IMF and Jordan reach preliminary agreement that boosts aid to $2bn

The International Monetary Fund and Jordan reached a preliminary agreement that will boost the total assistance to the kingdom to about $2 billion over the 2020-2024 period.

The deal is in addition to about $469 million disbursed under Jordan's IMF general special drawing right allocation in August 2021, the Washington-based lender said in a statement on Tuesday.  The staff-level agreement was reached as part of the fund's fifth review of Jordan's economic reform programme and is subject to approval by the IMF’s management and the executive board.

The fund said Jordan's post-Covid recovery continues to build momentum, with the economy expected to grow by 2.7 per cent this year, revised up from 2.4 per cent, due to increased tourism and positive regional spillovers from GCC countries.

While the government's revenue mobilisation has been strong and reflects institutional efforts to tackle tax evasion and avoidance, fiscal and monetary policies should continue to focus on strengthening macroeconomic stability in tandem with supporting the vulnerable from the population, amid higher commodity prices and tightening global financial conditions, the IMF said.

Jordan, which has limited natural resources, imports more than 90 per cent of its energy needs and relies on foreign aid and grants to finance its fiscal and current account needs. The kingdom is trying to overhaul its economy and cut state subsidies amid high public debt and unemployment.

The government is expected to narrow its primary deficit, excluding grants, by 0.7 per cent of gross domestic product to 3.7 per cent of GDP in 2022, according to IMF estimates.

Larger-than-expected fuel and food subsidy costs will be offset by a rationalisation of non-priority spending and a significant revenue overperformance, as a result of the government’s continuing efforts to tackle tax evasion and avoidance.

The Central Bank of Jordan has increased interest rates in line with the US Federal Reserve policy rate to safeguard the dinar's peg to the dollar and international reserves have remained adequate, the IMF said.

“Despite turbulent global economic conditions, sound fiscal and monetary policies have helped maintain macroeconomic stability and access to international markets," said S. Ali Abbas, who led the IMF mission that reached the agreement with Jordan.

“The post-Covid recovery continues to build momentum ... growth in the medium term is expected to reach 3 per cent but there are downside risks from a slowing global economy."

While unemployment has declined it remains high at 22.6 per cent, particularly among the youth and women, the IMF said.

Inflation has increased to 5.2 per cent as of the end of last month, as a result of higher fuel and food prices but this remains moderate by global comparison, the fund said.

A stronger-than-expected rebound in tourism receipts and robust exports, have been offset by a higher food and fuel import bill, which is likely to lead to a higher current account deficit of 7.8 per cent of GDP for 2022, according to the IMF.

Jordan's fiscal reforms will continue to centre on broadening the tax base and support from donors, remains crucial in helping ease the kingdom's burden of supporting and hosting 1.3 million Syrian refugees, Mr Abbas said.

Recent passing of legislations unifying the tax and customs administrations with national systems, introducing place of taxation rules in the GST law, and strengthening the governing of fiscal incentives for investment are "important reforms in this regard", he said.

The phasing out of untargeted fuel price subsidies, while protecting the vulnerable against higher prices through additional cash transfers, will help save resources for priority spending.

"The authorities have re-emphasised their strong commitment to fiscal prudence in order to reduce public debt to 80 per cent of GDP by 2027," Mr Abbas said.

As part of the 2023 fiscal targets, the government aims to have a primary deficit, excluding grants, that is 2.9 per cent of GDP, which supports the recovery and debt sustainability against a backdrop of extraordinary external pressures, he said.

"“The prospects for strong, durable and inclusive growth rest on steady progress on structural reforms to boost female and youth employment, enhance labour market flexibility, promote competition, and enhance governance and transparency," Mr Abbas said.