Jordan’s economic recovery programme remains on track as continued progress on reforms have helped the country maintain macroeconomic stability despite challenging circumstances, according to the International Monetary Fund.
The Washington-based fund remains committed to supporting Jordan and has revised IMF-supported programmes' targets for 2022 to allow fiscal space, entrench the nascent economic recovery, support investment and protect jobs, the IMF said in a statement on Tuesday.
The IMF-supported programme will continue to accommodate higher-than-expected spending related to the pandemic, the fund said at the conclusion of its third review of Jordan’s extended arrangement.
“Despite challenging circumstances, sound policies have helped maintain macroeconomic stability, and the structural reform momentum has endured,” said Kenji Okamura, the IMF’s deputy managing director. “In addition, a robust vaccination campaign helped underpin a gradual reopening of the economy and usher in a nascent recovery.”
The IMF has so far disbursed about $1.2 billion to Jordan since the start of the Covid-19 pandemic, including a purchase of special drawing rights worth $407 million in May 2020 under the Rapid Financing scheme. However, continued donor support remains critical to sustain economic recovery of a country that hosts 1.3 million Syrian refugees.
The kingdom, which relies on foreign aid and grants to finance its fiscal and current account needs, is trying to overhaul its economy and cut state subsidies as public debt and unemployment rises.
Jordan’s economy is set to grow 2 per cent in 2021 and 2.7 per cent next year, however, it faces headwinds, the IMF said in November.
The gradual reopening of the economy in 2021, underpinned by a rapid vaccination campaign and supportive policies, has helped spur recovery. But unemployment still remains high. The current account deficit has widened owing to higher international fuel prices and intermediate imports, and raising gross financing requirements for 2021-22.
The country’s current account deficit is expected to increase to around 9.5 per cent of its gross domestic product in 2021, but is expected to decline to less than 5 per cent in 2022.
New Covid variants also pose “downside risks and significant economic slack remains, presenting risks of economic scarring”, Mr Okamura said.
“In the near term, a key priority is to entrench the still-nascent recovery, arrest high unemployment and protect the most vulnerable.”
Jordan’s fiscal targets for the next year have been amended to create adequate space for the extension of social protection and job retention programmes and for priority public investment. The IMF-supported programme still aims to bolster public debt sustainability and rebuild fiscal buffers.
“Advancing several legislative reforms to broaden the tax base and close tax loopholes remains critical, as are continued efforts to enhance the efficiency and transparency of public finances,” Mr Okamura said.
The IMF said the prospects for “durable and inclusive growth” rest on continued progress on reforms to increase employment, boost labour market flexibility, reduce the cost of doing business and strengthen governance and transparency.
The authorities are already preparing for the introduction of an electricity tariff reform aimed at reducing high business costs in a revenue-neutral manner, the IMF said.
Jordan's monetary policy stance is appropriate and should remain flexible and data driven, which supports its currency peg, the fund said.
“While the financial sector remains sound, continued vigilance is warranted given that the full effects of the pandemic may not yet be reflected in banks’ asset quality,” Mr Okamura said.