Key Questions on Jordan

Last Updated: May 15, 2019

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What is the next step after the completion of the second review of Jordan’s economic program that is supported by an IMF Extended Fund Facility?

  • Jordan has made important progress in preserving macroeconomic stability despite difficult conditions. Regional conflicts, domestic challenges, the hosting of Syrian refugees, higher oil prices, low economic growth, high unemployment, and elevated public debt continue to constrain the prospects for higher growth and employment. The year 2018 was especially difficult. In 2019, the external environment is turning more favorable, supporting an early rebound of tourism, remittances, and exports to Iraq and some Gulf countries. These positive developments, together with a timely and steadfast implementation of critical reforms, should help improve living standards, and also help the government secure the funds needed for priority expenditures, such as on education, health, and social programs. At the same time, we strongly urge the donor community to continue supporting Jordan financially to help it cope with the refugee crisis and its reform efforts.

  • Now, with the completion of the second review, Jordan should direct all efforts on implementing the reforms recently enacted and sustain policies that will help reduce public debt, create jobs, especially for the youth and women, and achieve inclusive growth.

  • Priority should be given to measures to reduce the fiscal deficit, including through decisive action to strengthen tax administration and rein in tax evasion; lower the cost of hiring Jordanians in the formal economy to boost employment; and implement the reform roadmap for the energy company (NEPCO) to secure its financial sustainability and reduce high electricity costs for businesses. Reforms should be complemented by a well-targeted social protection program to protect the vulnerable segments of the population.
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    Can you clarify what the IMF means wen it says that Jordan should effectively implement the tax law?

    Under the new tax law, most Jordanians will continue to be exempted from income taxes. Indeed, based on the recently-completed Household Expenditures and Income Survey for Jordan, the revised provisions of the law have expanded the personal income tax to only the top 8 percent of income earners, from about 5 percent under the old law. But the reform is nonetheless critical in ensuring a more sustainable and fairer tax system going forward. Firstly, it helps rebalance the burden of adjustment away from consumption (which tends to hurt the poor and middle class) and towards those with greater capacity to pay. More importantly, it sets the stage for a greater and much-needed focus on reducing tax evasion in the years ahead, through the implementation of critical tax-compliance improvement projects, supported by strong penalties in case of late, under, and non-compliance.

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    What has the IMF done to mobilize financial aid for Jordan?

    Recent events underscore the need for the international community, including regional donors, to 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 has worked with regional and international donors to secure US$5.1 billion in additional financing to help support Jordan’s reform efforts. Managing Director Christine Lagarde, 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.

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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. 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 regional outlook remains challenging.

  • To tackle these challenges, the authorities have embraced a medium-term program to enhance conditions for more inclusive growth. And within the framework of the current EFF arrangement, the IMF has supported this program; including through a discussion of the authorities’ policy mix and through the provision of added funding. On the latter point, financing from the IMF helps maintain an adequate level of international reserves, support the exchange rate regime, finance imports like fuel and foodstuffs, and it encourages other donors to provide concessional loans and grants, with the London Conference as one 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 – but not all — of which are beyond the authorities’ control, including the hosting of Syrian refugees. 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?

  • We have supported efforts to improve public accountability and governance. In this regard, the authorities merged the Ombudsman Bureau and the Anti-Corruption Commission into a National Commission for Integrity and Anti-Corruption. Our discussions with the authorities also included the unification of the legal framework for public procurement, and the establishment of a regulatory and policy committee.

  • Regarding transparency, the budget laws for 2017 and 2018 have included detailed estimates of tax expenditures, while they have also implemented the International Public Sector Accounting Standards (IPSAS) roadmap; and, to support the public investment management framework, they have submitted to parliament a draft Organic Budget Law.
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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 does the IMF do to improve the employment of women in Jordan?

    We have discussed with the authorities and other parties, including donors, reforms that are specifically designed to support female labor force participation. These include the recently approved bylaw on flexible working hours, the facilitation of access to child-care services, the provision of low-cost and efficient public transportation system, and options to lower the costs for formal jobs for women.

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    What steps do you advise the government to improve social spending and reduce unemployment?

  • Some of the policy measures we discussed include putting in place a framework of additional targeted transfers to accompany tax reforms, so that vulnerable segments of the population do not face an increase in their tax burden. The program also includes a minimum level of social spending targeted at illness and disability, old age, family and children, housing, and research and development in the field of social protection. It has also accommodated the expansion of the National Aid Fund’s cash-transfer program as well as the increased coverage of the civil health insurance.

  • Additionally, we recommended reforms to lower the costs of business inspections, improve investment approval procedures, and enhance access to finance should help with job creation. Other options under discussion include a temporary cut in social security contributions rates, or alternatively some formal employment tax credit, that could help address informality in the labor market and stimulate demand and jobs.
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    What are the details of social protection under the program?

    Under the program, the most vulnerable segments of the population have been shielded from recent reforms, 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 new income tax reform 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.