Press Release No. 02/31

Press Release: IMF Approves US$113 Million Stand-by Credit for Jordan

July 3, 2002

The Executive Board of the International Monetary Fund (IMF) approved today a two-year stand-by credit for SDR 85.28 million (about US$113 million) for Jordan in support of its economic program. As a result of the Board's decision, Jordan will be able to draw SDR 10.66 million (about US$14 million) immediately.

After the Executive Board's discussion on Jordan, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:

"Jordan has established a favorable track record under the EFF, which was successfully completed last May. The Jordanian authorities have continued to demonstrate their commitment to sound macroeconomic policies and structural reforms, which will be reinforced by the new two-year Stand-By Arrangement agreed with the Fund.

"Jordan's macroeconomic performance continues to strengthen with an increase in real GDP growth in the first quarter led by strong export growth. The fiscal position was in line with program projections and the foreign exchange reserve position of the Central Bank of Jordan increased further. The authorities have already taken additional difficult measures to ensure the achievement of their fiscal deficit target for 2002.

"The new program is aimed at raising economic growth and fostering employment creation through an acceleration of structural reforms and continued implementation of sound macroeconomic policies. The public debt is projected to continue to decline significantly as a ratio to GDP over the program period. At the same time, health and education spending, as well as income transfers to the poor, will be increased under the authorities' Plan for Social and Economic Transformation, which is being financed with non-debt creating flows. It is expected that exports will continue to grow at a healthy rate, and the external position will remain strong.

"The program incorporates a bold structural reform agenda. The government's pension system will be overhauled during the program period, reducing pension liabilities in net present value terms by 30 percent over the next 50 years. The tax system will be reformed to improve its buoyancy and simplify its administration. The privatization program will be accelerated and extended to cover most of the remaining enterprises in the public sector.

"Overall, the authorities' program is ambitious. If implemented as planned, it should help Jordan to further strengthen its economic performance over the medium term," Mr. Aninat said.

ANNEX

Program Summary

The authorities' main goal for 2002-04 is to raise further economic growth and living standards, through deeper structural reforms and continued implementation of sound macroeconomic policies, including further fiscal consolidation. Acceleration of growth over the medium term will be supported by continued export growth and higher private sector investment, according to the program. The overall fiscal deficit (including grants) is projected to be reduced to 2.7 percent of GDP by 2007, with spending under the government's Plan for Social and Economic Transformation (PSET) financed only through additional grants and a limited use of future privatization proceeds. Monetary policy will continue to support the exchange peg. Although the external current account deficit is projected to be modest, financing gaps of about US$250-300 million per year would emerge over the medium term. The authorities have reaffirmed their commitment to limit the overall fiscal deficit to 4.1 percent of GDP in 2002 while substantially increasing allocations for social sector outlays and have increased electricity tariffs, and extended the general sales tax to petroleum products to ensure the achievement of the fiscal target. The program for 2002 envisages a new debt-relief agreement with the Paris Club of creditor governments, which will enable Jordan to close its identified financing gap.

In the lead up to the Stand-by Arrangement, Jordan continued to enjoy strong economic performance. Real GDP grew in the first quarter of 2002 by 4.2 percent year-on-year, with the support of continued robust exports, which were up 23 percent from the first quarter of 2001. Inflation remained low through the period ended April 30, 2002, and confidence in the Jordanian dinar strengthened further as evidenced by a sharp rise in net usable international reserves held by the Central Bank of Jordan to US$2.99 billion at end-May 2002. The fiscal outturn in the first quarter was in line with program projections under the government's Extended Fund Facility (see Press Release No. 99/13), which expired at the end of May 2002. The authorities also continued to make progress with structural reforms, including privatization of the government's remaining shares in the cement company and the oil refinery. Nevertheless, the rate of unemployment in Jordan remains stubbornly high at 15 percent.

A number of structural measures are contemplated. The authorities have adopted a bold strategy on reform within the pension system that will be implemented over the course of the two-year Stand-By Arrangement. Reform of the tax system, particularly the general sales tax, and tax administration is also planned to support the authorities' fiscal consolidation efforts. Jordan's ambitious privatization and legislative reform program is expected to continue to increase and facilitate the role of the private sector in the economy. Petroleum prices will continue to be reviewed on a quarterly basis with a view to protecting revenue targets under the two-year program. The authorities agenda includes poverty reduction and skills development, along with large increases in health and education spending under the PSET. The authorities also plan to improve their statistical database to meet the Special Data Dissemination Standards in due course.

Jordan joined the IMF on August 29, 1952, and its current quota is SDR 170.5 million (about US$227 million). Its outstanding use of IMF credit as of May 31, 2002 is SDR 387 million (about US$503 million).