Jordan remains committed to its medium-term economic reforms objective, IMF says

Jordanian policymakers remain committed to the country's medium-term economic reforms objectives and international donors should step up efforts to help the country cope with the impact of the pandemic, the International Monetary Fund said.

Authorities in Jordan have taken steps to preserve macroeconomic stability, creating job-rich and inclusive growth and rebuilding policy buffers, including through gradual and growth-friendly fiscal consolidation, the IMF said in a statement.

“The impact of Covid-19 on the Jordanian economy has been sizeable, but the authorities have responded with timely and targeted measures to protect lives and livelihoods, while also preserving debt sustainability and market access,” Mitsuhiro Furusawa, deputy managing director and acting chair of the fund’s executive board said after completing the first review of the country’s performance under the IMF Extended Fund Facility (EFF).

“The authorities remain committed to gradually rebuilding policy buffers and arresting the rise in public debt; preserving the credibility of the peg; accelerating electricity sector reforms; and enhancing labour market, business climate and governance reforms to promote higher and more inclusive growth.”

The IMF had entered into a three-year EFF agreement with Jordan in 2017, which was extended in March 2020 when the lender approved a four-year, $1.3 billion fund facility. With the release of the latest tranche of $146 million, IMF’s total disbursements to Jordan has reached $687m.

The IMF also agreed to extend $396m in emergency assistance in April last year to help the country deal with the economic fallout from the Covid-19 pandemic.

The Washington-based fund said it has enhanced a built-in flexibility in Jordan’s programme to accommodate greater spending needs to help prevent, detect, control, treat and contain the spread of Covid-19.

Jordan's real gross domestic product rate is expected to grow 2.5 per cent this year after contracting by an estimated 3 per cent in 2020, the IMF said.

Unemployment in the country has surged to record levels, while tourism revenue and remittances have declined. A fall in other government income has propelled public sector debt to 90 per cent of GDP.

However, in the near term, Jordan’s fiscal policy continues to focus on supporting the economy, backed by the IMF programme. Eventually, though, debt will need to be brought under control.

“High quality fiscal measures should underpin a gradual fiscal consolidation as the recovery takes hold,” Mr Furusawa said.

“Monetary policy should remain supportive given the still-fragile economy, while safeguarding the [currency] peg,”

The IMF said the Jordan's financial system was sound, but added that continued efforts are needed to preserve its stability and promote financial inclusion.

Going forward, Jordan's fiscal strategy should focus on broadening the tax base both through policy and tax administration reforms.