The government is looking to reduce its debt burden and jumpstart the economy through a combination of budgetary adjustments, a new medium-term economic strategy, and international aid agreements.
In mid-May, the Cabinet announced its decision to cut this year’s JD8.8 billion budget by JD204 million.
In its original spending plan—effective since January 1—the state’s current expenditure was set at JD7.6 billion, with capital spending at JD1.22 billion. The cut, however, will see the former reduced by JD100 million and the latter by JD74.1 million.
The revisions come as part of a wider attempt to further reduce the Kingdom’s debt-to-GDP ratio, which has shown signs of improvement in recent months, falling from 95.1 percent at the end of last year to 94.1 percent by April, when debt stood at JD26.2 billion.
The recently released Jordan Economic Growth Plan (JEGP) 2018-22 looks to address the issue of debt and how to reinvigorate the economy, which has seen GDP growth fall from an average of 6.5 percent in the last decade to 2.5 percent between 2010 and 2016.
To achieve this, the plan lays out 95 policy actions and 85 government projects with an estimated cost of JD6.9 billion, as well as 27 private sector investments valued at JD9.4 billion.
Strategic sectors targeted for investment and reform under the plan are tourism, agriculture, manufacturing, electricity and water, transport, ICT, and construction.
The JEGP’s success will also be measured by the extent to which the aforementioned industries can contribute to improved employment rates, with unemployment climbing from 12.5 percent in 2010 to 15.25 percent last year – largely a result of the 1.3 million Syrian refugees that Jordan hosts, 90 percent of whom have entered the labor market.
The macroeconomic targets of the JEGP also dovetail with the longer-term blueprint Jordan Vision 2025, which was launched in 2015. While the 4.9 percent growth rate targeted this year under Vision 2025 does not look like it will be met, the JEGP aims to put the country back on track to achieving the 6.5 percent economic expansion laid out in the plan.
Figures from the Central Bank of Jordan show that in the first quarter of the year the Kingdom registered year-on-year GDP growth of 2.2 percent, with the IMF forecasting that growth will hit 2.3 percent this year, up from 2.1 percent in 2016.
Seen as a key facilitator of Jordan’s economic recovery, the IMF’s JD512 million, three-year extended fund facility (EFF) was approved in August of last year. A total of JD51.2 million of the EFF was disbursed immediately, with the remaining amount to be delivered over the duration of the program, subject to reviews.
The first of these was recently completed, with the IMF praising Jordan’s government for its commitment to following monetary policy and reducing the fiscal deficit. “The authorities are committed to continue with a gradual and steady fiscal consolidation to bring public debt towards more sustainable levels,” Mitsuhiro Furusawa, deputy managing director and acting chair of the IMF, said in a statement made last month. “To help public finances rest on a sounder foundation, the removal of exemptions on the general sales tax and custom duties will continue over the program period.”
To this end, further reforms planned under the JEGP involve creating a tax clearing house, simplifying customs procedures, and limiting tax evasion through the construction of an e-database and stricter penalties for avoidance.
Following last month’s review, the IMF released another JD50 million, bringing total disbursements under the program to roughly JD100 million.
Further support was received in mid-May, when the United States approved a JD900 million aid package for Jordan. According to Imad Fakhoury, the minister of Planning and International Cooperation, the money will help support the development of the strategic sectors targeted by the JEGP.
The United States has not been Jordan’s only external benefactor in recent months, as at the end of June, the Kingdom signed agreements totaling around JD37.5 million with the World Bank and the Japan Social Development Fund (JSDF).
The World Bank deal comprised a JD25.6 million soft loan and a JD9.9 million grant from the Concessional Financing Facility—launched last year by the bank—and will be funneled toward the budget. While the JSDF’s JD2 million grant will help provide integrated social services for programs targeting Jordan’s youth.
This Jordan economic update was produced by Oxford Business Group.