IMF loan helps Jordan over shock

Fiscal support and conditions attached to a planned IMF loan deal of about $2 billion may help to ease Jordan's perilous balance sheet slide, say analysts.

Jordanians queue to buy bread in Amman. A planned $2bn IMF loan would help towards reforming an economy creaking under the weight of subsidies for fuel, power and food. Eddie Gerald / Demotix

Fiscal support and conditions attached to a planned IMF loan deal of about US$2 billion (Dh7.34bn) may help to ease Jordan's perilous balance sheet slide, say analysts.

It is hoped the fund agreement will help towards reforming an economy creaking under the weight of hefty subsidies for fuel, power and food.

"It should help and give them some space and relieve some pressure from the local banks, which have been funding the government debt," said Rachel Ziemba, the director of Eastern Europe, Middle East and Africa and global macro-economics at Roubini Global Economics. While the size of the package, announced last week, is large relative to Jordan's modest quota at the IMF, the funds will not cover all the country's needs. Its annual subsidies bill alone is estimated at more than $3bn a year.

But the funding should assist in financing the current account deficit, expected to widen to 14 per cent of GDP this year.

Jordan's economy is reeling after a series of shocks starting with the Arab Spring last year. Protests flared in the country briefly and wider region, deterring investors and tourists, an important source of foreign exchange revenues.

Energy import bills also have risen after more than a dozen bomb attacks since early last year on the Egyptian gas pipeline that supplies Jordan.

More recently, an escalation of the conflict in Syria has hit Jordan's transport industry and sparked an influx of refugees.

"The IMF agreement will help stabilise price action, given the ongoing risks from external and domestic shocks," wrote Jonny Goulden and Brahim Razgallah in a JPMorgan research note last week.

But analysts say the deal may also be important in deflating a bloated public sector. Conditions attached to the three-year IMF programme are likely to require measures similar to an austerity drive unveiled by the government in May.

Those steps, which included electricity and fuel price rises and some tax increases, were "significant measures to bring the fiscal and energy policies to a sustainable path", the IMF said last week. It added the loan was partly designed to encourage further budget consolidation.

The government has already pledged to push ahead with further reforms on tax and spending. But unwinding Jordan's generous social safety net will not be easy. Street demonstrations were staged last year and this year by Islamist and tribal opposition groups angry at price rises.

Jordan is the first Arab country to formally request assistance from the IMF since the Arab Spring.

Egypt has flirted with IMF aid but recent presidential elections and the formation of a cabinet have hindered the process. This week the Egyptian finance minister Mumtaz Al Saeed said agreement on a possible $3.2bn loan deal was a priority.

In addition to Egypt, other Arab nations may also now be persuaded to follow Jordan's path.

"It begs the question of whether other Arab Spring countries, most notably Egypt and Tunisia, will follow the same route," Ms Ziemba wrote in a note last week.

"These countries, as well as Morocco, received pledges of more than $40bn at the 2011 Deauville [France] summit but recent research suggests only $18bn has been paid out.

"We expect that this money will trickle only slowly," she said.

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