IMF Executive Board Concludes 2020 Article IV Consultation with Jordan
April 16, 2020
WASHINGTON, DC – the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Jordan.
The following assessments and projections predate the ongoing COVID-19 outbreak; the near-term outlook is subject to significant risks stemming from the outbreak.
Jordan has made progress in reforming its economy since the 2017 Article IV Consultation, but pressing challenges remain. Growth has averaged only 2 percent since 2016. While the pickup in tourism and exports gave some momentum to economic activity in 2019, recent progress in improving the business climate has not yet translated into higher domestic or foreign investment. Per capita income has continued to decline and was in 2019 about 10 percent below its 2010 level. Inflation remained broadly contained, rising to 3.5 percent during 2017–18, reflecting primarily the impact of fiscal measures, but decreasing to about 0.5 percent in 2019, due to subdued food and imports prices, including fuel. Labor market conditions have remained challenging, particularly for youth and women, with the unemployment rate (excluding foreign labor) on an upward trend, reaching 19 percent in 2019, up from 18.5 percent in 2017. The current account deficit (excluding grants) has narrowed markedly since 2017, due to a strong recovery in exports and tourism and to lower imports, from an average of 12 percent of GDP during 2017–18 to a projected 6 percent in 2019. The Central Bank of Jordan (CBJ) has continued adjusting its policy interest rate in line with the United States. While reserves buffers were impacted by the uncertainty arising from protests against a draft income-tax law in mid-2018, improved conditions in the FX market allowed to partly recoup past reserve losses in 2019; reserve buffers remain at comfortable levels at 7 months of imports. Significant progress was achieved in consolidating public sector finances during 2016–17, but it proved difficult to maintain during 2018–19, reflecting tax administration weaknesses, some policy reversals, and delays in implementation of fiscal measures.
The outlook remains challenging. Growth is projected at 2.1 percent in 2020 and it is expected to gradually increase to 3.3 percent over the medium term. The baseline scenario reflects fiscal consolidation of about 4 percent of GDP during 2020–24—to ensure placing public debt on a downward path—and a strengthened growth agenda, underpinned by reduced business costs, particularly on electricity and labor, and measures to increase employment for youth and women, while continuing enhancing Jordan’s social safety net. Inflation is expected to gradually reach 2.5 percent over the medium term. The current account deficit (excluding grants) is projected to continue narrowing to about 5 percent of GDP over the medium term, with reserves buffers expected to remain adequate at 8 months of imports.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for preserving macroeconomic stability and improving the business climate, amid challenging external conditions. However, Directors noted the disappointing growth outcomes, high unemployment, rising public debt and significant challenges related to the COVID-19 pandemic and large population of Syrian refugees.
Directors supported the new financing arrangement with the Fund and its focus on fiscal consolidation and growth promoting reforms, but noted that continued expansion of the COVID-19 outbreak could put the program objectives at risk. Directors welcomed the authorities’ early measures to mitigate the impact of the outbreak and many saw scope to adjust the program modalities going forward, in light of the rapidly changing circumstances. They called for greater donor support to help Jordan achieve the program objectives and protect the refugees.
Directors encouraged steady fiscal consolidation efforts, using both revenue and expenditure measures, to bring public debt on a downward path. They agreed that the authorities’ policy actions should focus on broadening the tax base, mitigating fiscal pressures from the state-owned electricity and water sectors, and improving public financial management, while ensuring better targeted social safety nets to protect the most vulnerable. A number of Directors expressed concerns about the imposition of a customs service fee on imports from the EU and called for considering other measures to raise revenue.
Directors saw monetary policy appropriately focused on supporting the peg and the economy. They welcomed the overall soundness of the Jordan’s financial sector, but encouraged continued efforts to preserve its stability and promote financial inclusion.
Directors supported the authorities’ ambitious structural agenda aimed at removing impediments to growth and reducing unemployment, particularly among women and youth. They encouraged efforts to improve the business environment and enhance competitiveness, including through the reform of the energy sector. Directors stressed that improvements in economic governance will be essential to enhance public sector transparency and accountability.
It is expected that the next Article IV consultation with Jordan will be
held in accordance with the Executive Board decision on consultation cycles
for members with Fund arrangements.
|
Jordan: Selected Economic Indicators and Macroeconomic Outlook, 2018–25 |
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|
Act. |
Proj. |
Proj. |
||||||
|
3/23/2020 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|
Output and prices |
(Percentage change, unless otherwise indicated) |
|||||||
|
Real GDP at market prices |
1.9 |
2.0 |
2.1 |
2.3 |
2.6 |
2.9 |
3.1 |
3.3 |
|
GDP deflator at market prices |
1.8 |
1.6 |
1.9 |
2.5 |
2.5 |
2.5 |
2.5 |
2.5 |
|
Nominal GDP at market prices |
3.7 |
3.6 |
4.0 |
4.9 |
5.2 |
5.5 |
5.7 |
5.9 |
|
Nominal GDP at market prices (JD millions) |
29,984 |
31,058 |
32,313 |
33,882 |
35,632 |
37,582 |
39,716 |
42,052 |
|
Nominal GDP at market prices ($ millions) |
42,291 |
43,805 |
45,575 |
47,789 |
50,257 |
53,008 |
56,017 |
59,312 |
|
Consumer price inflation (annual average) |
4.5 |
0.3 |
1.5 |
1.7 |
2.5 |
2.5 |
2.5 |
2.5 |
|
Consumer price inflation (end of period) |
3.6 |
0.7 |
0.8 |
2.5 |
2.5 |
2.5 |
2.5 |
2.5 |
|
Unemployment rate (period average, percent) 1/ |
18.3 |
... |
... |
... |
... |
... |
... |
... |
|
(In percent of GDP, unless otherwise indicated) |
||||||||
|
Fiscal operations |
||||||||
|
Revenue and grants |
26.1 |
24.7 |
27.0 |
26.0 |
25.5 |
24.5 |
24.3 |
24.0 |
|
Of which: grants |
3.0 |
2.5 |
3.2 |
2.2 |
1.9 |
1.0 |
1.0 |
0.9 |
|
Expenditure 2/ |
29.8 |
29.7 |
30.0 |
30.0 |
29.9 |
29.6 |
29.3 |
29.1 |
|
Unidentified measures 3/ |
0.0 |
0.0 |
0.0 |
0.6 |
1.2 |
1.8 |
2.4 |
2.4 |
|
Overall fiscal balance 4/ |
-3.3 |
-5.0 |
-3.0 |
-3.4 |
-3.1 |
-3.3 |
-2.6 |
-2.6 |
|
Primary government balance (excluding grants) |
-3.0 |
-3.8 |
-2.3 |
-1.6 |
-1.0 |
-0.3 |
0.4 |
0.4 |
|
NEPCO operating balance |
-0.3 |
0.0 |
-0.5 |
-0.6 |
-0.5 |
-0.4 |
-0.4 |
-0.4 |
|
WAJ overall balance |
-0.9 |
-1.1 |
-1.1 |
-0.8 |
-0.8 |
-0.8 |
-0.7 |
-0.7 |
|
Water Distribution Companies overall balance |
0.0 |
-0.2 |
-0.1 |
-0.1 |
-0.1 |
-0.1 |
-0.1 |
-0.1 |
|
Combined public sector balance 5/ |
-4.2 |
-5.1 |
-4.0 |
-3.2 |
-2.4 |
-1.7 |
-0.9 |
-0.8 |
|
Government and guaranteed gross debt 6/ |
94.4 |
99.1 |
100.4 |
100.7 |
100.2 |
99.6 |
98.0 |
96.1 |
|
Government and guaranteed gross debt, net of SSC's holdings 6/ |
76.3 |
79.4 |
79.9 |
79.7 |
78.7 |
77.8 |
75.8 |
73.6 |
|
Of which: external debt |
37.2 |
35.5 |
39.5 |
41.1 |
40.8 |
40.0 |
38.3 |
36.1 |
|
External sector |
||||||||
|
Current account balance (including grants), of which: |
-7.0 |
-2.9 |
-3.2 |
-3.6 |
-3.6 |
-3.6 |
-3.1 |
-2.8 |
|
Exports of goods, f.o.b. ($ billions) |
7.8 |
8.4 |
8.7 |
9.2 |
9.7 |
10.3 |
11.0 |
11.6 |
|
Imports of goods, f.o.b. ($ billions) |
18.1 |
17.4 |
18.1 |
18.4 |
19.1 |
19.8 |
20.5 |
21.3 |
|
Oil and oil products ($ billions) |
3.8 |
3.1 |
3.2 |
3.0 |
3.1 |
3.2 |
3.3 |
3.3 |
|
Current account balance (excluding grants) |
-10.6 |
-6.1 |
-6.9 |
-6.4 |
-6.1 |
-5.6 |
-5.0 |
-4.5 |
|
Private capital inflows (net) |
2.4 |
1.9 |
2.2 |
2.6 |
2.8 |
3.5 |
3.7 |
4.1 |
|
Monetary sector |
(Percentage change) |
|||||||
|
Broad money |
1.3 |
6.8 |
7.5 |
... |
... |
... |
... |
... |
|
Net foreign assets |
-19.3 |
1.7 |
23.5 |
... |
... |
... |
... |
... |
|
Net domestic assets |
9.1 |
8.2 |
3.3 |
... |
... |
... |
... |
... |
|
Credit to private sector |
5.2 |
4.7 |
5.6 |
... |
... |
... |
... |
... |
|
Credit to central government |
10.3 |
14.1 |
-3.8 |
... |
... |
... |
... |
... |
|
Memorandum items: |
||||||||
|
Gross usable international reserves ($ millions) |
12,513 |
13,513 |
15,307 |
16,991 |
17,860 |
17,885 |
18,612 |
19,401 |
|
In months of prospective imports |
6.7 |
7.0 |
7.7 |
8.3 |
8.4 |
8.1 |
8.0 |
8.1 |
|
In percent of reserve adequacy metric |
97 |
98 |
104 |
111 |
111 |
106 |
107 |
107 |
|
Net international reserves ($ millions) |
11,430 |
12,756 |
14,462 |
15,879 |
16,485 |
16,259 |
16,907 |
17,809 |
|
Population (millions) 7/ |
9.9 |
10.1 |
10.2 |
10.3 |
10.4 |
10.5 |
10.5 |
10.5 |
|
Nominal per capita GDP ($) |
4,270 |
4,350 |
4,464 |
4,631 |
4,830 |
5,061 |
5,315 |
5,627 |
|
Real effective exchange rate (end of period, 2010=100) 8/ |
117.7 |
… |
… |
… |
… |
… |
… |
… |
|
Percent change (+=appreciation; end of period) |
4.5 |
… |
… |
… |
… |
… |
… |
… |
|
Sources: Jordanian authorities; and Fund staff estimates and projections. |
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1/ The Department of Statistics changed the methodology of the Survey of Employment and Unemployment in 2017 following ILO recommendations. |
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2/ Includes other use of cash (i.e. off-budget expenditures). |
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3/ Estimated amount of fiscal measures that are need to meet the programmed fiscal adjustment. |
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4/ Includes statistical discrepancy. |
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5/ Defined as the sum of the primary central government balance (excl. grants and transfers to NEPCO and WAJ), NEPCO operating balance, WAJ overall balance, and, starting in 2019, Aqaba, Miyahuna, and Yarmouk Water Distribution Companies overall balance. |
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6/ Government's direct and guaranteed debt (including NEPCO and WAJ debt). SSC stands for Social Security Corporation. The authorities securitized domestic arrears amounting to 2.3 and 0.3 percent of GDP in 2019 and early 2020, respectively, part of which was previously assumed to be repaid over a three-year period. |
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7/ Data from the 2017 Revision of World Population Prospects of the UN population division. |
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|
8/ INS data. CBJ staff's estimates, based on updated trade weights, shows a more moderate pace of real appreciation over the past few years. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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