2014 IMF-Article IV-Jordan

 Full Report - PDF File  النسخة العربية

Executive Summary

· Despite the strengthening of the Jordanian economy, the labor market remained weak with unemployment remaining persistently high

· While the economy is expected to further strengthen in the medium term, risks to this outlook remain substantial, mostly related to the Syria conflict and further fluctuations in gas from Egypt

· Further consolidation of the fiscal adjustment is needed to place public debt on a downward trend and ensure sustainability

· There is also a need to foster inclusive growth and job creation. This would include launching labor market reforms to address skills mismatches, public sector hiring practices and compensation policies and female participation in the labour force

Key Findings

The report highlights findings from the IMF’s third and fourth reviews of Jordan’s performance and Article IV consultation. Consultations with Jordanian officials were held on economic developments and policies. Key findings are provided hereafter.


· Jordan faced strong setbacks in recent years, particularly from the Syria conflict and fluctuations in Egyptian gas supplies which have put pressure on external and fiscal accounts. As the number of registered Syrian refugees increased, Jordan experienced changes in its social landscape and the provision of public services suffered

· Despite these challenges, Jordan’s economy is strengthening gradually

o Growth recovered reaching ~3% in 2013

o Headline inflation dropped to 3.3% at end 2013 (though core inflation remains elevated)

o Current account (excluding grants) narrowed to ~17% of GDP in 2013 due to cheaper energy imports and higher transfers

· Policies were initially adjusted to address exogenous shocks focusing on crisis management before turning towards medium-term consolidation anchored in the reform of general subsidies including in the electricity sector. The fiscal consolidation resulted in:

o Reduced primary central government deficit

o Reduced NEPCO losses

· The Central Bank complemented fiscal efforts by hiking policy rates to rebuild reserves to comfortable levels before shifting focus to stimulating economic activity by gradually reducing policy rates

· The economy is expected to further strengthen in the medium term:

o Growth is projected to further increase and possibly reduce the country’s high unemployment

o Inflation is expected to decline aided by an expected moderation in international food and fuel prices

o Current account deficit is expected to gradually improve reflecting mainly a lower energy import bill


Three key recommendations are outlined and staff assessment was conducted followed by authorities review. Highlights of the findings are provided hereafter.


Recommendation 1: Maintain the momentum on fiscal and public utility reforms

The staff assessment highlighted the following:

· Previous adjustments concentrated on reducing subsidies thus indicating the need for making adjustment more broad based as part of the consolidation strategy

· There is scope to go further in terms of tax reforms pointing to the income tax threshold. Deep income tax reform will need to play a prominent role in any credible medium-term fiscal consolidation strategy

· The utilities are implementing their medium-term strategies: reforms are underway to return NEPCO to cost recovery while the water strategy aims to cover operation and maintenance costs


Although the authorities agreed with the assessment and recommendations, the following was highlighted:

· There are political sensitivities

· There is a need to balance consolidation with growth

· More grants are vital to shoulder the burden of the Syrian refugees

· Energy reforms are progressing


Recommendation 2: Preserve buffers and financial stability

The staff assessment highlighted the following:

· There is uncertainty surrounding the cyclical position of the economy

· The banking sector is stable and overall sound

· Banks will have to find new sources of earnings as government consolidation proceeds

· The collection of supervisory data in the financial sector is being improved as an automated system is being introduced in addition to an early warning system for monitoring systematic risk indicators

· Supervisory processes for home-host relationships require further attention as regular onsite cross-border examinations are not yet a feature of the supervisory cycle

· Initiatives to strengthen capital buffers and the regulatory framework are ongoing

· The anti-money laundering/combating the financing of terrorism framework is being strengthened


Although the authorities agreed that cross-border supervision and efforts to reduce banks’ vulnerabilities were appropriate, they highlighted that there is scope for improvement on cross-border supervision


Recommendation 3: Foster inclusive growth and job creation

The staff assessment highlighted the following:

· While macro risks are being addressed in the program, there continues to be weaknesses in the business environment, labor markets and institutions

· Jordan’s key challenge is to create jobs amidst ongoing fiscal consolidation

· Unemployment continues to be a problem with rates highest among the educated indicating a possible structural problem that requires labor market reforms

· There is no clarity on specific labor policy actions and associated timelines from the National Employment Strategy

· Poverty and inequality remain issues although the World Bank is helping the country to strengthen its poverty analysis

· Legislation to improve the private investment climate is proceeding slowly with several laws not yet approved

· Steps are taken to further promote access to credit and financial inclusion and other weaknesses are being addressed

· Strengthening the fiscal agenda will generate revenue in addition to fostering transparency


The following was highlighted by the authorities:

· Standard indicators of business environment reforms provide a misguided picture

· Work is in progress to bring together sectoral strategies into a holistic framework

· Work is ongoing to address the chronically high unemployment

Recommended Initiatives/Actions

Recommendation 1: Maintain the momentum on fiscal and public utility reforms

· Further lengthen the maturity profile of domestic debt

· Regularly assess the domestic market rather than depending on the availability of external financing

· Develop a well-defined adjustment strategy for the central government for the return of refugees to Syria

· Distribute the burden of fiscal consolidation equitably – make adjustment more broad-based to minimize distortions and maintain competitiveness

· Anchor the medium-term fiscal strategy in tax reform

· Make the Liquefied Natural Gas terminal operational to reduce the large energy import bill

· Establish automatic tariff adjustment, in the form of a variable fuel surcharge

· Carefully monitor the implementation of the water strategy


Recommendation 2: Preserve buffers and financial stability

· Ensure monetary policy weighs the need to stimulate economic activity

· Host supervisory college for Arab Bank


Recommendation 3: Foster inclusive growth and job creation

· Review why long-standing reforms have stalled and whether there is a need to revamp the agenda

· Work with parliament to expedite approval of laws on investment, secured lending, insolvency and PPPs

· Approve any new incentive only after cost-benefit analysis

· Clarify the National Employment Strategy’s implementation status and step up engagement with international institutions

· Strengthen public institutions to help improve perceptions and support greater political involvement through more transparency and accountability


Report Name



2014 IMF-Article IV-Jordan


Not Relevant


Supporting Donor

International Monetary Fund (IMF)

International Monetary Fund


Lead Ministry


Not Relevant

Key Topics

Banking sector – Deficit – Energy – Financial Stability – Fiscal Consolidation – Growth –Inflation – Job Creation –Labor policy – PPPs – Reforms – Refugees – Subsidies – Tax Reform – Unemployment – Water

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