IMF Survey: Jordan Gets $2.0 Billion IMF Loan to Support Economy

IMF News, August 3, 2012

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The IMF Executive Board approved a 36-month Stand-by Arrangement for Jordan amounting to about $2.05 billion, subject to quarterly reviews.
The loan is intended to give Jordan time to correct budgetary and balance of payments imbalances while maintaining social stability.
The program is designed to address fiscal and external imbalances while protecting the vulnerable and fostering high and inclusive growth.

Jordan was hit by a series of external shocks that affected:
- energy imports,
- tourism,
- remittances,
- foreign investment.
Repeated sabotage of the Arab Gas Pipeline in the Sinai Peninsula reduced average daily flows of natural gas from Egypt, necessitating increased imports of expensive fuel products for electricity generation while oil prices were high.
Regional tensions adversely affected tourism, remittances, and foreign direct investment, weakening investor confidence.
Key impacts in 2011:
- The external current account deficit (including grants) widened to 12 percent of GDP in 2011 from 7 percent in 2010.
- The primary fiscal deficit (excluding grants) rose to 9.6 percent of GDP in 2011.
- Losses of the National Electric Power Company (NEPCO) increased to 4.9 percent of GDP in 2011 from 0.8 percent of GDP in 2010.
Tax revenue declined by five percent of GDP since 2007, driven mainly by tax policy changes and weak administration, in addition to some economic weakening.

The authorities’ program aims to:
- provide liquidity to help Jordan make gradual adjustments,
- achieve a gradual fiscal consolidation,
- reduce deficits of the central government and NEPCO (and other loss-making public agencies),
- return public debt to a sustainable path.
Energy strategy and pricing:
- Success hinges on diversifying energy sources and moving electricity generation back to cost-recovery levels by establishing transparent and sustainable energy prices, pursued with assistance from the World Bank.
Revenue and subsidy reform:
- There is substantial scope for increasing tax revenue and improving tax administration.
- Reforms will target generalized subsidies that currently benefit better-off households; those households will be asked to pay fair prices for some goods and services so the social safety net can be better targeted at those in real need.

Fiscal consolidation is balanced against recession and social acceptance risks.
The program framework seeks to reduce public sector financing needs and lower public debt over time.
Addressing NEPCO losses and other public agency deficits is a central element of restoring fiscal sustainability.
Improvements in tax administration are a core component to reverse the decline in tax revenue.

Short-term and medium-term growth forecasts and drivers:
- Real GDP growth was 3 percent year-on-year in the first quarter of 2012, and is forecast to be at the same level for the whole year, supported in part by a recovery in remittances and a rebound in tourism receipts.
- Over the medium term, economic activity would gradually gain momentum with growth reaching 4.5 percent.
Structural reforms to support growth:
- Improve the business environment,
- Address skills mismatches,
- Enhance labor market flexibility,
- Foster competitiveness.

Youth unemployment is noted at over 30 percent.
Structural policies will focus on supporting growth and employment by:
- making the private sector the driving force for growth and employment through fiscal reforms that reverse the decline in tax revenue and reduce expenditure,
- enhancing the business investment framework in favor of job-creating activities,
- increasing trade openness (including leveraging free trade agreements and negotiations with the European Union, Latin American countries, and enhancing linkages with the Gulf),
- scaling up and replicating initiatives that align education curricula with private sector needs and training programs that equip the unemployed with market-demanded skills to reduce unemployment.

Stand-by Arrangement: about $2.05 billion (36 months, subject to quarterly reviews)
Population referenced: about 6.5 million
External current account deficit (including grants): 12 percent of GDP in 2011 (from 7 percent in 2010)
Primary fiscal deficit (excluding grants): 9.6 percent of GDP in 2011
NEPCO losses: 4.9 percent of GDP in 2011 (from 0.8 percent of GDP in 2010)
Decline in tax revenue since 2007: five percent of GDP
Real GDP growth: 3 percent year-on-year in Q1 2012; forecast 3 percent for 2012
Medium-term growth projection: 4.5 percent
Youth unemployment: over 30 percent

International Monetary Fund