Jordan’s International Monetary Fund-supported funding programme and reforms are “on track”, despite higher oil and commodity prices, but the country requires additional financing amid rising global risks that could pose economic headwinds, the Washington-based lender has said.
To meet the kingdom’s higher external financing needs, the fund proposed disbursing an additional $165 million in 2022, “including an augmentation of access of around $100m”, it said after the completion of its fourth review of Jordan’s loan programme.
With the disbursement of additional funding, total IMF financial assistance to Jordan under the four-year agreement, which runs until 2024, will rise to $2 billion.
This includes the $407 million Jordan received in May 2020 under the IMF’s rapid financing programme.
Jordan received an additional $469m as its share of the IMF’s general special drawing rights allocation in August 2021.
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. They help to increase a country's international reserves and reduce its reliance on more expensive domestic or external debt.
The kingdom, which has limited natural resources and imports more than 90 per cent of its energy needs, hosts more than three million refugees from Syria, Iraq and Palestine.
It relies heavily on foreign aid and grants to finance its fiscal and current account needs.
Jordan is trying to cut state subsidies and reduce its large public debt as part of its economic overhaul drive.
“Robust concessional support from donors remains crucial, especially as global risks are elevated,” said S Ali Abbas, who led the IMF staff mission to Jordan.
“Jordan continues to bear a disproportionate burden in supporting and hosting 1.3 million Syrian refugees, including providing all residents equal access to vaccination.”
The country has delivered “notably strong performance” on domestic revenue mobilisation and authorities have managed to navigate significant economic challenges related to the pandemic while protecting critical social and health spending and enacting key structural reforms.
The kingdom's economy is recovering with the help of fiscal and monetary measures.
“A stronger rebound in tourism receipts and robust exports” will help to narrow Jordan's current account deficit to 6.5 per cent of GDP in 2022, from 8.8 per cent last year, the IMF said.
The country’s economy is forecast to expand by about 2.4 per cent in 2022, lower than an earlier 2.7 per cent estimate, the fund said. Gross domestic product will rise to above 3 per cent over the medium term.
However, this year's deficit will be at a “somewhat higher level than previously expected, primarily reflecting more elevated fuel import prices”, Mr Abbas said.
Despite the challenging circumstances brought on by the pandemic, sound policies have contributed to macroeconomic stability.
The central government managed to narrow its primary deficit by 1.2 per cent of GDP to 4.5 per cent in 2021.
This year, revenue collection has remained robust and the authorities are on track to meet the 2022 target for the primary deficit — excluding grants — of 3.4 per cent of GDP.
Jordan’s international reserves are adequate, helped by “prudent monetary policies, a resilient banking system and robust external financing”, Mr Abbas said.
“New electricity tariffs were rolled out in early April, which will boost Jordan’s competitiveness by lowering the costs for businesses,” he said.
However, unemployment was already high before the Covid-19 pandemic and remains elevated, particularly among the youths. Inflation, which was contained in 2021, rose slightly this year to 3.6 per cent at the end of April, the fund said.
Jordan’s fiscal reforms have been focused on broadening the tax base and “going forward, it will be critical to maintain reform momentum”, Mr Abbas said.
The country’s long-term, fixed-price gas import contracts for electricity generation, as well as adequate wheat reserves to hedge against possible global shocks, means it is better placed than many emerging markets to deal with higher food and fuel prices.
However, it will be important to contain the cost of fuel subsidies while working to protect the most vulnerable.