Jordan Gets $2.0 Billion IMF Loan to Support Economy

Country hit hard by adverse external shocks, affecting energy imports, tourism, remittances, and foreign investment

Jordan’s program designed to address these shocks

While protecting the vulnerable and fostering high and inclusive growth

Jordan, facing a series of economic shocks that have hurt energy imports, tourism, remittances, and foreign investment, has drawn up a national program designed to address its fiscal and external imbalances.

The IMF Executive Board approved a 36-month Stand-by Arrangement for Jordan amounting to about $2.05 billion, subject to quarterly reviews.

Kristina Kostial, the IMF mission chief to Jordan, explained to IMF Survey magazine the underlying reasons for the loan and discusses the overall economic outlook for the Middle East country, which has a population of about 6.5 million.

IMF Survey: Why does Jordan need IMF assistance?

Kostial: The Jordanian authorities plan an ambitious fiscal consolidation to reduce public sector financing needs, and lower public debt, which is carefully balanced against the risk of a recession and social acceptance.

The loan will provide the necessary liquidity to help Jordan get through a difficult period and make adjustments gradually.

IMF Survey: What put the economy under pressure?

Kostial: Jordan was hit by a series of external shocks in the past year. Repeated sabotage of the Arab Gas Pipeline in the Sinai Peninsula reduced the average daily flows of natural gas from Egypt. This necessitated an increase in imports of expensive fuel products for electricity generation while oil prices were high.

At the same time, regional tensions adversely affected tourism, remittances, and foreign direct investment. As a result, growth slowed significantly, investor confidence weakened, and the external current account deficit (including grants) widened to 12 percent of GDP in 2011 from 7 percent in 2010.

With the help of exceptionally large grants, fiscal policy accommodated the social impact of these shocks in 2011 and the authorities focused their attention on social policies, increasing commodity subsidies, other social spending, and also wages. Together with a weakening in domestic revenue, these measures raised the primary fiscal deficit (excluding grants) to 9.6 percent of GDP in 2011.

Expensive fuel imports also caused losses of the publicly owned National Electric Power Company (NEPCO) to increase to 4.9 percent of GDP in 2011 from 0.8 percent of GDP in 2010.

IMF...