## Jordan -- Concluding Statement for the 2006 Article IV Consultation and Fourth Post-Program Monitoring Discussions

_IMF News, November 30, 2006_

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## Bibliographic details
- Published: November 30, 2006

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### I. Introduction — Past decade performance
- Real GDP growth almost doubled to 6 percent a year during 2000-05 compared with the previous five-year period.
- Total factor productivity increased by 3 percent annually during 2000-04, triple the historical norm.
- Inflation fell to low single-digit levels.
- Public debt ratio reduced from more than 210 percent of GDP in 1990 to 83 percent by end-2005.
- Increased trade openness and an unprecedented surge in foreign direct investment.

### II. Recent developments and outlook for 2006
- Real GDP growth likely to end the year at 6 percent or more.
- Core inflation well contained; headline inflation may temporarily increase to 6 percent due to higher domestic fuel and imported food prices.
- Unemployment declined but remains high at more than 14 percent.
- Amman Stock Exchange index showed more stability after a large correction early in the year.
- Current account deficit beginning to narrow; financed mainly by long-term capital inflows.
- Import growth for the year projected at 12 percent; exports projected to rise by some 18 percent.
- Overall balance of payments surplus estimated at US$1.4 billion.
- Gross usable reserves of the Central Bank of Jordan (CBJ) projected to reach US$5.7 billion (an increase of US$0.8 billion over 2005), equivalent to five months of prospective imports.
- Foreign direct investment could reach US$2.8 billion in 2006.
- Fiscal position improved relative to 2005:
  - Domestic revenues and grants projected to be 4.0 percentage points of GDP higher than in the original budget.
  - Fiscal deficit excluding grants projected to improve by 2½ percentage point of GDP.
  - Public debt ratio projected to decline to 74 percent of GDP by end-2006.
- Monetary conditions and banking sector:
  - Broad money likely to increase in line with nominal GDP mainly due to net foreign asset growth.
  - Strong private sector credit growth at 25 percent year-on-year.
  - Dollarization ratio stable at around 27 percent.
  - Banks well capitalized; nonperforming loans declined; sector profits comfortable.
- Structural reforms and privatization:
  - Through November 2006, five companies sold yielding receipts of US$0.6 billion (4.3 percent of GDP); Jordan Telecom sale yielded US$0.4 billion (more than 3 percent of GDP) with additional receipts expected in 2007.
  - Program to improve education, health, and public administration under way.
  - Jordan became eligible for Millennium Challenge Corporation Compact Assistance.

### III. Policy discussions — 2007 and medium term
- Focus areas: (i) medium-term external outlook; (ii) macroeconomic policy mix to reduce current account deficit and lower public debt-to-GDP ratio; (iii) structural policies to support medium-term growth.
- Medium-term outlook:
  - External position likely sustainable with supportive policies and continued private capital inflows and grants only modestly below 2006 peaks.
  - External debt could be halved in five years from present level of 52 percent of GDP with strong growth and prudent borrowing.
  - By 2011, the current account deficit could fall below 10 percent of GDP, with reserves covering four months of prospective imports.
  - Inflation expected to fall to 5 percent next year and then decline gradually.
  - Growth expected to remain at 6 percent over the medium term.

A. Fiscal policy
- Recommended public debt-to-GDP ratio target of 60 percent in 2011 as a key fiscal anchor.
- Update the public debt law (current target 80 percent for 2006) and lay out a medium-term path for the primary balance excluding grants consistent with the debt target.
- Main adjustment through rationalizing current expenditure and improving public financial management.
- 2007 fiscal stance:
  - Contain non-priority current and capital spending growth and raise fuel prices.
  - Continue well-targeted cash payments to the poor via a unified public assistance program.
  - Introduce a fully automatic and symmetric formula-based fuel price adjustment mechanism.
- Medium-term revenue measures:
  - Strengthen tax administration and broaden the tax base.
  - Consider narrowing the list of items subject to the lower GST rate and limit GST exemptions.
  - Eliminate fuel subsidies, supplement with an inflation-indexed specific excise on gasoline, and apply full GST to fuel products to generate about 1½-2 percent of GDP in fuel-related revenues.
  - Prevent weakening of the income tax regime and ensure tax base not undermined by expansion of free-trade zones.
  - Limit tax incentives, including for foreign direct investment.
- Pension and municipal finances:
  - Social Security Corporation currently achieves surpluses in the order of 1½ percent of GDP; reforms needed to ensure sustainability.
  - Reforms should ensure early retirement is actuarially fair, benefits linked to lifetime contributions, and pensions indexed to inflation.
  - Monitor municipal deficits to avoid government bailouts or conflicts with macroeconomic management.

B. Monetary policy, budget financing, and financial sector deepening
- CBJ conduct of prudent monetary policy; interest rate spread with U.S. rates consistent with stable dollarization ratio.
- CBJ should be ready to tighten monetary policy if inflationary pressures become entrenched.
- Continue removing excess liquidity via issuance of CDs; increase frequency of CD auctions to aid liquidity management.
- Strengthen coordination between CBJ and MOF on debt issuance and find lasting solution to CBJ balance sheet weaknesses (past interest-free government loans and bank bailout operations); consider gradually retiring government debt to CBJ through marketable government securities.
- Foster domestic debt markets; extend maturities to 15-20 years to promote nonbank financial sector development.
- Explore issuing long-term JD-denominated bonds regionally and consider Islamic financial instruments for shorter-term budget financing.
- Monitor prudential regulations closely given private sector credit expansion; pay attention to margin loans and non-collateralized household lending.
- Recommend an FSAP update during second half of 2007 to assess Basel Core Principles/Basel II progress, stress testing, payment system improvements, and SSC/pension reforms.

C. Exchange rate policy
- Staff analysis: Jordanian dinar value appropriate; fixed exchange rate regime has served Jordan well.
- Higher FDI offset potential depreciation from declining grants and worse terms-of-trade.
- Indicators (export volumes and market shares, productivity trends, foreign exchange market conditions, growth in international reserves) do not point to exchange rate concerns.
- Authorities determined to maintain inflation in line with trade partners and improve productivity under the fixed regime.

D. Other structural and institutional issues
- Improve business environment to support private sector: simplify procedures to start/close businesses and register property; improve investor protection; enhance access to credit information via a Credit Bureau Law; increase labor market flexibility; restrain public sector wage increases; strengthen infrastructure.
- Continue privatization to support private-sector-led growth.
- Prioritize structural fiscal reforms:
  - Implement government financial management information system (GFMIS).
  - Adopt budget classifications based on GFSM2001.
  - Integrate autonomous budget agencies into central budget.
  - Show spending out of privatization proceeds in the budget.
  - Factor civil service reform costs into the medium-term fiscal framework.
  - Implement 2004 World Bank Public Expenditure Review recommendations, including provisions for recurrent costs (maintenance of road network) and legal/accounting framework to promote PPP.
- Improve statistics and subscribe to the Special Data Dissemination Standard (SDDS) by mid-2007.
- IMF readiness to provide continued technical support on tax administration and macro-fiscal management.
- Authorities intend to continue Post-Program Monitoring (PPM) and to publish IMF staff reports.

### Key statistics and selected table highlights (2002-06)
- Real GDP at market prices (annual percentage changes): 2002: 5.8; 2003: 4.2; 2004: 8.4; 2005: 7.2; 2006: 6.0.
- GDP deflator at market prices (annual percentage changes): 2002: 0.9; 2003: 2.1; 2004: 3.1; 2005: 4.0; 2006: 6.2.
- Nominal GDP at market prices (annual percentage changes): 2002: 6.8; 2003: 6.4; 2004: 11.8; 2005: 11.5; 2006: 12.6.
- Nominal GDP at market prices (JD millions): 2002: 6,794; 2003: 7,229; 2004: 8,081; 2005: 9,013; 2006: 10,148.
- Nominal GDP at market prices ($ millions): 2002: 9,582; 2003: 10,196; 2004: 11,398; 2005: 12,712; 2006: 14,313.
- Consumer price index (annual average): 2002: 1.8; 2003: 1.6; 2004: 3.4; 2005: 3.5; 2006: [value not listed].
- Consumer price index (end of period): 2002: 0.5; 2003: 2.9; 2004: 3.9; 2005: 6.7; 2006: [value not listed].
- Unemployment rate (percent): 2002: 15.3; 2003: 14.5; 2004: 12.5; 2005: 14.6; 2006: ...
- Gross usable international reserves ($million): 2002: 3,474; 2003: 4,745; 2004: 4,755; 2005: 4,723; 2006: 5,708.
- Net international reserves ($ millions): 2002: 3,027; 2003: 4,431; 2004: 4,544; 2005: 4,622; 2006: 5,603.
- Private capital inflows (net): 2002: -0.6; 2003: 6.9; 2004: 19.7; 2005: 29.3; 2006: [value embedded in narrative: could reach US$2.8 billion].
- Stock market index annual changes: 2003: 53.8; 2004: 62.4; 2005: 92.9.
- Population (in thousands): 2002: 5,070; 2003: 5,200; 2004: 5,350; 2005: 5,487; 2006: 5,628.
- Nominal per capita GDP ($): 2002: 1,890; 2003: 1,961; 2004: 2,131; 2005: 2,317; 2006: 2,543.
- Real effective exchange rate (2000=100): 2002: 103.3; 2003: 95.8; 2004: 92.1; 2005: 91.9.
- Terms-of-trade index (1994=100): 2002: 86.2; 2003: 78.1; 2004: 75.5; 2005: 70.4.
- Quota: SDR 170.5 million.

*Source: IMF staff concluding statement, November 30, 2006.*

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## References

- [Jordan and the IMF](http://www.imf.org/external/country/JOR/index.htm)
- [Mission Concluding Statements](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs112806_