IMF, Jordan reach Staff-Level Agreement on 2nd Review under EFF

An International Monetary Fund (IMF) team led by S. Ali Abbas, has concluded virtual discussions with the Jordanian authorities and reached a staff-level agreement on the second review of the Kingdom’s economic reform program supported by the Extended Fund Facility (EFF) arrangement. This agreement is subject to approval of the IMF’s Executive Board.


In a statement released Wednesday, Abbas said the COVID-19 pandemic continues to pose significant challenges for Jordan, indicating that output contraction in 2020 is estimated to have been limited at 2 percent, including due to the authorities’ timely and effective fiscal and monetary support.


However, he added, successive COVID waves since October have sharply hit businesses and households, with unemployment rising to a record high of 24.7 percent in Q4 2020.


According to the IMF official, 2021 is expected to see a recovery of 2 percent, with nominal GDP expected to expand by 3.6 percent. He explained that this projection incorporates the likely implications of a slower-than-anticipated rollout of the vaccination globally and the attendant delay in the return of tourism to pre-pandemic levels, as well as stronger external demand conditions, and continued domestic policy support.


He stressed that the immediate policy priority is to deal with the ongoing serious pandemic wave and mitigate its human and economic impact. To this end, Abbas pointed out, fiscal targets for 2021 aim to accommodate higher social spending, including on job retention in affected sectors and youth programs; and a credit support scheme targeted at small and medium enterprises (SMEs) – which account for the bulk of employment – has been expanded.


Abbas stressed that Jordan’s fiscal policy thus far has ensured the preservation of macroeconomic stability and sought to cushion the impact of the crisis on growth, adding: “Going forward, the fiscal strategy remains anchored in equitable tax reforms, aimed at tackling evasion, closing loopholes, and broadening the tax base. Recent months have seen major legislative reforms in this area. Robust implementation of these reforms, including through continued tax administration reforms and modernization, should help raise significant revenue over the medium-term.”


At the same time, he indicated, Jordanian authorities aim to enhance the efficiency of public spending; fully implement the new public-private partnerships (PPP) law to ensure effective selection and execution of viable projects in line with national priorities, and closely monitor contingent liabilities. These actions will strengthen debt sustainability.


Turning to monetary policy, the IMF official said it has been appropriately accommodative with a sizable and timely stimulus supporting credit to the economy and jobs, stressing that the policy needs to remain flexible and data driven, balancing the need to entrench the recovery and maintain monetary and financial stability.


With regard to international reserves, he said they are projected to remain comfortable over the medium term and that the banking system remains well-capitalized and liquid, and while non-performing loans have risen slightly last year they remain at low levels.


However, Abbas added, continued vigilance on asset quality is warranted given the strains on the buffers of corporates and households due to the pandemic.


“Steady progress on structural reforms remains critical, notably in the electricity sector, where efforts are ongoing to reduce production costs and lower high tariffs on businesses which impede growth, while continuing to effectively protect lower-income households,” the IMF official emphasized.


He added that reforms aimed at supporting female labor force participation, more flexible labor markets, and reducing the costs of doing business, remain key to boosting competitiveness and inclusive growth. Abbas stressed that continued progress on governance reforms is important to strengthening public trust; the authorities’ transparent reporting of the details of their COVID-related spending thus far has been a welcome step in this regard.


According to the IMF official, robust concessional support from donors, including through provision of vaccines, remains crucial, especially given the longer tail of the pandemic.


He indicated that 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 view of the higher financing needs, staff supports the authorities’ request for an augmentation of access under the EFF by US$200 million. 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 US$1.95 billion).


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


Source: Jordan News Agency