support and to work with them to preserve macroeconomic stability and advance reforms to promote growth and employment, which in turn can help ensure social and political stability. Without the IMF’s support for Jordan’s reform program, there is a risk that the country’s debt and balance of payments pressures would be significantly higher.
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    What measures has the IMF put in place to address corruption, increase transparency and better governance in Jordan?

  • Progress in strengthening governance and fighting corruption will be important for growth, inclusion, and the maintenance of broad public support for the authorities’ reform agenda.
  • To enhance efficiency, transparency, and accountability, the authorities will roll out an integrated e-procurement system and digitized procurement cycle processes that align with the government’s broader digitization agenda.
  • We are also working with the authorities to amend, by end of December 2020 the Illicit Gains Law to allow more public access to basic financial disclosure information by public officials (benchmark) to increase public trust and accountability.
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    How do you assess the conduct of monetary policy and the risks ahead?

    The conduct of monetary policy by the Central Bank of Jordan (CBJ) remains appropriate and well-focused on maintaining an adequate level of reserves to support the Jordanian dinar peg, while also helping to provide supportive credit conditions to the economy. Looking ahead, staff is reassured by the authorities’ commitment to respond as needed to domestic, regional, and global monetary conditions, while preserving an adequate level of reserves.

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    What are the details of social protection under the program?

  • The authorities are committed to improving the targeting of Jordan’s social safety net to help accommodate social spending needs, including on health and education. The authorities have committed to conduct a comprehensive review of their social spending envelope, and to publish an action plan to enhance its effectiveness and efficiency in coordination with the World Bank and UNICEF by end-September 2020, building on the recently published National Social Protection Strategy for 2019-2025.
  • Under the program, the most vulnerable segments of the population have been shielded from recent reforms, including through a floor on social spending in the budget, while the social safety net is being strengthened.
  • The lowest segments of household consumption have been exempted from the application of the automatic electricity tariff adjustment mechanism.
  • Sales tax exemptions have been gradually lifted (on items other than basic food commodities and health and education supplies) to minimize the impact on the poor. The income tax reform agreed last year protects the poor and middle class by expanding the tax base to only the top 8 percent of income earners.
  • The authorities are working to strengthen and expand their safety-net operations, which is expected to result into increased coverage of poor families, improved poverty-targeting accuracy, and increased poverty-impact.
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    What has the IMF done to mobilize financial aid for Jordan?

    • Recent developments, including the COVID-19 outbreak underscore the need for the international community, including regional donors, to help Jordan shoulder more of the burden of hosting over a million Syrian refugees and providing security in the region, all of which have placed extraordinary strains on Jordan’s public finances. That is why the IMF last year worked with regional and international donors to secure US$5.1 billion in additional financing to help support Jordan’s reform efforts. The IMF’s Managing Director, including through participation in the London Investment conference held in February 2019, has worked closely with the donor community to mobilize the required financial support.