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International Monetary Fund. Middle East and Central Asia Dept.

Kanakrieh, Central Bank Governor Fariz, Ministers of Planning and International Cooperation Fakhoury and Kawar, other senior government officials, the electricity company (NEPCO), the Water Authority of Jordan (WAJ), private sector representatives, local ambassadors and other members of the donor community, and representatives of civil society groups. Contents CONTEXT RECENT DEVELOPMENTS OUTLOOK AND RISKS PROGRAM DISCUSSIONS A. Fiscal Policy B. Electricity and Water Sector Policies C. Monetary and Financial Policy D. Structural Reforms to

International Monetary Fund. Middle East and Central Asia Dept.

Refugee Crisis and the Jordan Compact 2. Water Authority of Jordan’s (WAJ) Finances 3. Risk Assessment Matrix FIGURES 1. Monetary Developments, 2010–16 2. Banking and Financial Developments, 2005–16 TABLES 1. Selected Economic Indicators and Macroeconomic Outlook, 2014–21 2a. Central Government: Summary of Fiscal Operations, 2014–21 (In millions of Jordanian dinars) 2b. Central Government: Summary of Fiscal Operations, 2014–21 (In percent of GDP) 2c. Central Government: Summary of Quarterly Fiscal Operations, 2016–17 2d. NEPCO Operating

International Monetary Fund. Middle East and Central Asia Dept.

donor support through sufficient grants and concessional financing as stated in the Jordan Compact, will also be important to support program goals. “Public debt needs to be put on a downward path through gradual fiscal consolidation over the medium term while preserving essential social spending. To this end, it is critical to reduce the general sales tax and customs duty exemptions and to amend the income tax law. The electricity company NEPCO needs to reach operational cost recovery and Water Authority of Jordan’s finances should be consolidated. Public financial

International Monetary Fund. Middle East and Central Asia Dept.

of persistently high unemployment. Fiscal policy Measures have been taken to reduce the combined public sector balance from 4.3 percent of GDP in 2018 to 2.6 percent of GDP in 2019, which are described in the staff report. The most significant of these measures is the revision of the income tax law, supported by efforts to strengthen tax administration. Expenditures were also compressed, and steps were taken to ensure that the electricity company NEPCO does not incur operating losses. Continued fiscal consolidation in subsequent years is expected to put

International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Jordan’s Second Review under the Extended Arrangement under the Extended Fund Facility, Requests for a Waiver of Nonobservance of Performance Criterion, an extension of the arrangement, and rephasing of access. Discussions highlight that the Jordanian authorities have preserved macroeconomic stability, maintain a prudent monetary policy, and ensured a sound financial system. Jordan faces a challenging environment—including low economic growth, high unemployment, and elevated public debt—underscoring the importance of swiftly implementing policies and reforms to bring public debt on a downward path, boost investment and productivity, and enhance inclusive growth. The enactment of long needed growth-enhancing reforms is encouraging, including the secured transactions law, the bankruptcy law, and the business-inspections law. The international community has strongly supported the new government’s commitment to maintain the reform momentum, strengthen growth, and reduce public debt. The London Initiative in February 2019 has helped unlock essential budget grants and concessional financing to support the authorities’ reform program.
International Monetary Fund. Middle East and Central Asia Dept.

.0 0.8 Expenditure 2/ 28.3 30.7 29.7 29.2 29.6 29.8 29.2 29.2 29.1 Fiscal gap 3/ 0.0 1.5 0.0 0.0 0.7 1.7 2.9 2.9 2.9 Overall fiscal balance 4/ -2.2 -0.4 -3.3 -2.3 -2.3 -1.9 -0.7 -1.1 -1.3 Primary government balance (excluding grants) -1.7 -0.6 -3.0 -1.4 -0.7 0.4 2.1 2.1 2.1 NEPCO operating balance -0.1 0.0 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 WAJ overall balance -1.1 -1.2 -1.0 -1.1 -0.9 -0.8 -0.8 -0.7 -0

International Monetary Fund. Middle East and Central Asia Dept.

of the state-owned electricity company (NEPCO)) declined from 9.2 percent of GDP in 2014 to 6.1 percent of GDP in 2015, well above the 3.5 percent of GDP deficit projected under the SBA (text table). As a result, gross public debt reached 93.4 percent of GDP at end-2015, substantially exceeding the authorities’ target of 90 percent of GDP. Several factors were at play: Revenue shortfalls and some expenditure overruns . A higher primary budget deficit reflected revenue shortfalls (lower oil-related general sales tax owing to lower oil prices, tax-free LNG