IMF, Jordan reach staff-level agreement on 3rd review under EFF

AMMAN — An International Monetary Fund (IMF) team led by S. Ali Abbas, concluded virtual discussions with the Jordanian authorities and reached a staff-level agreement on the third review of the authorities’ economic reform programme supported by the Extended Fund Facility (EFF) arrangement.

This agreement is subject to approval by the IMF’s management and the Executive Board, according to an IMF statement.

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

“Preventive actions and a robust vaccination campaign mitigated the effects of recent COVID-19 variants through the summer. Helped by the economic reopening, a recovery, supported by targeted fiscal and monetary measures, is underway, with real GDP growth expected around 2 per cent in 2021.

“However, significant slack remains in the economy, with unemployment persisting at high levels, particularly for youth. Weak household demand together with a delayed pass-through of higher global commodity prices to domestic markets has kept inflation subdued at 1.8 per cent y-o-y as of end-September. The current account deficit is expected to increase to around 9.5 per cent of GDP in 2021 due to higher fuel import prices and increased intermediate imports, but it is expected to decline to less than 5 per cent in 2022. Travel receipts are gradually recovering to near pre-pandemic levels.

“Despite the challenging circumstances brought on by the pandemic, sound policies have helped maintain macroeconomic stability. The government is on track to narrow its fiscal deficit by 1 per cent of GDP in 2021, reflecting robust revenue collection on the back of a significant institutional effort to tackle tax evasion and improve tax compliance. At the same time, reserves maintained their comfortable level, helped by robust monetary policy and external financing. Jordan’s standing in international markets remains strong with spreads low compared to peers in the region.

“Growth is expected to accelerate in 2022 to 2.7 per cent as the recovery gains steam and structural reforms begin to bear fruit. Against this backdrop, agreement was reached on the fiscal targets for 2022, which will help stabilise public debt, while allowing space for the extension of important social protection and job retention programmes; and public investment, thereby bolstering the gradual recovery. At the same time, the programme will continue accommodating higher-than-expected health spending stemming from COVID.

“The fiscal strategy centres on broadening the tax base, by reducing tax evasion and closing tax loopholes. It will be critical to maintain reform momentum in this space, notably, through passage of legislation to unify the tax and customs administration in ASEZA under ISTD and Jordan Customs, respectively; introducing place-of-taxation rules into the GST law; strengthening the governance of fiscal incentives for investment; and improving tax and customs administration. Building on the recommendations of the 2021 Fiscal Transparency Evaluation (FTE), and the new public-private partnerships (PPP) law, the authorities are seeking to track, manage and disclose fiscal risks better, with the aim of improving the efficiency and transparency of public finances. These reforms will be essential to preserving Jordan’s public debt sustainability and market access.

“The monetary policy stance remains appropriate. Moving forward, policy needs to remain flexible and data driven, balancing the need to entrench the recovery and maintain monetary and financial stability. International reserves are projected to remain comfortable over the medium term, and dollarization is at its lowest level in years. The banking system remains well-capitalized and liquid, and non-performing loans remained at low levels in the first half of 2021. The upcoming Financial Sector Assessment Program (FSAP) update will be a timely opportunity to take broad stock of the many changes in the financial sector since the previous update including the impact of COVID. Significant progress has been made to enhance the regime for anti-money laundering and combatting terrorism financing, including enacting a new AML/CFT law to better align with FATF standards. The authorities have put in place a plan to resolve the remaining strategic deficiencies identified by the Financial Action Task Force (FATF).

“The prospects for strong, durable and inclusive growth rest on steady progress on structural reforms to support female labour force participation; enhance labour market flexibility; promote competition; reduce the costs of doing business, including by lowering electricity tariffs for businesses; and enhance governance and transparency. The authorities are also working to mitigate the effects of climate change, notably on water scarcity.

“Robust concessional support from donors, remains crucial, especially given the longer tail of the pandemic. Jordan continues to bear a disproportionate burden in supporting and hosting 1.3 million Syrian refugees, including providing all residents equal access to vaccination. Total IMF disbursements, including the amount drawn under the Rapid Financing Instrument, over 2020-24 are expected to amount to SDR 1,362.11 million (or around $1.95 billion). This is in addition to SDR 329 million (or around $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.”