IMF Executive Board Approves US$1.3 billion Extended Arrangement Under the Extended Fund Facility for Jordan
IMF News, March 26, 2020
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- Published: March 26, 2020
Program approval and purpose
- The IMF approved a four-year US$1.3 billion Extended Fund Facility (EFF) arrangement for Jordan to support the country’s economic and financial reform program and provide for spending to contain and treat COVID-19.
- The arrangement is described elsewhere in the text as a 48-month arrangement.
- Program objectives: support stronger and more inclusive growth, create jobs—especially for women and young people—and reduce poverty; improve the fiscal situation to stabilize and bring public debt towards more sustainable levels.
Financial terms and disbursement
- Amount equivalent to SDR 926.37 million (about US$ 1.3 billion or 270 percent of Jordan’s quota).
- An amount equivalent to SDR 102.93 million (about US$139.23 million) is available for immediate disbursement; the remaining amount will be phased out over the duration of the Fund-supported program, subject to eight program reviews.
COVID-19 response and program flexibility
- The program includes provisions for increased spending to contain and treat COVID-19.
- Although understandings were reached before the COVID-19 outbreak reached Jordan, the program was designed to support spending to contain and treat the virus; if needed, it may be adapted further to the changed circumstances to ensure sufficient support for the people.
- “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, upon reaching understandings with the authorities.”
Donor support
- Continued support from donors, particularly through concessional loans and budget grants, will be critical to help Jordan cope with humanitarian and economic needs and to support program objectives.
- “Donor support through budget grants and concessional financing will be critical to help Jordan cope with the effects of the COVID-19 outbreak and the Syrian refugee crisis and to support program objectives.”
Policy priorities and structural reforms
- Program anchored by critical structural reforms designed to lower electricity costs for businesses and create incentives for them to hire more young people.
- Key structural measures include:
- reducing high electricity costs faced by businesses to enhance competitiveness and support job creation, while directing electricity subsidies only to those who need them most;
- a temporary reduction in social security contributions, among other labor market reforms, to promote greater employment opportunities, particularly for women and young people;
- swift implementation of the authorities’ five-year matrix, launched in the 2019 London Initiative, to improve the business climate, boost competitiveness, and attract foreign investment.
- Governance reforms to strengthen public-sector transparency and accountability.
- Fiscal strategy measures:
- broadening the tax base and reducing tax exemptions for businesses, particularly through an overhaul of the investment incentives framework and revamping of tax and customs administrations;
- rationalizing current expenditures while protecting critical social, health and education spending;
- contain losses and contingent liabilities in the energy and water sectors;
- improve the targeting of Jordan’s social safety net.
- Monetary and financial sector priorities:
- monetary policy to remain focused on supporting the peg by maintaining an adequate reserve buffer while also considering domestic economic conditions;
- continue strengthening the legislative and regulatory framework for Jordan’s banking and financial sectors, including further enhancing the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime.
Fiscal consolidation and debt
- Continued fiscal consolidation efforts are needed to bring public debt toward more sustainable levels.
- The government’s strategy should focus on broadening the tax base and reducing business tax exemptions through an overhaul of the investment incentives framework and revamping tax and customs administrations.
- “Continued fiscal consolidation efforts are needed to bring public debt toward more sustainable levels.”
Recent economic developments and challenges
- Jordan has made progress in reforming its economy, but pressing challenges remain.
- External and social pressures: ongoing COVID-19 outbreak, regional conflicts, and the hosting of Syrian refugees weigh on social conditions, public finances, investment, and the external accounts.
- Macroeconomic and financial indicators cited:
- growth has remained weak (about 2 percent);
- unemployment high (at 19 percent of the labor force), especially for youth and women;
- external imbalances have improved markedly;
- reserve buffers have remained adequate;
- the financial system is sound;
- fiscal consolidation proved difficult to maintain and public debt remained elevated.
- Program builds on the Jordan Economic Growth Plan 2018–22 and is anchored by the five-year reform matrix launched at the 2019 London Initiative.
Governance and business climate
- An ambitious structural agenda should be implemented to improve the business environment, enhance competitiveness and support growth.
- Specific recommendations include:
- reduce high electricity costs faced by businesses;
- implement measures to create jobs, particularly for women and young people;
- simplify procedures to attract foreign investment;
- implement governance reforms to strengthen public-sector transparency and accountability.
Source: IMF press release, March 26, 2020.