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Executive Board Approves US</head>.3 billion Extended Arrangement Under the Extended Fund Facility for Jordan

IMF Executive Board Approves US$1.3 billion Extended Arrangement Under the Extended Fund Facility for Jordan

March 26, 2020

Jordan’s IMF-supported economic reform program is anchored on structural reforms designed to spur growth by creating jobs—especially for women and young people—and reduce poverty.
Although understandings were reached on Jordan’s IMF-supported economic reform program before the COVID-19 outbreak reached Jordan, it is designed to support spending to contain and treat the virus; if needed, it may be adapted further to the changed circumstances to ensure sufficient support for the people.
Continued support from donors, particularly through concessional loans and budget grants, will be critical to help Jordan cope with humanitarian and economic ne.

Washington, DC –
The Executive Board of the International Monetary Fund (IMF) today
approved a 48-month arrangement under the Extended Fund Facility (EFF)
with Jordan for an amount equivalent to SDR 926.37 million (about US$
1.3 billion or 270 percent of Jordan’s quota) to support the country’s
economic and financial reform program. It also provides for spending to
contain and treat COVID-19. This program is anchored by critical
structural reforms designed to lower electricity costs for businesses
and create incentives for them to hire more young people. The aim is to
support stronger and more inclusive growth, create jobs, especially for
women and young people, and reduce poverty. Improving the fiscal
situation is also needed to stabilize and bring public debt towards
more sustainable levels. Continued support from donors, particularly
through concessional loans and budget grants, will be critical to
program success and help Jordan cope with humanitarian and economic
ne.

Although the program was designed before the COVID-19 outbreak, changes
were made to the program to support unbudgeted spending covering
emergency outlays and medical supplies and equipment. If the impact of
the outbreak is deep enough to put at risk program objectives, the
program will be adapted further to the changed circumstances, upon
reaching understandings with the authorities.

Following the Board’s decision, an amount equivalent to SDR 102.93
million (about US$139.23 million) is available for immediate
disbursement; the remaining amount will be phased out over the duration
of the Fund-supported program, subject to eight program reviews.

Following the Executive Board discussion on Jordan, Mr. Mitsuhiro
Furusawa, Deputy Managing Director, and Acting Chair, said:

“The Jordanian economy has continued facing significant challenges.
Macroeconomic stability and external buffers have been preserved, but
fiscal vulnerabilities remain. Structural reforms and continued fiscal
consolidation efforts are critical to lift growth, reduce unemployment
and bring debt on a downward path.

“The COVID-19 outbreak poses significant risks to the program
implementation. The authorities have implemented measures to help
contain the impact of the pandemic, but adjustments to the program
modalities might be necessary in light of the rapidly changing
circumstances. Donor support through budget grants and concessional
financing will be critical to help Jordan cope with the effects of the
COVID-19 outbreak and the Syrian refugee crisis and to support program
objectives.

“Continued fiscal consolidation efforts are needed to bring public debt
toward more sustainable levels. The government’s strategy should focus
on broadening the tax base and reducing business tax exemptions through
an overhaul of the investment incentives framework and revamping tax
and customs administrations. These reforms will need to be complemented
by efforts to contain spending, limit losses in the energy and water
sectors, and improve the targeting of Jordan’s social safety net.

“Monetary policy should continue focusing on supporting the peg and the
economy. While the financial sector is generally sound, continued
efforts are needed to promote its stability and financial inclusion.

“An ambitious structural agenda should be implemented to improve the
business environment, enhance competitiveness and support growth. The
authorities need to reduce high electricity costs faced by businesses;
implement measures to create jobs, particularly for women and young
people; and simplify procedures to attract foreign investment.
Governance reforms will be necessary to strengthen public-sector
transparency and accountability.”

ANNEX

Recent Economic Developments

Jordan has made progress in reforming its economy, but pressing
challenges remain. The impact of the ongoing COVID-19 outbreak,
regional conflicts, and the hosting of Syrian refugees weigh on social
conditions, public finances, investment, and the external accounts.
Macroeconomic stability has been preserved, external imbalances have
improved markedly, reserve buffers have remained adequate, and the
financial system is sound. However, growth has remained weak (about 2
percent) and unemployment high (at 19 percent of the labor force),
especially for youth and women. Fiscal consolidation also proved
difficult to maintain and public debt remained elevated.

To tackle these challenges, the authorities’ program is centered on
critical reforms to remove the most important remaining impediments to
growth, while continuing to bring down the budget deficit. These
efforts build on the Jordan Economic Growth Plan 2018–22 and are
anchored by the five-year reform matrix launched at the 2019 London
Initiative. The authorities’ program includes measures in the areas of
reducing business costs and enhancing competitiveness, labor market
reforms, governance, improved tax collection, and enhanced access to
credit.

Program Summary

Building on the 2016 extended arrangement under the EFF, the new
program aims at achieving stronger and more inclusive growth and create
jobs, with implementation centered around growth‑enhancing structural
reforms and gradual reduction in the budget deficit. The needed
adjustment is spread over a longer period to support the growth
recovery. The exchange rate peg continues to serve as an appropriate
nominal anchor, which has helped preserve stability in the face of
repeated external shocks.

Structural policies to support growth and job creation
. Structural reforms are centered on the most important remaining
impediments to growth. Key efforts include: (i) reducing high
electricity costs faced by businesses to enhance competitiveness and
support job creation, while directing electricity subsidies only to
those who need them most; (ii) a temporary reduction in social security
contributions, among other labor market reforms, to promote greater
employment opportunities, particularly for women and young people; and
(iii) the swift implementation of the authorities’ five-year matrix,
launched in the 2019 London Initiative, to improve the business
climate, boost competitiveness, and attract foreign investment. These
efforts are supported by governance reforms to strengthen public-sector
transparency and accountability.

Continued reduction in the budget deficit to bring public debt
towards more sustainable levels.

The program’s fiscal strategy relies on broadening the tax base and
reducing tax exemptions for businesses, particularly through an
overhaul of the investment incentives framework and revamping of tax
and customs administrations. These reforms will be complemented by
efforts to rationalize current expenditures while protecting critical
social, health and education spending; contain losses and contingent
liabilities in the energy and water sectors; and improve the targeting
of Jordan’s social safety net.

Preserving monetary and financial stability.
Monetary policy will remain focused at supporting the peg by
maintaining an adequate reserve buffer, while also considering domestic
economic conditions. The authorities plan to continue
strengthening the legislative and regulatory framework for Jordan’s
banking and financial sectors, including further enhancing the
Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime.

Continued support from donors, particularly in concessional
financing and budget grants.

This will be critical to program success and help Jordan cope with
ne arising from the COVID-19 outbreak and the Syrian refugee crisis.

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson