Jordan, IMF reach $1.3b agreement to boost economic growth, job creation
AMMAN — Jordan and the International Monetary Fund (IMF) on Thursday reached a $1.3 billion agreement aimed at increasing growth, stimulating job creation, strengthening external and fiscal stability, increasing transparency and improving social spending.
The staff-level agreement for the four-year Extended Fund Facility (EFF) announced Thursday includes nine tranches; ranging each from $140-$150 million with the first tranche expected to be disbursed at the end of March, IMF chief of mission to Jordan Chris Jarvis said at a meeting with the press Thursday.
"The new programme neither imposes new taxes nor increases existing ones and will add no further burdens on citizens," Minister of Finance Mohamad Al-Ississ said, adding that the programme seeks to enhance mechanisms to combat tax evasion and improve tax collection and administration to ensure fair distribution of the tax burden.
"We reached the new programme following months of talks with the IMF… The new programme was developed and designed through Jordanian expertise", he said, adding that the programme seeks to create jobs, drive economic growth while preserving fiscal stability, enhancing transparency, fostering social safety net and reducing costs of production.
"Reaching an agreement with the IMF is a sign that the economy is on the right track. It facilitates access to international markets and loans, grants and investments," the minister said.
The IMF mission chief said that the programme is designed to improve the investment climate in Jordan and reduce business costs, which will make it easier to create jobs while also protecting Jordan’s poor and most vulnerable.
Stressing that financial support from Jordan’s international partners will be critical to supporting the government’s reform efforts, he said: "This is an absolutely Jordanian programme."
"This programme is different from the previous one as there is more emphasis on structural reforms to increase growth and create jobs, and second we still have budget adjustments and improvements, but the focus is not on increasing tax rates but on improving tax collection, " Jarvis said, adding: "We will help Jordan improve its tax administration and crack down on tax evasion."
There are no plans to increase water tariffs in this programme but there are measures to crack down on illegal water wells and reduce water loss rates, Jarvis said.
According to Jarvis, the agreement will be referred to the IMF board by the end of March, and after approval the first tranche will be disbursed.
“The agreed economic programme, to be supported by an arrangement under the EFF, will reinforce the authorities’ ambitious macroeconomic and structural reform agenda for the next four years — an agenda underpinned by their five-year reform framework, which attracted significant support from the international community at the London Initiative in 2019," he said.
He said that fiscal and monetary policies under the programme will continue to safeguard macroeconomic stability by reducing fiscal and external vulnerabilities in an equitable, growth-friendly, and inclusive manner. "A gradual and steady fiscal consolidation and reform path will help bring down public debt over the programme period, while allowing sufficient space for social and capital spending."
Monetary policy will continue to be anchored by the exchange rate peg, which serves the economy well. International reserves will be maintained at comfortable levels, the mission chief said.
“In addition to macroeconomic stability, the programme is centred on a pro-growth reform agenda — which is based on measures to improve tax administration and reduce tax evasion, as well as more effective public-sector investment, reduced business costs, and measures to improve government transparency and the investment climate," he said.
"Key reforms include reduced electricity prices for businesses to improve competitiveness, together with development of a plan to reduce production costs and direct households’ subsidies only to those who need it. In addition, the authorities will introduce measures to help young people and women enter the labour force and will reform the Illicit Gains Law to improve Jordan’s asset-declaration system for public officials. This last measure will help improve accountability and raise public trust," Jarvis said.
According to the IMF head of mission, gross domestic product growth is projected to reach 2.1 per cent in 2020 and will increase gradually in the coming years, reaching 3.3 per cent over the medium term and reinforced by the programme’s structural-reform timetable.
Inflation will remain subdued in 2020, at under 1 per cent (y/y), but is expected to converge to 2.5 per cent over the next few years. External imbalances have narrowed — building on a significant improvement last year, in which the current account deficit fell from 7 per cent of GDP to 2.9 per cent, the deficit is expected to remain moderate over the medium term," he said.
"It takes time for growth to materialise. These measures under the programme lay the ground for a stringer growth in the future and it can also produce growth birth for the short term because people are more confident about Jordan's future," Jarvis said.
On August, 2016, the IMF executive board approved a three-year extended arrangement under the Extended Fund Facility for Jordan for an amount equivalent to SDR 514.65 million (about $723 million, or 150 per cent of Jordan’s quota) to support the Kingdom’s economic and financial reform programme.