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Jordan and the IMF: Challenges, opportunities

Sep 06,2023 - Last updated at Sep 06,2023

Countries turn to the International Monetary Fund (IMF) when they face economic challenges, including balance of payments difficulties, financial pressures, or the need for financial support to address crises or finance development projects. The IMF provides financial assistance and tailored economic advice to countries to help them achieve economic stability and enhance growth. While seeking IMF assistance has positive aspects, it also presents challenges such as imposing conditions and economic reforms that can be painful for the population.

Among the advantages of seeking IMF assistance is the immediate financial support provided to countries facing balance of payments problems, helping stabilise their economies and avoid financial crises. Typically, the IMF requires countries to implement economic reforms in exchange for financial support. These reforms may include fiscal austerity, monetary policy adjustment, structural reforms and governance improvements. These changes can lead to economic stability and long-term growth.

Moreover, the participation of a country in the IMF financially enhances its credibility in the eyes of international investors and creditors, indicating a commitment to sound economic policies. This can lead to increased foreign investment and access to international capital markets.

On the other hand, there are several drawbacks that may arise from a country's reliance on IMF assistance. One of the primary concerns is that IMF loans often come with strict conditions and political requirements, which can be challenging to implement and may lead to social and political protests. Some countries view IMF interventions as violations of their sovereignty, as external actors may influence their decisions. Furthermore, IMF loans can increase a country's debt burden, especially if borrowed funds are not managed effectively

Regarding Jordan, its relationship with the IMF is long-standing and deeply rooted. Jordan has sought the IMF's assistance multiple times over the past four decades to address various economic and financial challenges. In response to external and internal economic shocks experienced by Jordan over the last four decades, Jordan adopted two corrective and economic reform programmes. The first programme took place during the period 1989-1993, and extended until 2004, while the second programme occurred during the period 2012-2016 and extended until March 2024. Generally, the first programme was successful in achieving its objectives, albeit with the assistance of various regional conditions and developments and some local policies.

The second programme, adopted in 2012, did not succeed in most aspects at the macroeconomic level. Information suggests that its operations may conclude after the sixth review, which was conducted in August 2023, before its natural end in March 25, 2024. Among the key aspects in which it did not succeed are Continued Economic Growth Slowdown. The Kingdom experienced economic growth rates averaging 2-2.5 per cent, which are below the natural and non-natural population growth rates and the rate of growth of government debt.

Worsening Unemployment Problem: Unemployment rates increased from levels below 13 per cent in 2012 to an average of 23.5 per centin 2021 and 2022.

Marginal Reduction in Budget Deficit: The programme achieved a slight reduction in the general budget deficit-to-GDP ratio.

Worsening Public Debt Issue: The public debt problem and its servicing worsened both in absolute numbers and as a percentage of GDP, rising from levels close to 75 per cent in 2012 to levels exceeding 114 per cent in 2022.

Lack of Comprehensive Economic Development: The current economic reform programme did not achieve comprehensive development at the macroeconomic level or within individual economic sectors.

These results, coupled with the ongoing repercussions of the COVID-19 pandemic, the effects of rising global commodity prices, geopolitical conditions in the region and the impact of all these developments on Jordan's economic performance, have prompted negotiations with the IMF to prepare a new national economic reform programme. Consequently, the current programme will be halted before its original completion date.

Having a national economic modernisation vision in Jordan is positive, as it can guide economic and investment policies toward achieving long-term development and economic goals. Therefore, this vision should align with the corrective programme developed and implemented with the IMF. The common primary objective between the vision and the programme should be achieving economic and financial stability and promoting sustainable development. Hence, priority should be given to reforms that help improve economic performance, increase employment opportunities and enhance investment.

 

Adli Kandah is an economic and financial consultant and adviser

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