Jordan sees new IMF deal on the horizon
Amman - The International Monetary Fund (IMF) is seeking a strong reduction in Jordan’s public debt, which reached a record $35.1 billion at the end of January, representing 93.6% of gross domestic product (GDP), according to the Finance Ministry.
The cash-strapped kingdom and the IMF have been engaged in negotiations for six months over a new credit facility. For the programme to go ahead, the IMF wants the government to present its plan for reducing public debt to 80% of GDP by 2021. The IMF also requested a plan for increased revenue generation, according to sources.
“We expect to finalise a deal with the IMF in July this year. This is very important for us,” said Jordanian Finance Minister Omar Malhas.
“This agreement would give the kingdom access to hundreds of millions of dollars in cheaper financing, which in turn would help Jordan obtain financing from donor countries and international agencies as well.”
Under the proposed programme, the IMF will deposit $700 million-$800 million in the Central Bank of Jordan to ease pressure on the country’s financial systems.
The IMF demands prompted Amman to seek support from major allies, such as France and the United States, during negotiations with the fund.
“Getting a deal will not be an easy task but we must do it,” Malhas said.
The IMF programme will include fiscal reforms and structural adjustments that target increasing the percentage of women in the labour market, reducing youth unemployment and changing relevant laws and legislation to improve the overall business environment.
“We need more reforms to trigger economic growth,” Malhas insisted.
Jordan and the IMF concluded a three-year deal last August, which gave the kingdom access to about $2 billion.
A World Bank report expects the kingdom’s GDP to improve by 3% in 2016, up from 2.4% growth in 2015, which was the slowest pace of growth in four years.
The spillover from the conflict in Syria and Iraq has increased in the past year, affecting tourism, construction, investment and trade, the World Bank’s MENA Economic Report, Spring 2016 said, adding that unemployment rose to 13% in 2015, an increase of 1.1% compared to 2014.
“There is a decline in the number of tourists and a drop in remittances by Jordanians, coupled with dwindling exports and foreign direct investments,” said economist Isam Qadamani.
He noted that the borders with Syria and Iraq, which used to be lucrative markets, are closed, limiting routes available for Jordanian products bound for Europe.
“Jordan needs to obtain economic growth of around 5%, which is double the population growth, to create more jobs and address unemployment,” Qadamani said.
He stressed the need to focus on vocational training and the adoption of practices and policies to make the Jordanian economy more competitive.
“The government has to control its spending to curb the deficit and also has to legislate growth-oriented policies by reducing taxes in order to encourage the private sector to create more jobs,” said banker Khaled Muhiesen.
The government also needs to lower tax rates on businesses and individuals, as it did in 2010, to stimulate the economy, he said.
“To address public debt you have to maximise revenues but not by increasing taxes because that only harms the economy even more, as businesses and consumers hold on to valuable liquidity,” Muhiesen said. Revenue generation from investments that could be attracted with legislation, regulations and better business practices in addition to offering lucrative tax rates would be the way to go, he said.
“The government could also look into debt for development swap and debt forgiveness agreements with creditors as the per capita income in the kingdom has slumped,” said Muhiesen.
Public opinion views about the programme has been mixed.
“The success of the IMF reform programme will serve the Jordanian economy well and rid it of undeniable distortions and weaknesses,” said Ziad Abu Hammouti, a resident of Amman. “Jordan needs financial support to withstand the heavy burden of the thousands of Syrian refugees it hosts.”
Others were not so trusting.
“The only thing this programme will do is make our lives more miserable and allow the government and its wasteful partners in crime to spend more and more while we get less and less,” a young man said on condition of not being named.