Press Release No. 22/167

IMF Staff Concludes Mission for 2022 Article IV and Fourth Review Under the Extended Fund Facility for Jordan

May 24, 2022

• Jordan’s IMF-supported EFF program remains firmly on track, with notably strong performance on domestic revenue mobilization. A staff level agreement was reached on the completion of the fourth EFF review. The authorities have navigated the significant economic challenges of the pandemic period, while protecting critical social and health spending, and implementing key structural reforms.
• In the near-term, fiscal and monetary policies should continue to support the recovery and maintain macroeconomic stability, amid a challenging external environment characterized by tightening global financial conditions and rising commodity prices.
• Article IV discussions centered on reforms to enhance long-term inclusive growth, by boosting labor productivity, business competitiveness and tourism, and encouraging female and youth employment; enhance the efficiency and fairness of public finances; and address Jordan’s climate adaptation needs, notably related to water scarcity.

Washington, DC: An International Monetary Fund (IMF) team led by S. Ali Abbas, held an in-person mission from May 8-23, 2022 with the Jordanian authorities. The mission held discussions on the 2022 Article IV Consultation with Jordan and reached a staff-level agreement with the Jordanian authorities for the completion of the fourth review under the Extended Fund Facility (EFF) arrangement. This agreement is subject to approval by the IMF’s management and the Executive Board.

At the conclusion of the discussions, Mr. Abbas issued the following statement:

“The authorities’ swift and decisive actions have mitigated the effects of the COVID-19 pandemic on the economy. Helped by the economic reopening, a recovery, supported by targeted fiscal and monetary measures, is underway, with real GDP growth expected at around 2.4 percent in 2022, and rising to above 3 percent over the medium-term. However, unemployment persists at very high levels, particularly among the youth. Inflation – which has been contained in 2021 – has risen slightly this year, reaching 3.6 percent at end-April. Supported by a stronger rebound in tourism receipts and robust exports, the current account deficit will narrow from 8.8 percent of GDP in 2021 to 6.5 percent of GDP in 2022, a somewhat higher level than previously expected, primarily reflecting more elevated fuel import prices.

“Despite the challenging circumstances brought on by the pandemic, sound policies have helped maintain macroeconomic stability. The central government narrowed its primary deficit (excluding grants) by 1.2 percent of GDP to 4.5 percent of GDP in 2021. Revenue collection has remained robust, anchored in an institutional effort to tackle tax evasion and improve tax compliance, and the authorities are on track to meet the 2022 target for the primary deficit (excluding grants) of 3.4 percent of GDP. At the same time, international reserves remain adequate, helped by prudent monetary policies, a resilient banking system, and robust external financing. New electricity tariffs were rolled out in early-April, which will boost Jordan’s competitiveness by lowering the costs for businesses.

“Fiscal reforms will continue to center on broadening the tax base. The recent passage of legislation unifying the tax and customs administrations in ASEZA under the national systems has delivered an important longstanding reform. Going forward, it will be critical to maintain reform momentum, notably, through introducing place-of-taxation rules into the GST law; strengthening the governance of fiscal incentives for investment; and improving tax and customs administration. Due to its long-term fixed price gas import contracts for electricity generation, and adequate wheat reserves to hedge against possible global shocks, Jordan is better placed than many emerging markets to deal with higher food and fuel prices. However, it will be important to contain the cost of untargeted fuel subsidies, while protecting the most vulnerable through targeted support. Moreover, efforts to better track, manage and disclose fiscal risks will be essential to improving the transparency and sustainability of public finances. Finally, the authorities are committed to a fiscal strategy that will put Jordan’s public debt on a firmly downward path, achieving 80 percent of GDP in the medium-term.

“Monetary policy should continue to be anchored in safeguarding the peg—which has served the economy well--consistent with the CBJ’s commitment to maintaining monetary and financial stability. International reserves are projected to remain comfortable over the medium term providing an important buffer against a highly uncertain external environment. The banking system remains well-capitalized and liquid, and non-performing loans have remained at low levels. The ongoing Financial Sector Assessment Program (FSAP) update will take stock of the many changes in the financial sector since the previous update including the impact of COVID-19. Good progress has been made to enhance the regime for anti-money laundering and combatting terrorism financing. The authorities should continue to work actively to ensure effective implementation of the Financial Action Task Force (FATF) recommendations.

“The Article IV consultation focused on prospects for strong, resilient and inclusive growth, which rest on steady progress on structural reforms to support female labor force participation, enhance labor market flexibility, promote competition, reduce the costs of doing business, and enhance governance and transparency. In this regard, advancing legislation to support female labor force participation and strengthen the competition regulatory framework will be critical. Continued efforts are also needed to address water scarcity, and improve the financial sustainability of both the water and electricity sectors.

“Robust concessional support from donors, remains crucial, especially as global risks are elevated. Jordan continues to bear a disproportionate burden in supporting and hosting 1.3 million Syrian refugees, including providing all residents equal access to vaccination. In light of higher external financing needs, arising from global economic pressures, we propose an increase in disbursement by around US$165 million in 2022, including an augmentation of access of around US$100 million. Including the amount drawn under the Rapid Financing Instrument, this will bring total IMF disbursements over 2020-24 to SDR 1,438 million (or around US$2 billion). This is in addition to SDR 329 million (or US$469 million) disbursed as Jordan’s share under the IMF General SDR allocation in August 2021.

“The mission would like to thank our counterparts for a collaborative and fruitful dialogue. A wide-ranging set of meetings was held with the Prime Minister, the Minister of Finance, the Minister of Planning and International Cooperation, the Governor of the Central Bank of Jordan, other senior cabinet ministers and officials, parliamentarians, donors, and representatives from the private sector and civil society.”