Jordan, July 25, 2017
Jordan: IMF Executive Board Concludes 2017 Article IV Consultation

On June 21, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Jordan.

Jordan has made significant progress since the 2014 Article IV Consultation but pressing challenges remain. The gradual pick-up in growth from 2010 to 2014 ended in 2015, with real GDP growth decelerating from 2.4 percent in 2015 to 2 percent in 2016. The slowdown in 2016 was broad-based, with activity slowing in agriculture, construction, and mining. Inflation accelerated since mid-2016 to reach 4.6 percent (year-on-year) in February 2017, due to the recovery in global oil and food prices, as well increased fuel excises and the removal of general sales tax exemptions. Inflation has since eased, to 3.7 percent (year‑on-year) in May. Labor market conditions have remained challenging, particularly for youth and women, with the unemployment rate increasing to 15.8 percent in the second half of 2016 and to 18.2 percent in the first quarter of 2017, reflecting some methodological changes. The current account deficit (excluding grants) was 12.6 percent of GDP in 2016, slightly higher than in 2015, reflecting the challenging regional conditions, the Syrian refugee crisis, and the slowdown in the Gulf Cooperation Council (GCC), which have affected exports, remittances, and other flows. The Central Bank of Jordan (CBJ) has gradually increased its policy rates since late 2016 amid increasing dollarization, which has stabilized more recently, and higher U.S. policy rates, helping to maintain reserves at close to eight months of imports.

Despite considerable progress and recent improvements, the outlook remains challenging. Indicators for the first few months of 2017 show an important recovery in exports, tourism receipts, and remittances relative to 2016. Real GDP growth is projected to reach 2.3 percent in 2017, while inflation is expected to stabilize at around 2.5 percent by year-end. The current account deficit is expected to decline gradually, supported by structural reforms and fiscal consolidation.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for preserving macroeconomic stability and external viability, reducing the fiscal deficit, maintaining prudent monetary policy, and ensuring a sound financial system. Directors acknowledged the challenging environment facing the Jordanian economy, including below‑potential economic growth, high unemployment, and difficult social conditions. They stressed the importance of implementing policies and reforms to bring public debt toward more sustainable levels, boost investment and productivity, and enhance inclusive growth.

Directors supported the continued gradual and steady fiscal consolidation. They were encouraged by the authorities’ commitment to continue to remove exemptions on the general sales tax and customs duties. They underscored the need to support these efforts with reforms to tackle tax evasion and increase compliance, rationalize expenditures while strengthening social safety nets, contain contingent liabilities and enhance oversight of PPPs, sustain reforms in the energy and water sectors, and improve debt management. They stressed that these reforms are crucial to preserve macroeconomic and external stability, place public finances on a sounder foundation, and lessen risks to debt sustainability.

Directors generally considered the monetary policy stance to be appropriate and that the exchange rate peg continues to be an important anchor for the economy, and urged the authorities to stand ready to increase interest rates in the event of persistent pressures on international reserves. A number of Directors considered that there might be a need to consider recalibrating policies to facilitate the external adjustment over the medium term, if the challenging external environment persists.

Directors welcomed ongoing reforms to preserve the financial sector’s resilience, notably the gradual adoption of Basel III and the decision to complement it with an additional capital buffer. These steps, along with the high levels of capitalization of banks, will provide buffers to deal with a broad range of shocks. Directors emphasized the need to continue to monitor interest rate risk and the rapid increase in household credit, and took positive note of ongoing plans to strengthen the supervision of insurance companies and microfinance institutions. Directors also encouraged the authorities to continue to strengthen implementation of the AML/CFT framework.

Directors stressed the need for reforms to enhance competitiveness and inclusive growth. The development of a financial inclusion strategy, along with greater facilities to support credit and enactment of the secured transactions law, would help enhance access to finance and support investment. Simplifying regulatory processes and enacting the inspection law would also improve the business environment. Directors called for advancing reforms to lower the formal cost of labor to promote greater employment opportunities, particularly for young people and women.

Directors called for greater donor assistance to help Jordan cope with the refugee crisis and support the program’s debt reduction and inclusive growth objectives.

Jordan: Selected Economic Indicators and Macroeconomic Outlook, 2014–22

EFF

Prel.

Projections

7/18/2017

2014

2015

2016

2016

2017

2018

2019

2020

2021

2022

Output and prices

(Percentage change, unless otherwise indicated)

Real GDP at market prices

3.1

2.4

2.8

2.0

2.3

2.5

2.7

2.9

3.0

3.0

GDP deflator at market prices

3.4

2.3

2.2

1.0

2.2

2.5

2.5

2.5

2.5

2.5

Nominal GDP at market prices

6.6

4.7

5.0

3.0

4.6

5.1

5.3

5.5

5.6

5.6

Nominal GDP at market prices (JD millions)

25,437

26,637

27,972

27,445

28,705

30,170

31,759

33,497

35,365

37,336

Nominal GDP at market prices ($ millions)

35,878

37,570

39,453

38,709

40,487

42,553

44,794

47,246

49,880

52,660

Consumer price inflation (annual average)

2.9

-0.9

-0.5

-0.8

3.3

1.5

2.5

2.5

2.5

2.5

Consumer price inflation (end of period)

1.7

-1.6

1.2

0.8

2.5

2.5

2.5

2.5

2.5

2.5

Unemployment rate (period average, percent)

11.9

13.1

...

15.3

...

...

...

...

...

...

(In percent of GDP, unless otherwise indicated)

Fiscal operations

Revenue and grants

27.9

25.0

25.8

25.6

27.9

28.8

27.7

27.7

27.8

27.8

Of which: grants

4.9

3.3

3.2

3.1

2.9

3.8

2.7

2.7

2.7

2.7

Expenditure 1/

38.0

30.1

29.6

28.9

30.4

30.7

30.9

30.4

30.3

30.1

Fiscal gap 2/

0.0

0.0

0.0

0.0

0.0

1.5

3.0

3.9

3.9

3.9

Overall fiscal balance

-10.3

-5.3

-3.8

-3.2

-2.5

-0.4

-0.2

1.3

1.4

1.6

Primary government balance, excl. grants, NEPCO, and WAJ

-4.6

-5.1

-3.7

-3.2

-2.0

-0.6

0.7

2.4

2.4

2.4

NEPCO operating balance

-4.6

-0.9

0.0

0.4

0.0

0.0

0.0

0.0

0.0

0.0

WAJ overall balance

-1.0

-1.1

-1.3

-1.0

-1.2

-1.2

-1.1

-1.2

-1.2

-1.2

Combined public sector balance 3/

-10.2

-7.1

-5.0

-3.8

-3.2

-1.8

-0.5

1.2

1.3

1.3

Government and government-guaranteed gross debt 4/

89.0

93.4

94.4

95.1

95.6

93.5

90.8

86.2

81.6

77.0

Of which: external debt

31.2

35.2

36.9

37.5

40.7

43.0

45.3

45.7

45.9

45.4

External sector

Current account balance (including grants), of which:

-7.3

-9.1

-9.0

-9.3

-8.4

-8.3

-7.6

-7.0

-6.4

-6.2

Exports of goods, f.o.b. ($ billions)

8.4

7.8

7.5

7.5

7.8

8.2

8.7

9.3

9.8

10.5

Imports of goods, f.o.b. ($ billions)

20.4

18.2

17.7

17.1

17.5

17.9

18.6

19.5

20.3

21.1

Oil and oil products ($ billions)

5.5

3.1

2.7

2.4

3.1

3.2

3.3

3.4

3.6

3.6

Current account balance (excluding grants)

-12.6

-12.3

-12.5

-12.6

-11.7

-11.3

-10.4

-10.1

-9.7

-9.5

Private capital inflows (net)

5.8

4.3

4.2

4.8

3.4

4.7

5.3

5.5

5.3

5.2

Monetary sector

(Percentage change)

Broad money

6.9

8.1

7.6

4.0

4.4

5.1

...

...

...

...

Net foreign assets

15.4

3.5

5.5

8.2

6.6

11.2

...

...

...

...

Net domestic assets

4.0

9.8

8.3

2.5

3.6

2.8

...

...

...

...

Credit to private sector

3.7

4.8

10.2

10.1

9.1

7.8

...

...

...

...

Credit to central government

2.3

-1.8

1.7

-9.5

-5.7

-15.4

...

...

...

...

Memorandum items:

Gross usable international reserves ($ millions)

14,973

15,678

15,888

14,454

14,778

16,003

17,268

18,330

19,501

20,499

In months of prospective imports

7.9

8.7

8.4

7.8

7.7

8.1

8.4

8.6

8.8

8.9

In percent of reserve adequacy metric

136

136

130

122

117

120

120

122

125

125

Net international reserves ($ millions)

13,374

13,589

13,894

12,654

13,084

14,499

16,050

17,304

18,510

19,637

Population (millions) 5/

7.4

7.6

7.7

7.7

7.9

8.0

8.1

8.2

8.2

8.3

Nominal per capita GDP ($)

4,838

4,947

5,092

4,996

5,140

5,329

5,544

5,785

6,049

6,331

Real effective exchange rate (end of period, 2010=100) 6/

113.0

117.5

121.2

Percent change (+=appreciation; end of period)

6.9

4.0

3.1

Sources: Jordanian authorities; and Fund staff estimates and projections.

1/ Includes net lending, transfers to NEPCO and WAJ, and other use of cash.

2/ Estimated amount of fiscal measures that will need to be taken by a given date to meet the program public debt reduction objectives.

3/ Defined as the sum of the primary central government balance (excl. grants and transfers to NEPCO and WAJ), NEPCO operating balance, and WAJ overall balance.

4/ Includes NEPCO and WAJ debt.

5/ Data from UN population division.

6/ INS data. CBJ staff's estimates, based on updated trade weights, shows a more moderate pace of real appreciation over the past few years.

Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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