The IMF Executive Board approved on July 31 the final review under the $2 billion Stand-By Arrangement agreed in 2012. With the Board’s approval of the final disbursement of about $400 million, Jordan becomes the first Arab country in transition to successfully complete an IMF-backed program.
In an interview, IMF mission chief Kristina Kostial discusses the country’s achievements over the course of the three-year program and the challenges that lie ahead.
IMF Survey : Why did Jordan need a program?
Kostial: In the run-up to the program, Jordan was hit by a series of exogenous shocks. Jordan had been getting gas below market price from Egypt, but that supply of gas, which was used to generate electricity, was disrupted because of repeated sabotages of the Arab Gas Pipeline. Jordan thus had to substitute expensive fuel products for this gas, with the result that the electricity company began to run large losses amounting to 5 percent of GDP in 2011.
On top of that, the “Arab Spring” started that same year, and in response the Jordanians increased current spending, including through higher subsidies and wages. As a result, the central government’s fiscal deficit increased by 5 percent of GDP. So they had an expansion in the combined public sector deficit (central government deficit plus losses of the electricity company) by about 10 percent of GDP in just one year. Despite a large grant from donors, Jordan had difficulty financing this gap, and the central bank was losing reserves. That’s when the authorities sought IMF assistance.
IMF Survey: But once the program was agreed, the economy continued to sustain shocks that no one anticipated.
Kostial: During the course of the program, Jordan was hit by further shocks, the worst being the Syrian refugee crisis. Jordan has received a huge flow of refugees— the authorities estimate that there are more than one million refugees, or about 20 percent of Jordan’s population. On top of that came the emergence of the Islamic State in Iraq and the Levant (ISIS). Iraq is Jordan’s largest trading partner and the destination of some 20 percent of its exports. There have been a lot of disruptions to these exports as well...