Jordan has continued to preserve macroeconomic stability in a difficult environment, but it will still need substantial donor involvement in the upcoming stage, the International Monetary Fund (IMF) said in a report released on Wednesday.
The IMF report, which indicated that global, regional and domestic conditions are expected to remain difficult, highlighted that Jordan will continue to face the burden of hosting Syrian refugees at a time of low growth, high unemployment and sizeable financial needs.
“The recent London initiative demonstrated that the international community is determined to continue to support Jordan in its efforts to tackle rigidities, reform the economy, and reduce its indebtedness,” the report said.
Implementation of the conference’s outcomes will be key to preserve stability and enhance growth and employment, boost the government’s reform efforts, and the fulfilment of pledges on the part of the donor community, according to a copy the report e-mailed to The Jordan Times.
Jordan has weathered a series of severe and highly persistent shocks for several years now, including protracted regional conflicts, the hosting of Syrian refugees, the disruption of critical export markets and transportation routes and rising borrowing costs, the report highlighted.
“Fiscal consolidation helped lower the combined public-sector deficit in 2016 and 2017, and monetary policy has maintained financial stability in the face of significant uncertainty, while also keeping credit flowing to the private sector. All these measures helped maintain steady economic growth at around 2 per cent, which, however, is insufficient to reduce high unemployment,” according to the report.
While the challenges facing Jordan remain important and pressing, the new government has tried to revive the momentum for reform, and there have been some important signs of an upturn in tourism and exports — the latter facilitated by the reopening of the Iraq border, the report indicated.
The IMF stressed that the steadfast implementation of policies and reforms is critical for stability and growth, adding that Jordan’s programme is rightly focused on addressing lingering issues.
“Policies should remain focused on a gradual and steady fiscal consolidation to put Jordan’s high level of public debt on a steady downward path, as well as on comprehensive reforms to enhance business conditions and employment prospects,” the report added.
“At the same time, higher emphasis is placed on improving social protection, with the expansion of spending on health and education, and better targeting spending at vulnerable groups,” the report stated, adding that “unwavering implementation” is key to avoid further potential fiscal slippages, operational pressures in the National Electric Power Company (NEPCO), unfavourable refinancing conditions and possible delays in donor financing, all of which would adversely impact debt sustainability.
According to the IMF report, a key priority for 2019 is the resolute implementation of Jordan’s new Income Tax Law, together with a significant strengthening of tax administration.
Stressing the importance of the legislation, which went into effect at the beginning of the year, the IMF added that the law’s success will require strict implementation of measures to enhance tax administration, as well as measures to lessen incentives and increase penalties for tax evasion.
“Steadfast implementation should also reassure private investors and the international community that, despite its elevated public debt level and difficult environment, Jordan has the resolve and capacity to preserve its macroeconomic stability and creditworthiness in the years ahead,” the global lending body said.
Jordan should also take decisive action to reduce business costs and boost employment, it added.
“There is an urgent need for upfront macro-critical reforms to reduce the cost of formal jobs and to lower energy costs. In this regard, the roadmap for restructuring NEPCO is important and needs to be implemented as swiftly as possible,” the report stressed.
To ensure a lasting improvement in NEPCO’s operational balance, efforts to eliminate large cross subsidies need to be front-loaded and supported by a consistent implementation of the tariff adjustment mechanism, according to the report.
In addition, donor support is needed to lessen the impact from the company’s legacy debt, while addressing high electricity costs for businesses is critical to bolster investment and promote jobs, it stressed.
In its report, the IMF said monetary policy has been appropriately focused on maintaining price and financial stability, as well as a comfortable reserves level.