Jordan, IMF reach staff-level agreement on first review under Extended Fund Facility

Jordan passing of the first review, in light of the current challenge

  
The International Monetary Fund (IMF) headquarters in Washington, U.S., is seen on April 8, 2019.

The International Monetary Fund (IMF) headquarters in Washington, U.S., is seen on April 8, 2019.

REUTERS/Yuri Gripas

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 first review of the authorities’ economic reform programme supported by the Extended Fund Facility (EFF) arrangement.

This agreement is subject to approval of the IMF’s Executive Board. Completion of the review by the IMF Board would release an amount of around $146 million, bringing total IMF disbursements to Jordan in 2020 to $687 million, according to an IMF statement.

“Timely containment of the COVID-19 pandemic during the first half of the year, and the authorities’ robust policy stimulus response has helped to protect lives and livelihoods. Still, the crisis has taken a toll on the economy. Unemployment has surged, tourism and remittances have declined and revenues of the central government and of other public sector entities have dropped,” Abbas said in a statement at the conclusion of the discussions.

“Despite these difficult circumstances, the authorities showed policy discipline, including institutionalising the drive against tax evasion and strengthening tax administration; and maintained external market access,” he said.

Minister of Finance Mohamad Al-Ississ said that Jordan’s passing of the first review, in light of the current challenges, is a commendation of the health and economic measures taken by the Kingdom since the beginning of the pandemic, and evidence of Jordan’s development partners’ confidence in the ability of the national economy to recover.

The minister stressed that the fight against customs and tax evasion is ongoing, adding that the government will “completely refrain from imposing new taxes”, the Jordan News Agency, Petra, reported.

With the COVID crisis still unfolding, there is considerable uncertainty around the economic forecast: Staff’s central scenario is for real GDP to decline by 3 per cent in 2020; and increase by 2.5 per cent in 2021, reflecting a gradual recovery as the pandemic abates, Abbas said.

The 2020 fiscal targets have been relaxed to support the authorities’ efforts to protect lives and jobs. Agreement has also been reached on the fiscal targets for 2021, which seek to support the recovery, while arresting the rise in public debt. The EFF provides for flexibility to accommodate higher-than-expected COVID-related spending and aims to protect the most vulnerable, he said.

“The authorities’ fiscal strategy is anchored in equitable tax reforms, aimed at tackling evasion, closing loopholes and broadening the tax base. Public expenditure reforms will aim to create space for social spending and deliver a more efficient and transparent public sector. Contingent liabilities from the broader public sector bear close monitoring, and a Fiscal Transparency Evaluation early next year will help identify reform priorities in this area.

“The liquidity and credit support extended to the financial system and businesses, especially SMEs, was timely and appropriate, and is designed to be gradually unwound as the recovery becomes entrenched. The peg to the US dollar, which has continued to serve Jordan’s economy well, provides a credible anchor for monetary policy. International reserves are projected to remain adequate over 2020-21, at above 100 per cent of the IMF’s reserve adequacy metric. The banking system is healthy, and the authorities should remain vigilant to a possible increase in non-performing loans,” Abbas said.

“Structural reforms remain critical, notably in the electricity sector, where pressures have increased in the aftermath of the pandemic. The authorities are also prioritising reforms aimed at facilitating female labour participation and youth employment; reducing the cost of doing business and ensuring an even playing field for firms; and strengthening the anti-corruption framework to increase public trust.

“The COVID pandemic has significantly increased Jordan’s financing needs and robust financial support from multilateral and official bilateral lenders will be critical in the period ahead and may need to be stepped up in the event of a more protracted downturn,” Abbas said.

Staff is also proposing to bring forward into 2021 a part of IMF credit that was expected to be disbursed in the outer years of the programme. Total IMF disbursements, including the amount drawn under the Rapid Financing Instrument, over 2020-24 are expected to amount to SDR 1217.91 million (or around $1.7 billion), the statement said.

“The mission would like to thank our counterparts for a candid and productive dialogue. A wide-ranging set of meetings was held with the deputy prime minister for economic affairs, the minister of finance, the central bank governor, other senior Cabinet ministers and officials, donors, and representatives from the private sector, women, and civil society,” concluded the statement.

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