IMF begins talks with Jordan for new three-year loan deal

The fund initially agreed a $723m financing package to support the kingdom in April 2016

TOPSHOT - Protesters raise their hands and wave flags near members of the gendarmerie and security forces during a demonstration outside the prime minister's office in the capital Amman late on June 3, 2018. Jordan's senate met on June 3 for a special session after another night of protests across the country against IMF-backed austerity measures including a draft income tax law and price hikes. Some 3,000 people faced down a heavy security presence to gather near the prime minister's office in Amman until the early hours of Sunday morning. / AFP / Khalil MAZRAAWI

The International Monetary Fund has begun talks with Jordan for a new, three-year financial assistance programme, noting the efforts the kingdom has made so far towards improving its fiscal position under its current financial support package.

In a statement following its recent visit to the kingdom, the Washington-based lender acknowledged improvements to Jordan's economy, but added that more needs to be done to reform the kingdom's electricity market and boost private sector growth.

"Inflation is low, the balance of payments has improved, and international reserves have recently rebounded. Moreover, the financial system remains stable and the authorities have taken important steps to improve the business climate, placing Jordan as one of the world’s top three improvers, according to the World Bank’s Doing Business Indicators," Chris Jarvis, an adviser to the IMF's Middle East and Central Asia Department, said in a statement at the end of the fund's Article IV mission visit.

The IMF and Jordan's government also agreed on priorities to maintain economic stability, boost growth, create jobs and strengthen social protection, he added.

"As these cannot be achieved fully in the space of the few remaining months of the current IMF-supported program, discussions began on a new three-year program that could be supported by the IMF," said Mr Jarvis, adding that the lender planned a return to Amman in January to continue talks.

Jordan has a $723 million (Dh2.66bn) extended fund facility from the IMF, which was agreed in 2016. The country's debt-to-GDP ratio ballooned to 103.2 per cent two years ago, but was pulled back to an estimated 84.9 per cent this year as a result of reforms.

Since 2010 Jordan's GDP growth has averaged at 2 to 2.5 per cent, and for 2019 the IMF has forecast growth of 2.2 per cent, up from 1.9 per cent last year. Growth is only set to edge up marginally to 2.4 per cent in 2020, according to the lender's Regional Economic Outlook published last month.

However, efforts to raise the country's tax base last year were met with protests that led to the resignation of former prime minister Hani Mulki and were subsequently cancelled. Jordan is not proposing any new taxes in its 2020 budget.

Reforms to the country's electricity sector are "vital", the IMF said, adding that a reduction of tariffs was needed as they were undermining the competitiveness of Jordan's businesses.

The fund also said "pro-employment reforms will be critical for inclusive growth and stability", praising a recent reform of the kingdom's social security laws and a new package of employment-based cash incentives.

"Measures to support financial sector development are also key in supporting inclusive growth, and continued implementation of the authorities’ financial inclusion strategy will help broaden financial access, especially for women, the poor, and small and medium enterprises," said Mr Jarvis.

Last week, ratings agency Moody's Investor's Service forecast moderate growth for Jordan of 2.4 per cent per year until 2022 in its annual update. It maintained a B1 rating with a stable outlook on the country's sovereign debt, saying reforms had been supportive of its credit profile.