IMF approves $335.2m disbursement to Jordan after third review of loan programme

Washington-based lender's total disbursement to the kingdom since start of 2020 stands at $1.2bn

Tourists at the treasury site in the ancient city of Petra, Jordan. The IMF says the country needs more donor support with its nascent economic recovery facing headwinds from new Covid variants. ReutersShow less

The International Monetary Fund approved the disbursement of $335.2 million to Jordan, bringing its total pay-out to the kingdom since the start of 2020 to about $1.23 billion.

The move comes after the IMF’s executive board completed the third review of Jordan’s four-year $1.5bn loan programme. Total disbursements include a purchase of special drawing rights worth $407m in May 2020 under the rapid financing scheme, the Washington-based lender said in its January 2022 country report.

IMF special drawing rights are an international reserve asset created by the lender to supplement the official reserves of its member countries. They are the fund's unit of exchange and are made up of a basket of the world’s five leading currencies – the US dollar, the euro, the yuan, the yen and the British pound. SDRs are distributed to countries in proportion to their quota shares in the IMF.

The IMF’s SDRs help increase a country's international reserves and reduce their reliance on more expensive domestic or external debt.

"The gradual reopening of the economy in 2021, underpinned by a robust vaccination campaign and supportive policies, has helped spur a nascent recovery. However, unemployment has remained at high levels, particularly for youth and women," the IMF said.

"The fund’s financial support will help Jordan navigate these challenges and catalyse support from other development partners, which will be critical to enable Jordan to promote an inclusive recovery and build forward better, while continuing to host 1.3 million refugees."

The kingdom, which has scarce natural resources, over 1 million refugees from Syria and Iraq, relies on foreign aid and grants to finance its fiscal and current account needs. The government is trying to overhaul its economy and cut state subsidies as public debt and unemployment, already high before the Covid-19 pandemic, increased further.

Jordan’s economic recovery programme remains on track as continued progress on reforms have helped the country maintain macroeconomic stability despite these challenging circumstances, the IMF said in December. Fiscal targets have been amended to ensure adequate space for the extension of social protection and job retention programmes and priority public investments.

Jordan’s economy is forecast to grow 2.7 per cent this year and expand 3.1 per cent in 2023, from 2 per cent in 2021, as a nascent recovery is underway, the IMF said in its January report.

The country’s current account deficit is expected to increase to 9.7 per cent of its gross domestic product in 2021, revised upward from 8.3 per cent, the report showed.

However, the current account deficit is projected to decline to about 4.7 per cent of the GDP in 2022, which is still more than double the 2019 levels, on the back of stronger growth in export markets and the projected recovery in tourism and remittances, the IMF said.

Despite the nascent economic recovery, Jordan still faces some headwinds, according to the fund.

The emergence of new Covid-19 variants could delay the projected rebound in tourism and the service sector. Persistently high unemployment raises the risk of additional "economic scarring", particularly given the decline in labour force participation for young men, it said.

But the downside risks are "partially mitigated" by the Jordanian authorities’ commitment to the IMF-backed programme, additional donor support and a resilient financial sector, IMF said. On the upside, improving regional relations may boost exports, remittances and aid inflows.

Near-term policies must support the still-fragile economic recovery, address high unemployment and facilitate private-sector-led growth, while ensuring debt sustainability.

The IMF programme suggests a gradual fiscal consolidation in 2022, along with structural fiscal reforms to close tax loopholes, protect jobs, support the most vulnerable groups and mitigate fiscal risks.

Proactive measures are needed to preserve monetary stability and fiscal resilience, the fund said. Steps must be taken to ensure the electricity and water sectors' financial sustainability, while accounting for Jordan’s energy and water needs.

Continued structural reforms are also needed to boost job creation, competitiveness and governance, IMF said.