IMF board approves $1.3 billion loan to Jordan

Facility may be adapted to help the kingdom support its people in the wake of the coronavirus pandemic

Jordanian police officers are seen at a checkpoint as people walk in the street after Jordan announced it would allow people to go on foot to buy groceries in neighborhood shops, amid concerns over the spread of coronavirus disease (COVID-19), in Amman, Jordan March 25, 2020. REUTERS/Muhammad Hamed
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The International Monetary Fund’s board approved a four-year $1.3 billion (Dh4.8bn) loan programme for Jordan, which is battling the coronavirus pandemic.

The extended fund facility programme is anchored by the kingdom’s structural reforms designed to lower electricity costs for businesses, fuel economic growth, create jobs for women and the youth and reduce poverty, the Washington-lender said.

“Although understandings were reached on Jordan’s IMF-supported economic reform programme before the Covid-19 outbreak reached Jordan, it is designed to support spending to contain and treat the virus; if needed, it may be adapted further to the changed circumstances to ensure sufficient support for the people,” the IMF said in a statement late Wednesday.

The kingdom, which has one of the smallest economies in the Arab world and imports more than 90 per cent of its energy needs, relies on foreign grants and loans to finance its budget deficit. Jordan reached the four-year funding agreement with the IMF in January. The facility aims to help the country secure lower servicing costs for the $42bn in public debt that the country holds, which has spiralled in the last decade as a result of the spillover of regional conflicts on its economy.

The coronavirus will impact Jordan's economy “as tourism inflows, which account for around a third of goods and services exports, will be slashed to nought”, Emirates NBD said in a note on Thursday. “Nevertheless, for now we see no risk to the dinar's peg given reserves remain robust at around seven months of import cover, and the IMF has been a longstanding and vocal supporter of maintaining the current exchange rate.”

The kingdom has reported 172 infections to date, according to Johns Hopkins University, which is tracking the coronavirus outbreak, and initially imposed a round-the-clock curfew to stem the spread of Covid-19, but then relaxed some of the measures.

“Continued support from donors, particularly through concessional loans and budget grants, will be critical to help Jordan cope with humanitarian and economic needs,” the IMF said.

Measures taken by the Central Bank of Jordan, including reducing the benchmark interest rate and relaxing lending conditions, will help soften the impact of the coronavirus outbreak on Jordan's economy and minimise asset quality erosion in the banking system, Moody’s Investors Service said this month.

Although weaker economic activity as a result of the virus in the first half of the year is "credit negative" for lenders, the central bank's measures will help Jordanian banks to "curb losses incurred during the coronavirus shutdown", Moody's said.

The IMF said improving the kingdom’s fiscal situation is needed “to stabilise and bring public debt towards more sustainable levels”. The IMF programme for Jordan, which was designed before the Covid-19 outbreak, has been adapted to support unbudgeted spending covering emergency outlays and medical supplies and equipment, the lender said.

“If the impact of the outbreak is deep enough to put at risk programme objectives, the programme will be adapted further to the changed circumstances, upon reaching understandings with the authorities,” the IMF said.

About $139.23 million is available for immediate disbursement; the remaining amount will be phased out over the duration of the Fund-supported programme, subject to eight program reviews, the fund said.