IMF, Jordan reach staff-level agreement on 4th EFF review

AMMAN — Jordan on Tuesday reached staff level agreement with the International Monetary Fund (IMF) after completing the fourth review under an Extended Fund Facility (EFF) with the fund, which stressed that Jordan’s programme “is firmly on track with strong performance”.

The staff level agreement is expected to be approved by the IMF board at their June meeting, IMF Jordan mission chief Ali Abbas said during a meeting in Amman on Tuesday, where he noted that there is “impressive” progress on structural reforms.

In 2022, the IMF will provide Jordan with $550 million under the programme, which includes $165 million that has been brought forward to be disbursed this year, Abbas added.

On economic growth, he said the IMF lowered the economic growth forecast for Jordan from 2.7 per cent to 2.4 per cent in 2022 on high fuel and food prices and international developments.

Inflation in Jordan in 2022 is expected to be higher than expected and it will be close to 4 per cent as opposed to the IMF’s previous forecast of 2.5 per cent for this year. In 2023, inflation is expected to be around 3 per cent due to rise in fuel and food prices.

“Jordan has contained inflation much better than other countries and the IMF stands fully with Jordan… The Central Bank of Jordan has done a good job and lowering inflation will help enhance Jordan’s competitiveness,” he said, adding that inflation is expected to be back on original track in 2024.

Jordan’s public debt reduction is “on track and a big part of Jordan’s debt is concessional with low interest rates, which helped Jordan continue without running into problems,” he said.

“Jordan’s debt burden is something that can be managed with the current ongoing reforms,” Abbas said.

The Kingdom will need to raise financing for a Eurobond maturing in June and debt costs for Jordan will still be less than other countries as its credit ranking was not downgraded, he indicated.

“Jordan fares better with international investors than other countries… Jordan has a debt structure that is more favourable than other countries,” Abbas noted.

Jordan does have access to markets and this is reassuring and Jordan is one of the few oil importing countries that did not see a credit downgrade, he added.

Lowering growth is smaller for Jordan than other countries as Jordan was not affected with food price hikes and it took “a wise decision” to boost wheat reserves in 2021, which gave a buffer for Jordan this year and it did not rush to buy wheat at high prices. Electricity cost is relatively stable in Jordan although there will be some effect with higher fuel prices, he said.

“Tourism sector is doing good and is coming back to almost normal, and exports are doing very well and remittances by Jordanians are expected to increase,” he added.

Minister of Finance Mohamad Al-Ississ said Jordan owns the programme and it focused on widening the tax base by combating tax evasion and tax avoidance without increasing any taxes.

The programme also focused on supporting the vulnerable groups, he added, stressing that Jordan continued with fiscal and structural reforms including on the legislative side.

The minister said that Jordan enhanced anti-corruption measures and it remains committed to the reforms under the programme.

“The completion of the fourth economic review under the EFF and reaching a staff level agreement provides further certainty about Jordan’s strength,” said the minister.

“We are in safe margins on inflation,” he added.

“What we want to do is to focus on increasing capital expenditure and provide a floor for social spending, and we are taking all measures to make sure the vulnerable are not affected. We focus on sustaining growth in revenues and not increasing taxes,” the minister said.

During the meeting, Abbas said macroeconomic stability will be more important in the coming two years, stressing that the success of this programme is because it’s owned by Jordan.

“Jordan needs to further accelerate structural reforms to create jobs and fuel economic growth,” he said, 

Abbas added that there is a need to continue reforms in investments to ensure discipline for tax incentives in this regard, and the law in this regard is expected to be submitted to Parliament soon.

On the monetary side, he added that there will be a new challenge the CBJ has to face as the US raises interest rates, which is also something that Jordan has done and that is consistent with what the GCC did.

“It is important to maintain the dinar peg to the dollar and it is important to pass the next two years, which are expected to be challenging years,” he added.

He also stressed that it was important to make sure to target subsidy to the most vulnerable and ensure that government can meet fiscal targets.

Abbas added that the IMF programme focuses on social spending and provides floor in this regard.

In 2021, the floor for social spending under the programme was $804 million and the government spent $883 million. In 2022, the floor for social spending is $943 million and Jordan’s allocations and spending is to near $1028 million in 2022 in this regard.

IMF Resident Representative Kareem Ismail highlighted the importance of fiscal transparency.

He said Jordan issued fiscal transparency evaluation and it is the second country in the region to do so after Tunisia.

“Jordan is one of the few countries in the world that have gone this far in regard to fiscal transparency,” Abbas added.

In a statement following the  discussions, Abbas  said that 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 per cent in 2022, and rising to above 3 per cent over the medium-term,” he said.

“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 per cent at end-April. Supported by a stronger rebound in tourism receipts and robust exports, the current account deficit will narrow from 8.8 per cent of GDP in 2021 to 6.5 per cent of GDP in 2022, a somewhat higher level than previously expected, primarily reflecting more elevated fuel import prices,” he said.

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 per cent of GDP to 4.5 per cent of GDP in 2021, Abbas said.

Touching on the refugee crisis, Abbas said that 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 $165 million in 2022, including an augmentation of access of around $100 million,” he said.

“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 $2 billion]. This is in addition to SDR 329 million [or $469 million] disbursed as Jordan’s share under the IMF General SDR allocation in August 2021,” Abbas added.